The risks of buying gift cards

May 5, 2008 6:59:59 PM PDT
Gift cards are really popular. True gift cards don't expire and you don't have to pay fees. But watch out not everything that looks like a gift card really is one. There are so many products out there that you really have to look close. One Bay Area consumer thought he was buying a gift card and was amazed at the quagmire he'd gotten himself into. Dennis foreman of Oakland saw a Green Dot pre-paid MasterCard on a rack of gift cards at the drug store. "I figured I'd buy it as a gift card and give it to a kid," said Foreman. He told the cashier to put $20 dollars on the card. Then to his surprise he was charged an extra $9.95. Why? "I don't understand why I should pay $9.95 to use $20 that I gave you cash," said Foreman. I was holding up the line and I didn't want to create a scene." So he paid and right off the bat his $20 dollar card was worth only $10. Not only that, a maintenance fee took another bite -- "$4.95." before spending any of it, his card was down to five bucks. And that was just the beginning. "There are numerous charges that are not mentioned on the card until you activate the card," said Foreman. Later, Dennis got a complicated list of rules and fees in the mail such as fees to take out cash, fees to put in cash, fees to use an ATM, fees to check the balance. Dennis figured his $20 bucks would be gone before he could buy anything. "This is really one of the worst deals out there," said Joe Ridout from Consumer Action. Ridout says the cards are mostly used by people with no credit and little money. "Unfortunately it' can be really expensive to be poor. You wind up paying a lot of fees for things that middle income people take for granted like having a checking account," said Ridout. Green Dot officials did not want to appear on camera, but said Green Dot fees are lower than many bank account fees. These are not gift cards. They are debit cards that provide an alternative for people who don't qualify for credit or debit accounts. But fees aside, here's what really troubled Dennis. In order to use his card, he had to give Green Dot a load of private information over the phone. Green Dot said the Patriot Act requires it. "Because the Dept. of Homeland Security requires this to avoid terrorism," said Foreman. Green Dot wanted his address, date of birth, driver's license and social security number. "I paid $20 why should I give you all that information?" said Foreman. So 7 On Your Side checked and get this: The Patriot Act does require green dot to collect customers' data because unlike gift cards, these are connected to bank accounts. "I think this will come as a surprise to a lot of people," said Pam Dixon from the World Privacy Forum. Dixon says people buying cards off a rack never expect this dilemma. "If you do not give your social security number to this company they have the right to not allow you to use this card," said Dixon. And once Green Dot gets your private data, its policy says it may share it with other companies to market products to you, or even do a credit check on you. That worries Pam. "Does the purchase of this kind of card, a preloaded card, have a bearing on your credit score?" said Dixon. Green Dot says even though the policy allows it, it does not actually share information except to provide customer service and comply with the law. Also to date, Green Dot has not pulled anyone's credit report. Finally, if customers want to cancel after learning the terms, Green Dot will issue a full refund as it did for Dennis. But the next time he wants to give a $20 gift, he'll do it the old fashioned way. "I think you should just give cash," said Foreman. One of the major retailers for Green Dot cards Walgreens, told 7 On Your Side it now plans to put up signs at the green dot displays by summer to help people differentiate between those cards and retailers' gift cards, which don't carry any fees or require any identification.

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