Brian Nicholson, Deseret Morning News

Retailers say gift cards are this holiday season's hottest gift choice. But beware of the fine print: About a third of the cards that are offered most widely here have catches that could easily drain their value before recipients fully use them.

Still, gift cards are much improved from past years. New laws and more rigorous enforcement have led most prominent national retailers to get rid of expiration dates and little-noticed maintenance fees on their cards. But some persist.

The Deseret Morning News closely examined fine print on 41 gift cards. It chose brands often offered at local grocery or retail check stands, those offered by major retailers for their own stores, online sites for major retailers and some popular bank-issued gift cards.

Twelve of the 41, or 30 percent, had terms in fine print that could drain the value of a card if a recipient is not careful — or could cost the buyer more than the face value of the card, a fact they may not realize until checkout.

Such problems may be costing consumers billions nationally.

The Tower Group, a financial-industry research firm, estimated last year that consumers lose $8 billion a year to unredeemed value, expiration or loss of gift cards. That's more than double the annual losses from debit and credit card fraud of $3.5 billion.

Even so, the National Retail Federation reports gift cards are this year's most popular gift choice. The federation says 88 percent of shoppers plan to buy two or more gift cards this season, with a typical consumer spending $123 on them. Overall, the group projects gift-card sales to total $26.3 billion nationally this holiday season.

Maintenance fees

The most common and potentially costly problem with cards found locally is maintenance or dormancy fees, found on 11 cards examined by the Morning News.

Gift cards for both Harmon's and Smith's Food and Drug stores have terms saying that if the cards are not used for 12 months, a fee of $2 a month is charged retroactively back to the first month of dormancy and will continue until the card is used or no balance is left on it.

In other words, if a card isn't used for a year, they slap on a $48 fee and continue charging $2 a month until the card's value is drained or the card is finally used. For cards issued for amounts of $50 or less, the fee could swallow all their value if recipients hold on to them too long without using them.

Examples of similar fees include a Pizza Hut card that said a $1 a month dormancy fee is charged after 12 months of non-use, a Toys "R" Us card that said a $2 a month dormancy fee is charged after 24 months, and a Kohl's card that said a $1.50 a month fee is charged after 24 months.

Cards for Olive Garden and Red Lobster restaurants also said maintenance fees are charged. But their parent corporation, Darden Restaurants, recently rescinded all such fees, according to its Web site.

Darden reached a settlement with the Federal Trade Commission earlier this year after the FTC charged it had engaged in deceptive practices for not adequately disclosing dormancy fees. Darden agreed to to restore fees it had deducted from cards and to disclose fees and expiration dates in future gift-card sales.

The FTC this year also reached a similar settlement with Kmart for such practices.

The Utah Legislature this year passed a bill by Rep. Wayne Harper, R-West Jordan, to require any fees or expiration dates to be prominently displayed on cards. If cards fail to list fees, the fees now cannot be legally deducted from the balance of the card. If the companies fail to list expiration dates, the cards never expire, by law.

Bank cards

Maintenance fees are especially common with bank-issued gift cards, which are good at almost any store and carry such logos as Visa, American Express or Discover Card.

The Morning News looked at five such bank gift cards, and all had maintenance or dormancy fees. The most expensive was the All-Access Visa Card, sold locally at many grocery and retail stores. The card carries a $4.95 a month maintenance fee beginning six months after the purchase of the card.

Other bank-issued gift cards with maintenance or dormancy fees included the US Bank Visa Gift Card, the Discover Gift Card, the Wells Fargo Visa Gift Card and the American Express Gift Card.

The Montgomery County, Md., Office of Consumer Affairs — which issues an annual report-card on gift cards, and which the FTC said helped lead to action against Darden Restaurants and Kmart — looked at 20 bank-issued cards this year, and all 20 of them had maintenance fees.

Expiration or other fees

Bank-issued cards also tend to have a variety of other potential pitfalls. All bank gift cards examined had expiration dates listed. Some American Express gift cards sold in local stores expired as soon as next year — and expiration dates could vary by months or years among the cards hanging together on racks.

However, the American Express Web site says the company will issue free replacements for cards whose expiration date has passed. If owners want a check for the unused amount, that will cost them $10.

The Discover Gift Card can be replaced for $5 after expiration, if requested within 90 days of the expiration date. The Wells Fargo Visa Gift Card expires but can be replaced for $7.50 or a check for the remaining amount can be issued for a $15 fee.

Among retailer-issued cards — which unlike bank cards can usually be used only at one store — the Morning News found only one with an expiration date: Macy's. Its cards expires two years after the last time that value is added to a card.

Expiration dates and maintenance fees were common on most retailer cards just a few years ago. But the Montgomery County, Md., annual report card credits their increasing disappearance to recent enforcement by the FTC against Darden and Kmart and tougher state laws, including Utah's. Eighteen states have outright bans against expiration dates, but not Utah.

The National Retail Foundation said according to a recent survey it conducted, 92 percent of the nation's top retailers now have no expiration dates or dormancy fees on their gift cards — but the group still recommends that consumers read and understand terms of cards before buying them.

Another problem that may surprise some consumers are purchase or activation fees. Virtually no retailer-issued cards have them. But all the bank-issued cards examined do have such fees, which ranged from $3.95 to $6.95 on top of the face value of the card.

Sometimes fees varied depending on where the same card was sold. For example, an American Express Gift Card sold at Albertsons or online had a sales and activation fee of $3.95, while a similar card sold at Harmon's had a $4.95 fee.

Acceptance problems

A major advertising point for gift bank cards is that they can be used anywhere that Visa, Mastercard, American Express or Discover are accepted. But fine print in their terms sometimes warns that is not always the case.

Most of the cards include warnings that customers may have trouble if the gift card does not have enough value remaining to cover all of a purchase. They say some merchants have trouble splitting the cost, and the consumer may need to know before the purchase exactly how much is remaining on the card to attempt to do so.

Also, some bank cards warn that many pay-at-the-pump gas stations are programmed to pre-authorize purchases of at least $75, even if that much is not actually bought. If a gift card is not worth that much, it may be denied.

Similarly, the cards warn that some restaurants pre-authorize amounts for meals plus 25 percent, to allow for tips on cards, which could lead to some gift cards being denied or having such amounts put on hold for days.

Terms of other cards should also be read closely to ensure they can be used for intended purposes. Most cards cannot be used toward paying off credit cards from retailers. Albertsons does not allow use of its gift cards for gasoline purchases.

Kmart does not allow cards to be used in its restaurants or photo studios. Home Depot does not allow gift cards to be used for online purchases, or as a deposit on tool rental, for example.

Theft replacement

Different companies handle theft or loss of cards in different ways — which may cost consumers plenty.

Terms of 10 of the 41 cards examined said they will not be replaced if lost or stolen, so owners should treat them just like cash. Those 10 included: Albertsons, AMC Theaters, Barnes & Noble, Build A Bear Workshop, Cheesecake Factory, Marriott, Olive Garden, Outback Steakhouse, Red Lobster and Starbucks.

Another six did not make it clear on packaging whether replacement is possible. Twenty-five said cards may be replaced, but usually required a receipt or proof of purchase and a card number, which purchasers should keep on file. Most retailers offered replacement for free, while bank-issued cards usually required fees of $5 to $7.50.

Security may be a problem with some cards. News reports have said some scammers have obtained numbers of unsold cards and manage to use much of a card's value after it is sold and activated. To guard against that, many cards now include PIN numbers, covered with scratch-off coating.

However, the Morning News found that several cards still lack such PINs with scratch-off coating, including some for ShopKo, Olive Garden, the Cheesecake Factory, Marriott and Outback.

Despite problems with some gift cards, the Morning News found several that had no expiration dates, no maintenance fees, were clearly replaceable, were not overly restrictive about what could be purchased and clearly had PINs for security.

They were: Best Buy, Blockbuster, Cabela's, Circuit City, Gap, Lowe's, Nordstrom, Old Navy, PetSmart, Sears, Southwest Airlines, Target and Wal-Mart.