Monday, November 29, 2010

When Buying Gift Cards, It Pays to Read the Fine Print

From Some cards aren't really cards at all--they're actually ACCOUNTS.

“They tried to use the prepaid MasterCard debit card in two stores before one of the cashiers mentioned to my daughter it might need to be activated,” Catherine Shahinian said. “I have never had to activate a Borders’ or Macy’s or any restaurant gift card before, so I gave her $30 cash and said I will do my best.’’

While the girls completed the cash transaction in the store, Shahinian called the toll-free number on the card, issued by Green Dot, to activate it.

She said she used the voice prompts, answering questions about her name and telephone number. Then a question stopped her short.

“They asked for my Social [Security number], and I began to input the numbers but got an uncomfortable feeling about that, so I tried to override the prompts,” she said.

The call was disconnected, and Shahinian moved on through the mall with the girls.
A week later, she decided to try again.

Shahinian said she did everything she could to get the card activated without doling out her private information, to no avail."


"“I read the whole laundry list of complaints with the fees associated with this Green Dot card,’’ she said.

Wanting to get the card’s value but not willing to give up her Social Security number, Shahinian contacted Bamboozled.

Needing a Social Security number to activate a gift card raised Bamboozled’s hackles.

Big time.

Before passing judgment, we called Green Dot to better understand the product.
Turns out this card, sold at supermarket checkout lines and in retail locations, is not a gift card. It’s a reloadable debit card, which falls under a very different set of rules.

Prepaid cards don’t have the protections that other gift cards may have, and they come with a set of fees that other gift cards don’t have,” said Adam Levin, former director of the state Division of Consumer Affairs, who now serves as chairman and co-founder of

So, exactly what is someone buying when they purchase a Green Dot card? According to the company website, it offers prepaid MasterCard and Visa debit cards. Users can load funds onto the card, either from cash or from a paycheck, and it can be used at ATMs, for shopping or to pay bills. In essence, it can be used in lieu of a checking account.

“Green Dot’s products are not gift cards but are in fact FDIC-insured transactional accounts,” said Mark Sowell, Green Dot’s chief operating officer. “In order to help the government fight the funding of terrorism and money-laundering activities, the Patriot Act is a federal law that requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.”

That’s why Shahinian’s Social Security number was required to activate the card."


"There is a purchase fee of up to $4.95, (though that charge is waived if the card is ordered online).

Accounts will incur a monthly charge of $5.95 unless the cardholder makes at least 30 purchases or loads $1,000 on to the card. Out-of-network ATM fees are $2.50, and it costs $4.95 to reload more money onto the card, unless you receive direct deposit to your account.

Those charges may not seem excessive if you’re using the Green Dot card in lieu of a checking account, but for Victoria and other customers, it’s too much for a simple gift card."


"As you consider your gift card purchases this holiday season, do your homework, otherwise your recipient may face a myriad of fees and a request for some very personal information.

Thanks to the CARD Act, gift cards, in general, now have an expiration of five years. In the first year, the company issuing the card can’t charge a fee. After that time, a dormancy fee can be assessed. That’s a big difference from the old days, when dormancy fees could quickly burn out a gift card’s balance.

The new rules don’t cover cards like the one Victoria received. Of those, the Federal Reserve says:

These new rules apply only to gift cards, which are just one type of prepaid card."


"The new rules do not cover other types of prepaid cards, such as:

“Reloadable prepaid cards that are not intended for gift-giving purposes. For example, a reloadable prepaid card with a MasterCard, Visa, American Express or Discover brand logo that is intended to be used like a checking account substitute is not covered.”


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