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Simplify gift cards' fine print now; here's how
Understanding the fine print on a gift card is hard. Trust me, I've spent the better part of a month looking through more than 60 examples.
But after weeks of deciphering Web pages, calling toll-free customer service numbers or even calling or visiting individual stores while researching CreditCards.com's 2011 gift card survey, I think I have a solution for the problem.
I call it the Schulz Box.
I was inspired by what's known in industry circles as the Schumer Box -- the federally mandated box in every credit card's terms and conditions that includes many key details of your card's fine print in one relatively easy-to-understand, standardized format. (It's named after U.S. Sen. Chuck Schumer, a New York Democrat, who spearheaded the legislation.) There's not anything similar for gift cards, but there should be. After all, the gift card industry is expected to generate $100 billion in sales by 2012, according to research firm TowerGroup.
The Credit CARD Act of 2009 required gift card issuers to add more disclosures. For example, any service charges must be listed and include the amount and the frequency.
But as I discovered in surveying gift cards' terms and conditions, virtually every business handles this in different ways. Some just offer a vague paragraph with a few key details, some go into excruciating detail and others are somewhere in between. Very few, if any, do it right.
That's why I suggest something like this:
There are plenty of other questions that people want to know about gift cards, but these five are the most crucial. Why? Because they're all about the money. It's nice if the gift card looks interesting or is available on your mobile device or offers free shipping, but a gift card giver and recipient really just want to know that the gift card will be used to its maximum value. This box can help that. And if you still have other questions, the card issuer's contact information is clearly visible at the bottom of the box.
Don't expect to see something like this become reality anytime soon, though. The gift card industry has a vested interest in keeping people in the dark. That's because retailers and other gift card issuers count on a certain percentage of gift cards going unused, forgotten or just ignored. They call these unused funds "breakage," and it amounts to free money for retailers. For example, say you get a $50 gift card to a clothing store that you rarely visit. You might go to the store and find a $40 shirt that you really like, but the remaining $10 on the card may go forgotten and unused. That $10 amounts to a 20 percent profit for the retailer. ($10 out of $50 is 20 percent.) That's part of why retailers love gift cards, and part of why they want to keep you in the dark. However, clearer disclosures would help bring gift cards more into the light, and that would be a very good thing for consumers.
The Schumer Box has been a good thing for consumers. While much of your credit card terms and conditions is still an indecipherable mess, many of the most crucial terms -- your APR, your annual fee, your penalty APR -- are easy to find in a big block at the top of the document. The respected Pew Charitable Trusts earlier this year proposed a similar model disclosure form to simplify obtuse checking account offers.
It's way, way past time for something like this to be available when you buy a gift card.
See related: 2011 gift card comparison chart from CreditCards.com, 18 ways to get gift cards for less
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