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FDIC Says Gift Cards Not Insured, Bank Cards Are

WASHINGTON (Blue MauMau) - The Federal Deposit Insurance Corporation has announced that stored value cards from FDIC-insured depository institutions will now also be insured for up to $250,000, the same as bank deposits.

The FDIC's legal opinion occurred after consumer groups had asked FDIC Chairman Sheila Bair to bolster up consumer confidence and the economy by preventing money lost on stored value cards. In response, the FDIC said yes to banks that hold funds stored on prepaid cards but no to insuring retailer gift cards.

Companies and individuals typically use such cards for payroll deposits, government benefit checks, and other payment needs. Those are now insured.

The ruling caused some confusion with the business media, probably because they anticipated the FDIC to say something in preparation for the Christmas shopping season on the big issue of retail gift cards.

On National Public Radio's Planet Money program of November 14, No One Shopping, correspondent David Kestenbaum announced on the air, "Anyone who is buying a gift card this year has good news because the FDIC said they are guaranteeing the amount of money people put on gift cards at the retailers."

But fellow correspondent Daniel Costello astonishingly replied, "That sounds crazy to me. Now we are bailing out Sharper Image?"

Actually, no.

Public Affairs Specialist LaJuan Williams-Dickerson of the FDIC, replied to Blue MauMau on whether retail store gift cards were insured by the new opinion. She declared, "No, the FDIC does not provide insurance for merchant cards that do not provide access to funds at an FDIC-insured depository institution." She further clarified, "The FDIC only insures deposits at FDIC-insured depository institutions. Moreover, the FDIC only pays insurance upon the failure of an insured depository institution. In the event of the bankruptcy of a merchant, no insurance would be paid by the FDIC on the merchant's gift cards."

Consumers remain unprotected in their purchase of retail store gift cards with varying degree, depending on state laws.

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.