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Gift cards growing in popularity but beware their dangers

Published: Wednesday, Nov. 21 2012 6:00 p.m. MST

SALT LAKE CITY — Some gift cards hide in wallets and purses or underneath coupons and school lunch schedules in the kitchen junk drawer. They sit forgotten, a gift arrested in neglect.

This is why Scott C. Marsh doesn't like them. He thinks, for example, about a $50 gift card he received for the BYU Bookstore.

"I have no idea where it is," he says.

Cards can be hard to keep track of and carry around, he says.

Marsh, owner of Scott Marsh Financial in Salt Lake City and a professor of personal finance at BYU, warns people to be careful with gift cards. He thinks the potential for them going unused makes them a poor value for consumers. And a large amount of gift cards have gone unused. A study by CEB's TowerGroup from last year showed $41 billion in gift cards went unused from 2005 to 2011 — about $6 billion a year.

But that may be changing.

Brian Riley, senior research director with CEB's TowerGroup, says the usage of gift cards has seen terrific improvement since 2006.

Regulations

Part of the improvement is due to increased federal regulation. Title IV of the Credit Card Accountability Responsibility and Disclosure Act of 2009 placed limits on expiration dates and junk fees on gift cards.

Fees used to be everywhere. There were fees for using the gift card. There were fees for not using the gift card. There were even fees for checking the balance on the card.

With the changes, the amount of unused cards has fallen to 1.6 percent, according to a new study by CEB TowerGroup released on Nov. 19. This is substantially lower than the 10 percent from five or six years ago.

National Retail Federation's survey from Nov. 14 found 81.1 percent of shoppers will purchase at least one gift card this holiday and will spend an average of $156.86 on cards. Six out of 10 people polled (59.8 percent) said they would like to receive a gift card this year.

The new CEB TowerGroup study projects $110 billion in gift card sales by the end of 2012 — an increase of 10 percent over last year and 34 percent since 2006. The study projects $138 billion in sales by 2015.

"You can't argue with the numbers," Judd Lillestrand says. "It's a huge number. People like them."

Lillestrand is the founder and CEO of scripsmart.com based in Las Vegas.

"(The 2009 regulations are) a good example of a regulation that really worked and made sense," Riley says.

Lazy shopping

Riley says the increase in federal regulation as well as the economic pressures of the recession have led people to use their gift cards more.

"It is a lazy man's way to shop," Riley says.

Riley's wife began planning her holiday shopping the beginning of November. "I'll probably do mine on Christmas Eve," he says with a laugh.

Each person on a list can be given a different gift card from a different store or restaurant. "So you feel like you've put a lot of thought in the process," Riley says.

The NRF study showed 39.1 percent of people will give gift cards this season to department stores, 33.3 percent will buy cards to restaurants and 20.8 percent to book stores, with online merchants (11.2 percent), coffee shops (20.8 percent) and grocery/gasoline stores (12.6 percent) making up the balance.

Ins and outs

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