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CU calls on the FTC to protect consumers from losing billions held on retailer gift cards

Gift cards do not have adequate consumer protections, particularly when a retailer files for bankruptcy.

September 11, 2008

Chairman William E. Kovacic
Federal Trade Commission
600 Pennsylvania Avenue, NW
Washington, D.C. 20580


Re: Protect Consumers’ Money Held on Bankrupt Retailers’ Gift Cards

Dear Chairman Kovacic:

Consumers Union, the nonprofit publisher of Consumer Reports ®, Consumer Federation of America, the National Consumer Law Center (on behalf of its low income clients), and U.S. PIRG call upon the Federal Trade Commission to protect consumers from losing billions of dollars held on retailer gift cards. This comes at a particularly important time as more large retailers file for bankruptcy.

Gift cards do not have adequate consumer protections, particularly when a retailer files for bankruptcy. Consumers are now discovering their gift cards may be greatly devalued or not worth anything at all when a retailer declares bankruptcy. There is no guarantee to consumers that they will be able to obtain the prepaid value on their gift cards from struggling or bankrupt retailers.

Currently, unused gift card funds are treated as a debt and to honor the card the bankruptcy court orders the retailer to honor the card. The retailer may or may not request the court to allow it to continue to accept its gift cards. The consumer is left without the ability to use the card if the retailer does not make this request or if the court denies the retailers’ request. The consumer may be left with one option, which is the cumbersome task of filing a claim as an unsecured creditor in the bankruptcy proceeding to obtain the value on their gift card.

For the response from the FTC on gift cards and bankruptcy, click here.

For the complete letter above in PDF format, click on the link below.