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Friday, November 28, 2008

Blumenthal Warns on Gift Cards

Attorney General Richard Blumenthal today warned consumers to be especially wary of purchasing gift cards this holiday season because of the precarious financial condition of many large retailers and other businesses in bankruptcy and called for legislation to secure gift card value.

“In light of staggering consumer losses—more than $100 million this year alone—I will propose and advocate legislation requiring retailers to establish a special, separate account for money from purchases of gift cards, so the money can be held in escrow,” Blumenthal said.

“An alternative would be a state fund similar to the Home Improvement Guaranty Fund to provide for refunds in case of retail failures with money from fees paid by retailers.

“In the meantime, consumers can avoid January surprises by giving cash instead of cards, guaranteeing the full value of the gifts. Cold hard cash may be crass, but it’s forever.”

Blumenthal noted numerous national chains—Bombay, Sharper Image, Bennigan’s, Tweeters, Linens n’ Things—have gone or are going out of business this year, impeding or preventing consumers from redeeming gift cards.

With the weak economy, more chains and other businesses may go bankrupt or leave the state after the holidays, making gift cards riskier than ever, he said.

If consumers purchase gift cards, Blumenthal offered these tips:

  * Use a credit card, which provides a better chance of recouping money if the business closes or leaves the state;

  * Avoid buying gift cards from businesses reported to be in financial difficulty;

  * Read the fine print—before purchasing a gift card—for expiration dates or dormancy fees;

  * Use a gift card as soon as possible.

Blumenthal added, “Consumers should be wary of buying gift cards, especially this holiday season when so many businesses are struggling.

“Countless consumers are stuck with worthless cards and certificates. Bankrupt retailer Tweeter recently threatened to default on its gift cards, only to honor them after my office intervened. Post-holiday store closings can turn treasured presents into valueless plastic overnight.

“Consumers who buy gift cards and certificates should take some simple precautions, including purchasing them with credit card. Avoid buying cards from retailers facing financial trouble. Never buy gift cards from retailers in Chapter 11 reorganization, like Circuit City. Look for dormancy fees and expiration dates. Most important, if you receive a card, use it as quickly as possible.

“According to research by Tower Group, gift card holders lost $100 million this year alone, largely from bankruptcies of large retailers like Sharper Image, Linens N’ Things and Bombay Company. Consumer Reports estimated that 24 percent of people who received a gift card last year still haven’t used it.”

Blumenthal noted Connecticut law prohibits expiration dates and dormancy fees on gift cards, but warned that some large retailers circumvent the law by issuing cards through a national bank. Before purchasing a card, consumers should make sure state bans on expiration dates and dormancy fees apply.

Blumenthal said that consumers must file claims in bankruptcy court to attempt to recoup any value on gift cards issued by defunct businesses that have filed for bankruptcy. There is no guarantee that consumers will get any money back from the bankruptcy process.

Redemption can be even harder if the business does not file for bankruptcy, but instead just goes out of business.

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Posted 11/28/08 at 11:05 PM  Permalink



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