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Gift Card Warning: Check Retailer's Health

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Gift Card Warning: Check Retailer's Health

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Gift Card Warning: Check Retailer's Health

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STEVE INSKEEP, host:

Two-thirds of shoppers plan to give gift cards this holiday season. Those little plastic cards are the second most popular gift after clothes. And if you're thinking of using them, just remember that some gift cards could become worthless. Bankrupt retailers like The Sharper Image stopped honoring cards after their filings. NPR's Tamara Keith reports.

TAMARA KEITH: A couple of years ago, the cable company where Kim Handloff works was offering bonuses in the form of gift cards. She had been planning to buy her boyfriend an expensive telescope, so she took her $1,500 bonus in Sharper Image gift cards. But then she hung on to them for a while, and Sharper Image filed for Chapter 11 bankruptcy protection and eventually stopped accepting gift cards.

Ms. KIM HANDLOFF: I basically have about $1,500 worth of pieces of plastic that are going to get me absolutely nothing.

KEITH: Now Handloff is angry, fed up with the whole concept of gift cards.

Ms. HANDLOFF: I should have used them the second I got them, and it taught me a lesson. At this point, I never want to have a gift card because you never know if it's going to be good, you know, the next day after you get it.

KEITH: And she isn't the only one in this bind. When Sharper Image closed its doors, customers were holding $66 million in gift cards they couldn't use, says Brian Riley. He's with TowerGroup, a research firm that specializes in financial services.

Mr. BRIAN RILEY (Senior Analyst, Bank Card Research Practice, TowerGroup): When a bankruptcy filing occurs with a retailer, the consumer is truly considered an unsecured creditor in the bankruptcy, and hence they have no value to gift cards.

KEITH: Riley says bankruptcy filings in retail tend to peak in January. So he says if you do get a gift card, use it as quickly as possible or it may be nothing more than a flashy ice scraper. Consumer Reports calls gift cards "the gift that keeps on taking." Even if the specter of bankruptcies wasn't hanging over the retail industry this fall, senior editor Tod Marks says he wouldn't suggest people give gift cards, because a year later, a quarter of recipients still haven't spent them. And a majority of people say they end up spending more than the value of the card once they get to the store.

Mr. TOD MARKS (Senior Editor, Consumer Reports): Even though your intentions might be good to give such a gift, the fact is it may not play out the way you wanted for one reason or another.

KEITH: One company at least is capitalizing on the concerns about bankruptcies. Leverage is an online seller of gift cards and also helps customers trade cards if they have one they don't want. COO Jennifer Mathe says after The Sharper Image bankruptcy, they instituted a guarantee on the cards they sell. If a company files for bankruptcy within 90 days of a card purchase, she says customers can trade the card in for something different.

Ms. JENNIFER MATHE (COO, Leverage): We know that there are a number of retailers that truly are - the decision for them is hanging in the balance this holiday season. So I do anticipate that we'll have a decent number of claims this January. I suspect we will.

KEITH: For consumers, the best route may just be using common sense, says Kwame Kuadey, CEO of GiftCardRescue.com. He says if a company is laying people off and closing stores, that's probably not the best place to buy a gift card.

Mr. KWAME KUADEY (CEO, GirtCardRescue.com): I mean, you don't have to read the financial statements, but you just have to make sure that you are aware of what is going on with that particular retailer. When you go in there and you are the only person shopping in that store, then you know something must be wrong.

KEITH: Consumer advocates say gift cards come with all kinds of conditions. And they shouldn't be thought of as money in the bank. Tamara Keith, NPR News, Washington.

INSKEEP: And it's not just gift cards you need to worry about when retailers go bankrupt. There are other things that consumers should bear in mind, and you can find some answers at npr.org.

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