The Checkout

Gift Card Gamble

Ylan Mui

Take a peek inside your wallet, that desk in the spare bedroom or the catch-all drawer in your kitchen. Chances are that you've got some unused gift cards inside. I know I do.

Now may be the time to rifle through them. As the roster of retailers filing for bankruptcy protection continues to grow, the Consumers Union is asking the Federal Trade Commission to force stores to accept those gift cards as long as their doors remain open. The advocacy group also wants retailers to set up a separate trust fund of gift card revenues, so that shoppers can be reimbursed if the shop goes under without having to go through the laborious process of filing as a creditor.

"You have no idea whether or not you'll regain any of that value on the card," said Michelle Jun, senior attorney for Consumers Union. "You become another number amongst the other creditors."

The issue gained traction earlier this year when Sharper Image filed for bankruptcy protection and stopped accepting gift cards, angering customers. Competitor Brookstone seized the opportunity to lure away those shoppers by honoring those cards and offering a 25 percent discount on top of it. However, other bankrupt retailers, such as Linens 'n' Things decided to continue to accept gift cards. Consumers Union wants to make that mandatory.

But the National Retail Federation, a trade group, said it is worried that could set a bad precedent. Mallory Duncan, senior vice president and general counsel for NRF, said shoppers are not the only ones with claims against a bankrupt retailer. Vendors and employees also have legitimate grievances. It would be almost financially impossible for retailers to create separate trust funds for gift cards, employees and vendors and retain enough capital to reorganize and emerge from bankruptcy, he said. And getting out of bankruptcy should be the retailer's main focus, he said.

"They may be losing track of the broader goal, which is to ensure that the vendors, employees and customers are all satisifed," Duncan said.

A spokeswoman for the FTC said the agency had received the letter from Consumers Union and would review it.

By Ylan Mui |  September 11, 2008; 11:57 AM ET Consumer Alerts , Consumer News , Consumer Tips , Legal Battles/Settlements , Ylan Mui
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Comments

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When you wrote "Brookstone seized the opportunity to lure away those shoppers by honoring those cards and offering a 25 percent discount on top of it." are you saying that Brookstone is honoring the value of the gift card plus a 25% discount? Here's what the Brookstone press release says, Brookstone is not honoring the value of the Sharper Image gift card but instead is providing the 25
percent Brookstone store discount in exchange for receiving the Sharper Image gift card from the
customer.

Posted by: Mitchell | September 17, 2008 12:42 PM

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