Gift Cards: Disclosure One Step Removed

Gift card purchases have grown significantly in recent years. The growth has been attributed to recipients being able to make personal selections that best meet their needs while reducing the giver's risk of improper selection and wasted time. However, while gift cards have positive benefits for both giver and recipient, certain fees, and terms and conditions involved with their use and nonuse ultimately may impact the level of satisfaction derived. This paper provides background into the use of gift cards and the development of "open-loop" and "closed-loop" cards. Further, it examines current levels of legal protection afforded to consumers. The paper discusses how disclosure and notice, concepts intended to protect consumers, are often neglected or unusable because the actual party at risk is not the party with whom the purchase transaction was consummated. Implications are drawn for those who are charged with creating effective public policy and consumer affairs professionals who wish to provide assistance to both consumers and regulators. ********** Marketers and others have studied extensively disclosure of the risks associated with product purchases, both with a mind that better-informed consumers make better choices (Bettman 1975), and from a concern about the potential harm that results from an uninformed consumerate (Bloom 1989; Sexton 1981). Researchers have studied the form, vividness, and repetition of the message along with individual differences in receptiveness (cf. Argo and Main's [2004] meta-analysis of warning label effectiveness). Findings show that for information to be effectively communicated to consumers, it must be complete and relevant, and the consumer must be motivated to access the information and have the capacity to understand it (Milne, Culnan, and Greene 2006). The assumption is that the consumer with knowledge of potential problems will consider the risks and self-protect in accordance with their personal preferences (Beales, Craswell, and Salop 1981). There are occasions, however, when consumers may be unaware that they should engage in self-protection. Such may be the case when the risk is not to the purchaser but to someone who subsequently becomes the recipient of the purchase as in the case of a gift. Who bears the responsibility for communicating that risk if, in fact, it should be communicated to the eventual recipient of the purchase? This is an important question to address in examining the growing use of gift cards. These products have potential financial risks to the recipient; yet, the issue of whether recipients of gift cards, who are not party to the original purchase, can, and/or should, be afforded protection has not been discussed. This article argues that gift card recipients deserve special attention with respect to disclosure. It looks at the characteristics of gift cards and provides illustrative, though certainly not exhaustive, examples of current practice. Further, it suggests how public policy might aid consumers, consumer affairs professionals and card issuers by affording consumers additional protections while clarifying the legal ambiguities that concern retailers and other gift card issuers. BACKGROUND Though gift vouchers (certificates) have been available to retailers since early in the 20th century (Waits 1993), gift cards have, more recently, become ubiquitous, both in interpersonal gift giving and as consumer and corporate incentives. Estimates for sales in the United States reached as high as $70 billion for 2006 and $88 billion for 2007 (American Express 2006). Non-U.S. markets are demonstrating significant growth as well (Home, Craddock, and Norberg 2005). The rise in the popularity of gift cards stems from the purchasing consumer's ability to fulfill gifting obligations while conveniently reducing the risk of poor gift selection (Home and Kelly 1995). For recipients, the ability to select their own gift from a set of alternatives likely increases utility (Home, Craddock, and Norberg 2005) and reduces the deadweight loss of gifts that do not match the recipient's needs or desires (Waldfogel 1993). …