A gift that keeps taking: Add up the costs on the Vanilla Gift Card

On the face of it, gift cards seem like a smart and simple way to handle presents. You don't have to shop for something, they're easy to get and they seem more thoughtful than handing someone cash.

Then I met the Vanilla Gift Card. The buyer has to pay $28.95 to give someone $25 (a bigger fee for bigger values). That's on the giver. After that, it's the recipient that pays. If the card isn't used up within a few months, fees kick in that could suck it dry. One card recipient recounted trying to use a $50 card for $50 in merchandise only to find the card had $12.50 in fees drawn from it.

After seven months, the card faces $2.50 a month charges. In many states, such fees are not allowed to be applied to gift cards. That is...gift cards tied to a particular place of business. In this case, because you can use the card anywhere a Visa is accepted it's fair game. And, if you care to read the fine print on both the card and the card's web site, it's there for all to see. Seedy, but in plain view.
And, for its part, the company that markets the card, InComm, has an excellent track record of handling disputes with its customers. They say their cards are sold at 145,000 locations.

Sucking gift cards dry had become a fairly routine practice. An estimated one in four gift cards never even get used, and still more are not used to their full amounts. So the cards are a solid investment for those selling them. After all, being paid money and having to give back nothing in return is a pretty good business model.

But that isn't enough. Complaining that they had to keep track of all these cards and their balances, businesses starting charging administrative fees and began drawing down the balances of outstanding cards so dormant cards could be wiped off their books.

Many states enacted laws to stop or limit the fees that could be charged so that these gifts wouldn't lose their value because the stores decided they didn't want to deal with all this unknown credit floating around out there. You can find information about your state's rules here.

A bill is pending in Congress that would create national rules for these cards, including prohibiting the assessment of fees if a card is used in the first year. Monthly fees would be permitted if a card has remained unused for a year. This time, the rules would apply to cards that could be used anywhere.

If you feel compelled to buy a gift card for someone, at least avoid the fees by purchasing one from a store or restaurant you think the recipient might be inclined to use. At least you won't end up giving someone an ever-shrinking present (at least in most states).
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