Gift card industry riddled with inconsistencies: Report

Promoting gift cards as the perfect present could be a risk, with a new report revealing the industry is fraught with inconsistencies, affecting card issuers as well as consumers.

According to an issues paper titled Gift cards in the Australian market, by the Commonwealth Consumer Affairs Advisory Council, Australians spend $1.5 billion a year on gift cards.

Michael Fox, co-founder of online shoe retailer Shoes of Prey, says gift cards represent a key sales strategy for the company during the Christmas trading period.

“In December last year, we did twice as many sales as November last year. We sold the same number of shoes but far more gift certificates,” Fox says.

Similarly, retail expert Deb Templar says gift cards are an ideal way to spark Christmas sales because they can be “drawn up quickly”.

But the CCAAC report said the system has become flawed as retailers compete to offer “more attractive branded gift card products”.

“It is important to note that the person who experiences these difficulties is not usually the person who purchases the gift card,” the report said.

“This raises a number of issues with respect to the ability of retailers to clearly disclose important information to the person who will ultimately receive the gift card.”

“It is also arguable that some terms and conditions are onerous for consumers, and not reasonably necessary to protect the trader’s legitimate commercial interests.”

Issues relating to terms and conditions include:

• Expiry dates. One of the main issues facing some consumers is when gift cards expire before the gift card holder has attempted to have it redeemed, and where expiry dates vary greatly in duration, causing confusion.

• Restrictions on low value use. Some gift cards apply terms and conditions where gift cards cannot be used to purchase items below a certain value.  

• Terms and conditions in the event of insolvency. Recent concerns with gift cards have been around terms and conditions that cease to apply following the insolvency of the gift card issuer, as well as any new restrictions that are applied. 

• Fees and charges. There is the potential for periodic fees and charges that apply to the outstanding balance of a gift card, to erode the value of the card over time, eventually making the card worthless to the consumer.  

• Limitations on use with respect to retailers that accept the gift card. Some affiliated merchant cards may appear as though they can be redeemed at a wider range of retailers than is possible.

• Receiving change. Some cards do not offer the customer the balance difference in cash if the card is used and the remaining funds are under a certain amount.

Despite the many issues surrounding the gift card industry, as highlighted in the report, the CCAAC is confident gift card issuers will take it upon themselves to iron out inconsistencies.

“Competition between gift card issuers may encourage improved terms and conditions,” a CCAAC spokesperson says.

“[Furthermore], reputational considerations may discourage retailers from applying terms and conditions that go beyond protecting their reasonable business interests.”

“For example, some gift card issuers offer favourable terms and conditions in order to attract a greater share of the gift card market.”