Gift Cards — as Good as Cash?

While retailers tell customers to treat gift cards as cash, the cards aren't exactly cash. Retailer gift cards, known as closed-loop cards, issued by the store, are not federally regulated, but some 36 states have enacted some type of gift card legislation that regulates the various fees and expiration dates under the cards' terms and conditions. The Tower Group, Needham, Mass., a research company

While retailers tell customers to treat gift cards as cash, the cards aren't exactly cash.

Retailer gift cards, known as closed-loop cards, issued by the store, are not federally regulated, but some 36 states have enacted some type of gift card legislation that regulates the various fees and expiration dates under the cards' terms and conditions.

The Tower Group, Needham, Mass., a research company for the global financial services industry, estimates that retail gift card sales in 2006 were $59 billion.

The company reported that consumers lost nearly $8 billion annually, or approximately 10% of gift card sales, due to unredeemed value, expiration or loss of cards.

This amount is more than double the $3.5 billion annually estimated to be lost from debit and credit card fraud, the researcher reported.

Consumer Reports also released a survey showing that, as of October 2007, 27% of consumers who received gift cards during the 2006 holiday season had not yet used one or more of the cards they received.

That leaves a lot in gift-card float at retail.