Bamboozled: When buying gift cards, it pays to read fine print

Victoria Shahinian turned 12 last month.BB branding

As part of her celebration, she was showered with presents from family and friends, including a gift card that wasn’t what it appeared to be.

“I have received many gift cards in the past for birthdays and holidays, but I have never had any problems with them,’’ she said. “This is my first troublesome card.’’

Victoria and a friend, supervised at a distance by her mother, Catherine, were shopping for goodies in the Bridgewater Commons mall.

Victoria, armed with her birthday gift card, found something she wanted to buy.

“They tried to use the prepaid MasterCard debit card in two stores before one of the cashiers mentioned to my daughter it might need to be activated,” Catherine Shahinian said. “I have never had to activate a Borders’ or Macy’s or any restaurant gift card before, so I gave her $30 cash and said I will do my best.’’

While the girls completed the cash transaction in the store, Shahinian called the toll-free number on the card, issued by Green Dot, to activate it.

112910She said she used the voice prompts, answering questions about her name and telephone number. Then a question stopped her short.

“They asked for my Social [Security number], and I began to input the numbers but got an uncomfortable feeling about that, so I tried to override the prompts,” she said.

The call was disconnected, and Shahinian moved on through the mall with the girls.
A week later, she decided to try again.

Shahinian said she did everything she could to get the card activated without doling out her private information, to no avail.

She decided to do some online research.

“I read the whole laundry list of complaints with the fees associated with this Green Dot card,’’ she said.

Wanting to get the card’s value but not willing to give up her Social Security number, Shahinian contacted Bamboozled.

Needing a Social Security number to activate a gift card raised Bamboozled’s hackles.

Big time.

Before passing judgment, we called Green Dot to better understand the product.
Turns out this card, sold at supermarket checkout lines and in retail locations, is not a gift card. It’s a reloadable debit card, which falls under a very different set of rules.

“Prepaid cards don’t have the protections that other gift cards may have, and they come with a set of fees that other gift cards don’t have,” said Adam Levin, former director of the state Division of Consumer Affairs, who now serves as chairman and co-founder of

So, exactly what is someone buying when they purchase a Green Dot card? According to the company website, it offers prepaid MasterCard and Visa debit cards. Users can load funds onto the card, either from cash or from a paycheck, and it can be used at ATMs, for shopping or to pay bills. In essence, it can be used in lieu of a checking account.

“Green Dot’s products are not gift cards but are in fact FDIC-insured transactional accounts,” said Mark Sowell, Green Dot’s chief operating officer. “In order to help the government fight the funding of terrorism and money-laundering activities, the Patriot Act is a federal law that requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.”

That’s why Shahinian’s Social Security number was required to activate the card.

Green Dot said for Shahinian, this was a case of the person who purchased the card as a gift not fully understanding the product.

That’s a fair assessment. The gift-giver probably had thought the card was a traditional gift card.

Green Dot’s cards are quite popular. The company says in the last 12 months through September 2010, it issued approximately 6.1 million new prepaid cards to Americans, who loaded more than $9.5 billion of deposits over the same period.

But unlike traditional gift cards, these involve fees. There is a purchase fee of up to $4.95, (though that charge is waived if the card is ordered online).

Accounts will incur a monthly charge of $5.95 unless the cardholder makes at least 30 purchases or loads $1,000 on to the card. Out-of-network ATM fees are $2.50, and it costs $4.95 to reload more money onto the card, unless you receive direct deposit to your account.

Those charges may not seem excessive if you’re using the Green Dot card in lieu of a checking account, but for Victoria and other customers, it’s too much for a simple gift card.

It makes sense that Victoria’s gift-giver could make this error. Green Dot cards are easy to buy at retail stores. The fine print is there, but most customers don’t bother to read it.

As you consider your gift card purchases this holiday season, do your homework, otherwise your recipient may face a myriad of fees and a request for some very personal information.

Thanks to the CARD Act, gift cards, in general, now have an expiration of five years. In the first year, the company issuing the card can’t charge a fee. After that time, a dormancy fee can be assessed. That’s a big difference from the old days, when dormancy fees could quickly burn out a gift card’s balance.

The new rules don’t cover cards like the one Victoria received. Of those, the Federal Reserve says:

“These new rules apply only to gift cards, which are just one type of prepaid card.”

The new rules do not cover other types of prepaid cards, such as:

“Reloadable prepaid cards that are not intended for gift-giving purposes. For example, a reloadable prepaid card with a MasterCard, Visa, American Express or Discover brand logo that is intended to be used like a checking account substitute is not covered.”

To make smart choices for your gift recipients this holiday season, read the fine print and don’t just pick up whatever’s in front of you for convenience.

“You really have to be really careful about what you buy and be aware of all the details,” said Levin. “We are calling institutions into accountability more than ever before, and there’s a corollary. We, as consumers, have to call ourselves into accountability more than ever before.”

So, as you shop, take an extra moment and understand what you’re buying. Save your loved ones the inconvenience experienced by Victoria.

“Don’t allow your acquisition ecstasy to cloud your judgment,” Levin said.

The Shahinians say they learned that lesson the hard way.

“I was at the grocery checkout and I grabbed two gift cards at the register,” Catherine Shahinian said. “After checkout, I looked at my receipt because the total was more than I had expected: $4.95 per card, plus the cost of the card!”

She said she never realized the recipients would be asked for their personal information.

“Never again. No matter how gauche, I will give cash next time or a regular gift card,” she said.