Tips for Buying and Using Gift Cards

We are entering the holiday gift card season. While new studies show gift cards are the most popular presents to give and receive, the hidden costs may outweigh the convenience of the gift. It is important for consumers to give and use these cards correctly.

"Gift cards are easy to give, but they are also easy to forget. If the card has a monthly fee or expiration date, these can become costly little pieces of plastic," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Even though gift cards take the hassle out of holiday shopping, you want to use them wisely. It is important to know the terms of the card you are buying."

Holiday gift cards are a big business. According to the National Retailers Federation (NRF), sales of gift cards reached almost $25 billion in 2008. A new NRF study shows that 55.2% of adults are hoping to receive a gift card this year.

However, many households still have unused gift cards from the last holiday season. According to a new Consumer Reports survey, 25% of adults that received a gift card in 2008 have yet to redeem at least one of the cards.

"This is the time to check your wallets, purses and drawers for gift cards that you received last year and use them immediately. Some cards may start charging a monthly fee after twelve months which drains away the value of the card," says Hardekopf. "You can even use them to start your holiday shopping."

Here are some consumer tips for buying gift cards:

* Buy a card only from a merchant you trust.

* Make sure the store is in a good financial position.

* Ask about the fees and expiration dates of the card. Read the card's
fine print.


Here are tips for using gift cards:

* If you receive a gift card, use it as soon as possible. Don't put it aside
and out of sight. Use it before you lose it or forget about it.

* Check the terms and conditions of the card you receive. Look for
an expiration date or any use fees.

* Gift cards from major credit card networks can be used at any retailer
that accepts their credit and debit cards.

* If the gift card is from a credit card network, write down the card number. If it is lost or stolen, the card can be cancelled and a replacement issued. The replacement fees range from $5.95 to $12. Most store cards can't be replaced if they are lost or stolen. They are treated as cash.

* Keep the card, even after the balance is depleted, until you are sure you won't be returning any of the items that you purchased with it. The retailer may require the card with the return.

* If there is a problem with the card, contact the store or financial institution that issued the card. If that doesn't resolve the issue, contact the Federal Trade Commission at 877-FTC-HELP.


There are important differences between store cards and general purpose cards. Store gift cards are limited to that retailer or family of stores and many have no fees or expiration date. Not all store cards can be used online.

General purpose cards are from Visa, MasterCard, and American Express. They can be used any place these cards are accepted. The purchase fee ranges between $2 and $7. Many cards charge a monthly maintenance fee that is typically $2 or $2.50 and starts after six or twelve months.

The CARD Act does provide gift card protections, but these provisions don't go into effect until August 2010. It prohibits gift cards from expiring before five years from the date of purchase or when money was loaded onto the card. It also prohibits fees for the first twelve months.

What happens to unused gift cards? They can eventually revert back to the retailers as income. Some states can even claim unused gift cards as abandoned property.

If you have unused gift cards that you won't use, you can donate the card to GiftCardGiver.com; that site will distribute the card to non-profit agencies
that can use the card to help others.

New Credit Card Study Shows Harmful Credit Card Practices Continue

A new study confirmed what cardholders and Congress already know: credit card issuers are in no hurry to implement the regulations of the CARD Act. Instead, some of the most harmful practices are even more widespread.

Today, the Pew Charitable Trust released "Still Waiting: 'Unfair or Deceptive' Credit Card Practices Continue as Americans Wait for New Reforms to Take Effect". The study examined almost 400 credit cards advertised by banks and credit unions offered in July 2009 and December 2008.

The study found that 100% of the credit cards continue practices that will be outlawed by the CARD Act. The lowest advertised interest rates have increased by more than 20% in the past year. None of the 12 largest banks currently issue cards that would meet the requirements of the CARD Act.

"It seems that a credit card issuer could gain a distinct competitive advantage by the early implementation of the provisions of the CARD Act. But that is not being done. It seems that issuers are turning their back on the public outcry for reform and instead want to raise rates as much as possible before these interest rate provisions go into effect in February 2010," said Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

The Pew study found that cardholders have not benefited from the historically low interest rates, even though the Federal Funds rate is almost 0%. The lowest advertised rates increased by more than 20% from December 2008 to July 2009 while the highest advertised rates increased 13% during that time period. Discover had the biggest jump in the lowest advertised rates, going from 9.99% to 12.99%. Bank of America had the largest increase in the highest advertised rates, increasing from 14.99% to 18.24%.

The report is also one of the first credit card comparisons between banks and credit unions. It confirms that credit unions offer lower rates and lower penalties than banks. The findings from the Pew study:

* Advertised rates were 20% lower at credit unions. These rates ranged from 9.9% to 13.75% annually at credit unions, compared to 12.29% to 17.99% annually for banks.

* Penalty charges at credit unions are less frequent and less severe than at banks. Credit union penalty interest rates averaged 17.99% compared to 28.99% at banks. In addition, these penalty interest rates at credit unions were less likely to last indefinitely; one-third would terminate after three to twelve months of on-time payments. They could last indefinitely at banks, even after on-time payments.

"If you are a member of a credit union and are looking for a new credit card, be sure to look at those offered by your credit union. Compare those cards to others on the market and you could be pleasantly surprised," said Hardekopf.

Dodd Proposes a Freeze on Credit Card Rates

Today, Senate Banking Committee Chairman Chris Dodd introduced new legislation that would immediately freeze credit card rates on existing balances through February of 2010. Dodd felt this bill would prevent issuers from further interest rate hikes that have taken place since the Credit CARD Act was signed into law in May of this year.

"No sooner had it been signed into law, credit-card companies were looking for ways to get around the protections this Congress and the American people demanded," said the Democratic Senator. "This bill would end those abuses and further protect customers today."

Since the beginning of the year, LowCards.com has recorded almost 60 changes made by nine different credit card issuers, many of which are APR increases. In the last two weeks, Bank of America added an annual fee to some cards and Citi has raised the APR to 29.99% for many cardholders as well as cancelled the accounts of customers holding some of their co-branded cards.

The changes in terms and card closures are hot issues for consumers. Congress is reacting by trying to move up the effective date of some provisions of the CARD Act from February 22 to December 1. Last week, the House Financial Services Committee approved this but analysts predict that this will not pass in the Senate.

"The actions of the credit card issuers should not be a surprise to anyone, especially Congress. When the CARD Act was being discussed, the issuers said they would have to raise rates and make changes to make up for lost revenue. They warned Congress that these changes would affect a broad spectrum of customers. That is exactly what they have done. They have raised rates, increased fees, added annual fees, moved fixed rate cards to variable rates, and cut rewards," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

"The banks and issuers are not philanthropic organizations. They are for-profit companies that have already lost billions of dollars and have struggled for over a year to rebound from the financial crisis. The high delinquency and default rates in September show that credit card issuers are still facing difficult times and this will probably continue into 2010. Issuers will still have to find ways to increase revenue and reduce risk. If Congress put a freeze on interest rates, you can bet that issuers would find other ways to make up for this lost revenue."

This new legislation would also require credit card companies to review all rate increases on credit card holders since the beginning of this year to see if they were justified.

New Consumer Financial Protection Agency Approved by House Committee

Today, the House Financial Services Committee approved the creation of a Consumer Financial Protection Agency (CFPA) by a vote of 39 to 29. This is the first step in creating a new regulatory agency that will protect consumers. The CFPA is an important piece of the Obama administration's plan to tighten lending regulations and help prevent future financial failures.

The bill would give states more authority to regulate large national banks with their own stronger consumer protections on interest rates and fees associated with credit cards and mortgages. However, it would allow federal regulators to exempt banks from state laws on a case-by-case basis.

The CFPA would enforce provisions in the CARD Act that protect consumers from sudden rate increases on unpaid credit card balances. It would also create rules that would make credit card terms more transparent and easy to understand.

"Consumers feel they need some type of protection right now. This week, many Citi customers received a large rate increase to 29.99% for no apparent reason," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook. "Cardholders are angry because issuers have significantly increased their rates and there is nothing consumers can do about it. Their only option is to accept the changes or close the account. However, it is difficult to get a new card because many issuers have reduced their risk of loans and are very selective about the new cards they issue."

The new agency would take some of the consumer protection duties from the Federal Reserve and oversee financial lending such as credit cards, payday loans and terms on savings accounts. Those exempted include retailers, lawyers, real estate brokers, accountants, auto dealers, cable companies, and credit, mortgage and title insurers.

The CFPA does not include two of the priorities of the Obama administration. It leaves out the requirement that lenders offer standardized "plain vanilla" products. It also does not include the requirement that banks take reasonable steps to ensure that customers understand what they are receiving.

The House is expected to vote on this in November. However, the future of the agency will be determined by the vote in the Senate in 2010. Banks are strongly opposed to this bill and are lobbying Senators to dilute or reject it. Some legislators are also opposed to the idea of creating a new regulatory body.

Startling Practices of Credit Card Issuers Continue

In the past week, Citi has increased the interest rate on a number of their cardholders to 29.99% and cancelled the accounts of customers holding some of their gas partner co-branded cards. Bank of America notified some of their cardholders that it will begin charging an annual fee ranging from $29 to $99 on their cards beginning in February 2010.

These actions follow last week's earnings reports that revealed that banks and credit card issuers are still losing millions of dollars due to credit card defaults and delinquencies. Issuers and analyst expect this to continue into next year.

Credit card issuers are desperately trying to rebound after the collapse of the economy and consumer lending, but unemployment, the CARD Act and the possibility of new regulations are restricting traditional areas revenue. Issuers must make changes, even if it angers Congress and their cardholders.

"Credit card issuers warned there would be changes if Congress passed new rules regulating them. They have already proved many times that they were not bluffing," says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

Here are the latest changes that have taken place and some consumer tips for responding to the changes:

* Citi is notifying a number of cardholders of APR increases up to 29.99%. To make matters worse, this is a variable rate that can escalate once the prime rate increases.

"We are hearing from customers with good credit histories that their rate has been increased to 29.99% for no apparent reason," says Hardekopf. "29.99% sends a message that Citi doesn't want you to use that card. It is a strong motivation to close your account."

If your rate increases and you carry a balance, call and ask them to reduce the rate. If that doesn't work, you now have a right to opt out of the rate increase by the deadline outlined in your notice. By opting-out, you can pay off the balance at the current interest rate for up to five years, but you cannot make any further charges on the account. Opt-out and pay off the balance as soon as possible. But before you opt-out, redeem your rewards. You may forfeit the rewards once you have opted-out.

This rate increase comes at the beginning of the holiday season. If your rate is 29.99% and you keep the card, do not use this card during the holiday season unless you are sure you can pay off the balance immediately.


* Last week, Citi cancelled a substantial number of their MasterCard accounts, most of which were gas partner co-branded cards. Citi said that these account closings include credit cards affiliated with Shell, Citgo, ExxonMobil and Phillips 66-Conoco.

Some customers have complained that they did not receive notice of this. But issuers do not have to give customers advance notice of an account cancellation. Issuers have the right to close credit lines immediately, so cancellation notices can be sent after the card is cancelled. Even the CARD Act only requires that issuers give advance notice of rate increases.

Citi is also shutting down the Home Depot credit card effective at the end of October. Rewards will be honored through February 2010.

Customers should use their accumulated rewards very soon or they could lose them. If the cancelled card is a rewards card, the issuer may give a deadline for redeeming the rewards. However, if you don't see the notification in the mail or forget the deadline, you lose your rewards. In some cases, the rewards are lost when the account is closed, even if the issuer is the one who closed it.

Cardholders should be on the lookout for changes and notices from their issuers. This is a good time to use your reward points for holiday travel or early holiday shopping.


* Last week, Bank of America notified a limited group of cardholders that it will start charging an annual fee on their credit cards beginning in February 2010. The fee will range from $29 to $99 and will be applied to the selected accounts based on risk and profitability.

This action came only one week after Bank of America received attention and praise for promising to put a freeze on credit card rates.

"Nearly 80% of the credit cards in America do not have annual fees," said Hardekopf. "You can certainly find a comparable card without an annual fee if you shop around. Just make sure to analyze the terms and conditions of each card and if they are similar, choose the one without this yearly fee.

"Actions like these are rarely singular events. One issuer takes a new step and the others likely follow. Issuers are trying everything they can to reduce risk and increase revenue, especially since regulations are limiting their options," says Hardekopf. "Consumers have to pay attention to their bill and the notices they receive in the mail."