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FDIC To Insure Gift Cards

Posted Sun, 2008/11/16 - 12:21 by Craig Hsueh

The FDIC on November 13 issued a statement that they will insure stored value cards if those funds have been placed at an insured depository institution.

There is pressure during these financially troubled times with chains such as Sharper Image, Circuit City and others going under, for the government to insure gift cards. Gift cards are a huge seller for the holiday season. This year there is added controversy because the card can become useless to the consumer when the chain accepting the card goes bankrupt (see LA Times article).

In answer, the FDIC writes, "Under the new opinion, all funds underlying stored value products will be treated as 'deposits' to the extent that the funds have been placed at an insured depository institution. As a result, all such funds will be subject to assessments. Also, all such funds will be insured up to the FDIC insurance limit."

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By Craig Hsueh2008-11-16 12:25

Consumers and Gift Cards

There's another argument on why these credit cards are so good to chains. These largely unused liabilities prop up the bottom line of many chains.

As for gift cards — well, let’s just say there is good reason that they are known within the retail industry as a stored-value product: they store their value very well, and often permanently. The financial-services research firm TowerGroup estimates that of the $80 billion spent on gift cards in 2006, roughly $8 billion will never be redeemed — “a bigger impact on consumers,” Tower notes, “than the combined total of both debit- and credit-card fraud.” A survey by Marketing Workshop Inc. found that only 30 percent of recipients use a gift card within a month of receiving it, while Consumer Reports estimates that 19 percent of the people who received a gift card in 2005 never used it. [NY Times]

The article concludes that Gift Cards are a great thing for retailers to offer for extra money, but it is not so great for the consumer:

. . . if you need a gift for a strict rationalist, consider cash. If you want to appeal to someone’s wild self, you’ll have to use your imagination. And if you’re hoping to send a little something extra to the shareholders of Best Buy or the Gap or Tiffany, consider a gift card. [NY Times]