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Part III - Gift card terms and conditions

Date

This section of the report examines issues relating to the terms and conditions commonly applied to gift cards, such as expiry dates. Submissions from individual consumers33 raised concerns around some terms and conditions that apply, particularly where they restrict the gift card holder's use of the gift card. An analysis of complaints received by ACL regulators also reveals that a majority of non-insolvency related complaints are due to dissatisfaction with terms and conditions that are applied.34 The complaints data also reveals that some terms and conditions may be poorly disclosed to consumers.

In terms of addressing this consumer detriment, there is evidence that there are incentives to gift card issuers to mitigate consumer detriment and maintain a good reputation. A number of submissions35 suggested that retailers issue gift cards as part of a broader marketing strategy and generally try to accommodate the needs of the gift card holder while ensuring that their business interests are protected. The ARA and AMPF joint submission highlighted that retailers want gift card experiences to be positive as recipients typically receive gift cards from their favourite retailer and are valued customers. Some retailers offer flexibility on the application of certain terms and conditions such as by providing grace periods to consumers with expired gift cards. These policies aim to reduce customer dissatisfaction and to reduce the risk of losing customers. Where this is a concern for the issuer, the potential for consumer detriment is mitigated by the issuer's own efforts to maintain a good reputation.

As noted in the Issues Paper, a number of the consumer protections provided within the ACL apply to gift cards that are not financial products. The ASIC Act includes mirror provisions for gift cards that are financial products. These laws protect consumers from misleading or deceptive conduct, false or misleading representations, unfair contract terms and unconscionable conduct around gift card terms and conditions. This section will specifically examine issues relating to gift card terms and conditions in the light of the existing legal framework, and assess the scale and nature of any associated consumer detriment.

Gift card holders and effective disclosure

Before examining the specific issues relating to gift card terms and conditions, it is useful to examine how they apply where the holder is not the purchaser of the gift card. This may create some difficulties in achieving effective disclosure of terms and conditions where they apply.

For other complex products it is possible for the final user to have any important features as well as any terms and conditions that apply explained at the point of sale. However, for gift cards, the final user is not usually the purchaser. While the purchaser may be able to pass on any important information, it is unrealistic to assume that this would always occur. It would appear as though most issuers of gift card products address this concern by printing important information on the gift card itself, or on a holder or wallet. It is, however, noted that in some instances, the gift card holder may not always refer to this information. Where the card has an expiry date, key information should be provided in a way that is likely to be read by the end user.

Expiry dates

A common condition that applies to the use of a gift card is an expiry date. By issuing a gift card with an expiry date, traders are essentially representing that they will not honour the gift card unless it is redeemed by the recipient on or before the stated date. In conducting the review, CCAAC notes that:

  • some gift cards are not subject to any expiry periods36;
  • many gift cards are subject to expiry periods of between 12 months and 2 years37; and
  • some gift cards are subject to expiry periods of less than 12 months38.

There is also significant disparity with respect to how strictly expiry dates are applied by gift card issuers. While some issuers refuse to honour a gift card once its expiry date has passed, it is apparent that others offer consumers a 'grace period' in the interests of promoting customer goodwill and loyalty.39 However, grace periods will only be available to those who make such a request. Others may be discouraged from attempting to use the card on noticing that it has expired.

The majority of individual consumer submissions commented on the application of expiry dates on gift card products. Consumer submissions40 expressed the sentiment that gift cards should be as good as cash and therefore should not expire or have other restrictive terms and conditions. The misperception that gift cards are equivalent to cash may have been inadvertently exacerbated (in part) by the marketing messages and language used by gift card issuers. However, by their very nature, gift cards are not cash and are subject to inherent restrictions and limitations. When consumers purchase a gift card they purchase a bundle of terms and conditions that allow them to acquire goods or services from a retailer, in a restricted manner. CCAAC accepts that in many ways gift cards are inferior to cash as a result of these restrictions.

Consumers should exercise caution when purchasing any kind of good or service.

Also, some commentators have noted that there may be some scope for competition between gift card issuers to encourage longer expiry dates 'where there is little retailer detriment from having an open period in which to spend'.41

The prospect of breakage revenue may also encourage the application of expiry dates. These revenues may allow gift cards to be issued for no additional charge. Most gift card programs are operated at a cost to the issuer. Gift card program operators may impose fees at both the time a gift card is issued and redeemed, as well as other ongoing charges associated with the operation of the gift card program. From a broad assessment of the submissions, it would appear as though breakage can avoid the need for fees to fund the gift card program itself.

Unfair Contract Terms

Some submissions42 raised the possibility that some terms and conditions that are commonly applied to gift cards may already be in breach of the prohibition on Unfair Contract Terms (UCTs) in section 23 of the ACL.43 The ACL provides additional guidance on the meaning of 'unfair' in section 24. It provides that the term will need to satisfy the following three elements:

  1. it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
  2. it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
  3. it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Some submissions suggested that expiry dates do not protect a legitimate interest of gift card issuers and therefore may be unlawful.44 A range of reasons as to why expiry dates are applied are discussed below.

The role of expiry dates

Gift card issuers apply expiry dates on gift cards for a number of reasons. Some submissions45 indicated that expiry dates are applied to prevent the build-up of undeclared liabilities while others46 indicated that expiry dates are necessary to ensure that services are provided within a reasonable period of time. Interestingly, other submissions47 compared the redemption rates of gift cards that impose different expiry date periods and suggested that consumers were more likely to redeem a gift card where shorter expiry date periods apply. Retail groups have indicated that the majority of gift card balances are redeemed within the first three months with it being rare for a gift card to be redeemed after 12 months of being issued.48

A range of factors are likely to influence whether a gift card issuer imposes expiry dates, such as the nature of the business, its core activities, size, structure and financial position. It is noted that some retailers49 issue gift cards that do not have any expiry date while other retailers commonly impose expiry date periods of 12 or 24 months. While different issuers—including small businesses—may have different needs with respect to the terms and conditions that apply to gift cards, a number of general observations can be made with respect to the application of expiry dates.

Undeclared liabilities

It has been suggested that expiry dates are necessary to prevent the build-up of undeclared liabilities. It is argued that without expiry dates, the card issuer is required to record an ongoing liability in the event that the gift card holder should decide to use the gift card. It is claimed that this is untenable for most issuers who require certainty and wish to record unclaimed balances as breakage. In addition, some submissions50 commented that maintaining contracts and legal arrangements impose additional burdens and can increase the issuer's vulnerability to fraudulent activity. Furthermore, gift card issuers may incur gift card program management fees when maintaining gift card liabilities for extended periods of time. It is acknowledged that the certainty provided by applying expiry dates can be considered to be a good business practice from the point of view of the issuer; however, a key focus of this review is to consider the consumer impact of such terms and conditions, and whether there is any scope for issuers to provide more flexibility to consumers.

Some consumer submissions have highlighted that it should be possible to predict the likelihood of gift cards being redeemed based on past experiences.51 CCAAC observes that unredeemed gift card balances can be accounted for using techniques that treat unredeemed balances as a current liability while recognising that some gift cards will never be redeemed.52 Indeed it would appear as though at least some gift card issuers already use such practices where expiry dates are not applied.

As the accounting of gift card balances is not subject to specific regulation, it is possible for gift card issuers to account for unredeemed balances—and the associated breakage—even where expiry dates are not applied. Exceptions to this may apply where there is some uncertainty around redemption rates such as where gift card use is irregular, individual balances tend to be large, or where information is hard to gather. Here, expiry dates assist issuers in ensuring that unredeemed gift card balances are manageable and also assist in reducing their vulnerability to fraudulent activity where comprehensive record keeping has not taken place. These considerations may be particularly relevant for small to medium sized businesses.

Ensuring supply

Some businesses, particularly those that offer services, apply expiry dates because they need to ensure that they supply the goods or services as described. There are a number of reasons why the capacity of a business to supply may vary over time. Some have identified that the cost structure of a particular business may vary over time and that where services are provided, expiry dates can ensure that amounts paid for the gift card appropriately reflects the cost to the business when the gift card is redeemed.53 Alternatively, a business may offer a service that is conditional upon having relevant licenses or permits, for example recreational charter flights, for which the gift card issuer is unable to guarantee supply indefinitely.

Gift card issuers operate in unique environments that may require different terms and conditions, including expiry date periods, to be applied. Businesses need to consider whether a decision to issue gift cards is compatible with their chosen business model. However, it is recognised that expiry dates can assist both businesses and consumers where there may be some uncertainty over whether a business can supply a good or service into the future. They facilitate the business' ability to issue a gift card where they may otherwise be unable to and ensure that the consumer redeems the gift card within the period where the supply of goods or services can be guaranteed.

It is noted that a gift card that can be thought of as credit for use at a particular business is different to a prepayment for a particular good or service. For example, offers made through group buying websites for a particular good or service, paid for in advance, are distinct from gift card products which can be used to purchase a wide range of goods or services offered by a business. Concerns relating to the supply of goods or services are typically dealt with by businesses either through changing prices (as would be the case where costs increase) or by supplying through alternative means with prices changing accordingly. As a result, many of these concerns only apply where a business offers a very specific kind of good or service and are unlikely to apply to the broader gift card market.

Redemption rates

A number of submissions commented that even where longer expiry dates are applied, this does not necessarily improve redemption rates. While some reports54 suggest that up to 30 per cent of gift card balances go unredeemed, other reports have been to the contrary55. The ARA and AMPF joint submission suggested that gift cards issued by AMPF members have a redemption rate of 98 per cent within the expiry period56 with higher redemption rates for gift cards that have shorter expiry periods. In addition, the Australian National Retailers Association suggested that based on member's data, the majority of gift card balances are redeemed within three months of being issued. This would appear to suggest that longer expiry dates may not necessarily assist in reducing breakage.

Submissions57 indicated that a number of large retailers offer formal grace periods in addition to the stated expiry date. This may provide relief to some consumers who have a recently expired gift card. This may be useful where a consumer remembers receiving a gift card on the anniversary of the event on which they received it (such as on their next birthday). CCAAC is aware of some complaints made to ACL regulators about expiry dates on gift cards offered by issuers who have grace period policies in place. This could indicate that at the store level, customer service policies may not be fully implemented or that customer service staff may not be empowered to make decisions relating to accepting expired gift cards.

More generally, grace periods offered may be l
ess useful to consumers where they are unaware of the expiry date or do not request to make use of this flexibility.

In addition, the longer a consumer is in possession of a gift card, the higher the risk that the business will cease to trade, including as a result of an insolvency process. It is relevant to note that this risk is a further reason why it is in a consumer's best interest to redeem a gift card as promptly as possible.

While CCAAC is not satisfied on the available evidence that it can determine the impact of longer expiry dates, figures provided by industry stakeholders are consistent with the behavioural economics literature. Behavioural theory indicates that it is possible for longer expiry dates to induce consumers into becoming more relaxed about their responsibilities in ensuring they redeem their gift card.58 This effect could offset the number of cases where gift cards cannot be redeemed due to expiry dates where they otherwise would have been redeemed. For the reasons outlined above, it is possible that significantly longer expiry dates may not necessarily assist in reducing breakage and could even operate to reduce redemption rates. In that respect, and from a consumer protection perspective, caution should be exercised with respect to any proposal for prohibiting expiry dates or mandating longer minimum expiry periods.

Promotional gift cards

Some gift cards are issued for promotional purchases. These gift cards are typically given from the issuer to the receiver as a gesture of good will to the consumer or to honour a commitment as part of a loyalty program. Gift cards are also donated to assist local fundraising efforts, and may reflect a temporary capacity to donate goods or services. Expiry dates on these cards may be less generous than those offered on purchased gift cards as the card issuer seeks to encourage their use within a shorter period of time.59

In general terms, CCAAC considers that it is reasonable for gift cards issued by retailers on a genuinely complimentary basis to be treated differently to gift cards that have been paid for by consumers.

Expiry dates and issuer type

Gift card issuers can be placed into a range of categories. Each category has differentiated incentives with respect to expiry dates. Issuer categories can be characterised by some of the following dimensions:

  • size and number of outlets;
  • reliance on repeat patronage;
  • whether the issuer is a third party; and
  • the market power of the issuer.

Gift card issuers face stronger incentives to achieve customer satisfaction where negative consumer experiences have a cost to the business. Customer dissatisfaction can lead to a loss in repeat business but also negative word of mouth effects.

It could be argued that larger businesses with many outlets are more susceptible to word of mouth effects while certain retail categories rely more on repeat business. On the other hand, gift card issuers that sell gift cards for use at another retailer60 may be less affected by negative consumer experiences. The same may also be true where the consumer may be unable to transfer their business to an alternative supplier.

The bulk of Australian gift cards are issued by medium to large retailers for use at the store from where it is purchased. In addition, these retailers rely on repeat purchases and have multiple outlets and so have much to lose from negative publicity from consumer experiences with gift cards. The Australian retail market is competitive in most categories with a significant amount of choice available to Australian consumers. From this, it is apparent that for most issuers operating within the Australian gift card market, unfair expiry date policies cannot be applied without repercussion. Subsequently retail industry groups have noted that most gift cards offered within the Australian market commonly have expiry periods of 12 month or longer.61

Gift card issuers that impose expiry periods of less than 12 months may do so because there is an operational reason justifying a shorter expiration period. While it may be suggested that shorter expiry dates are intended to increase breakage, it would appear as though most gift card issuers offer gift cards to promote sales. Gift card issuers may be less willing to apply unexpectedly short expiry periods in an attempt to deliberately increase breakage as this could create negative consumer experiences. If expiry dates were applied in an unreasonable manner, the generic consumer protections of the ACL may provide some relief to consumers. CCAAC is satisfied that the majority of businesses apply expiry dates in a reasonable manner.

Differences in terms and conditions relating to expiry dates

As the bulk of gift cards in the Australian market are valid for a period of more than 12 months, some consumers may come to expect that all gift cards are valid for at least this period of time. Consequently, consumers may experience some difficulties when using gift cards with short expiry periods.

Differences in terms and conditions are primarily a result of the diversity of gift card products available on the market. It is up to an issuer, within the bounds of the law, to determine expiry date policies; and so they are inevitably differentiated to reflect the operational needs of each issuer. CCAAC observes that these differences can be accommodated where they are brought appropriately to the attention of the consumer. Where this does not occur, consumers may experience difficulties where expiry date policies do not conform to standard industry practice.

Findings

CCAAC has identified some instances of personal consumer detriment with respect to the application of expiry dates on gift cards. There have been some circumstances where consumers have not redeemed the full value of their gift card before the expiry date.

CCAAC has not found any overwhelming evidence of systemic consumer detriment relating to expiry dates, however, there may be some merit in continuing to monitor to see whether any new evidence emerges. It would appear as though most gift cards are redeemed shortly after purchase, with most gift cards in the Australian market offered with an expiry period of at least 12 months. CCAAC also acknowledges that in some cases, depending on the individual circumstances of the gift card issuer, the application of an expiry date—including where it is less than 12 months—may be a reasonably necessary practice to ensure the operational viability of a gift card program.

CCAAC also finds that many gift card issuers offer grace periods and can provide flexibility in accordance with their customer service policies. While many issuers may offer this as a courtesy to their customers, this is not a universal practice. Also, it would appear as though these policies may not always be implemented at the store level with consumers having to elevate a complaint before being offered an extension to their expired gift card. Issuers could consider how grace periods are applied at the store level to ensure that customer service objectives are achieved. CCAAC notes that some consumers may not try to use the card once they realise it has expired, and many will not complain.

Where consumers are aware that expiry dates apply, they are able to select a gift card that is appropriate to the receiver's needs. The existing consumer protections of the ACL and the ASIC Act may assist in reducing the incidence of cases where consumers are misled about expiry dates.

Terms and conditions in the event of insolvency

Recent external administrations62 have raised community a
wareness of the insolvency risk to gift card holders. There is limited understanding of the external administration framework within the community. Submissions to the review expressed confusion about the practice of retailers operating 'as normal' following the appointment of receivers, while varying the terms and conditions of previously sold gift cards.63 Examples of this include where a retailer only accepts a gift card where the customer spends twice its value in store, or no longer accepts the card at all. Complaints received by ACL regulators also reveals that external administration provides one of the more common reasons for complaints made about gift cards.64

It is understandable that this could lead to some confusion as the store continues to trade and does not conform to what the public expects when a retailer is insolvent. In these circumstances, consumers perceive the retailer to have reneged on the agreement made at the time the gift card was purchased. However, a more accurate explanation of insolvency situations is not that the gift card terms have been 'changed' but rather that the liquidator has made a new offer to gift card holders to enable them to redeem their gift card balances. It is open to the gift card holders to reject this new offer and attempt to recoup the full gift card balance as a creditor; however, the external administrator's offer will often prove more valuable to the consumer.

Confusion is compounded by the external administrator's obligation to maximise the return to its creditors. While any offers made during an external administration may benefit gift card holders, these offers are only made so that any underlying asset value has the best opportunity of being realised. Greater consumer awareness of external administration risks in any prepayment situation would assist in both better informing consumers of their rights and assisting consumers to minimise their exposure to insolvency risk.

CCAAC notes that ACL regulators provide specific guidance for consumers on specific insolvencies that may affect gift card holders.65

Gift card holder rights in the event of insolvency will be discussed in Part IV.

Findings

Companies placed into external administration are required to be administered in accordance with the Corporations Act 2001 (the Corporations Act). Gift card holders are likely to rank as unsecured creditors in the event of insolvency. External administrators have an obligation to maximise any returns to creditors and are not required to honour the terms and conditions applied to gift cards at the time of purchase. This may cause some confusion where in doing so, a business in external administration appears to continue to operate as normal. This may be further exacerbated where a company in external administration offers to accept gift cards under different terms and conditions than were applied at the time of purchase. CCAAC finds that some consumers have limited understanding of their rights in the event of an external administration and while consumers are unlikely to take notice of general information on this topic, those who suffer detriment as a result of insolvency could benefit from access to clear information at that time.

Receiving change

Some consumers have expressed dissatisfaction with their inability to receive change where small balances remain.66 It is not uncommon for gift card issuers to provide change for small balances under a certain amount; however, they do so as a courtesy to their customers and are not required to do so under existing legal frameworks. Some submissions suggested that gift cards that are not fully redeemed may only have a very small remaining balance.67 Where remaining balances are low, the consumer may be required to purchase a more expensive item by contributing money out of pocket or be unable to purchase an item due to restrictions on low value purchases.

Change and the contractual nature of gift cards

Compelling gift card issuers to provide change to consumers could present some challenges where the gift card does not provide the consumer with any underlying monetary value but rather value in the form of store credit. Gift card issuers may be reluctant to provide change because the cost of goods sold is typically lower than the retail price. Accordingly, gift card issuers are likely to incur some costs when providing change to their customers.

Gift card issuers have indicated that most gift cards, by design, allow the consumer to retain any residual value for use at a later time.68 While in most cases this may be a suitable way for consumers to retain remaining balances, there is some concern that consumers may experience difficulties when attempting to use any remaining value.

Difficulties for consumers when using residual value

CCAAC acknowledges that in some cases, it can be difficult in practice for consumers to redeem any remaining value on a gift card without having to contribute additional funds at the point of sale. This may occur because the retailer does not sell items that closely reflect the remaining small balance, or because restrictions on low value use prevent the consumer from using the amount to purchase a low value item. As pointed out in some submissions, overly obtrusive restrictions may be in breach of consumer protection laws.69 While less severe restrictions may inconvenience the consumer, they do not lose this value entirely as it is usually possible for the gift card holder to use it by either purchasing an item of an appropriate value or by adding additional funds.

While some gift cards may not provide consumers with the desired level of flexibility with respect to their use, all gift choices may have some disadvantages. As has been pointed out by some submissions70, the gift giver has chosen to give a gift card and all of the associated terms and conditions that relate to its use. Despite this, it may be that conditions such as restrictions on low value use are not made clear to the consumer upon purchase. In this regard these difficulties may result from poor disclosure as the gift giver may not have chosen to give a gift card had they been aware of these conditions.

To ensure that the products they purchase are appropriate to the needs of the receiver, gift givers have the responsibility to educate themselves about the products they choose to buy. This applies equally to purchases of gift cards as it does to any other alternative gift choice.

Consumers expect to receive change when using cash. Even where terms and conditions may clearly state policies relating to the provision of change, consumers are likely to have the same expectation for gift cards where these are promoted as being 'as good as cash'. Some consideration as to how gift card issuers could better communicate policies in relation to the provision of change may assist consumers in better understanding the nature of gift card products.

Consumer detriment and residual values

It is noted that some stakeholders have indicated that the level of breakage associated with unredeemed balances is low.71 The degree of consumer detriment associated with policies for the provision of change is naturally limited by the gift card holder's ability to decide on which items maximise the value to them from the gift card. While the gift giver and gift receiver may not be aware of policies relating to
the provision of change before redeeming the gift card, they are usually made aware of such policies at the point of sale. At this time, the gift card holder is able to make a conscious decision as to how to best maximise their use of the gift card in the light of these policies. Depending on personal preference, consumers may maximise their use of the gift card by:

  • adding funds to purchase an item that costs more than the gift card's value so as not to have any residual value on the gift card;
  • purchasing a bundle of items so that any residual value is low or zero;
  • purchasing a single item that may be below the face value of the gift card but that maximises the consumer's use of the gift card as it is the item that they most want to buy; or
  • using any residual value to contribute towards another purchase at a later time.

The magnitude of any unredeemed residual value is not the sole measure of consumer detriment. For example, a consumer with a gift card valued at $100 may prefer to purchase a tennis racquet worth $90 and forgo $10 of use than to purchase a cricket bat worth $95 and forgoing only $5 of use. The consumer is not necessarily worse off by purchasing the tennis racquet even though they may forgo a greater portion of the gift card's value.72

Ideally, the amount paid for the gift card would be the same amount as the purchased bundle of goods would cost had the gift card holder used cash. However, the gift card holder may still be maximising their own welfare even where this does not occur. The gift card holder is best placed to make the appropriate decisions to maximise their value from the gift card.

Findings

CCAAC is not aware of evidence to suggest that there is significant loss to consumers due to policies relating to the provision of change. Most gift cards are designed to retain any residual balances on the gift card itself. Some issuers, as a courtesy, may provide change in certain circumstances and this may be considered a good business practice. Improved disclosure about gift card policies for the provision of change may assist consumers when choosing gift card products.

Fees and charges

Fees and other charges can be applied to some gift card products. These fees may have a number of purposes ranging from changing the way that consumers use the products to cost recovery. Some submissions highlighted that closed loop gift cards in the Australian market are not typically subject to fees; however, fees do apply on some open loop gift cards.73

Fees as an incentive

In other gift card markets, fees may sometimes be applied to encourage gift card holders to use them as soon as possible. For example, some gift card issuers may impose dormancy fees to encourage users to spend any outstanding balance as soon as possible. Alternatively, other fees may apply to discourage certain gift card redemption behaviours. For example, a gift card issuer may impose a transaction fee to encourage the gift card holder to redeem the entire gift card value in a single transaction. While these fees are not common in the Australian market, there may be other fees applied to gift cards in Australia. This includes replacement fees where gift cards are lost or stolen.

Fees and cost recovery

Some fees may be applied to gift cards on a cost recovery basis.74 This would appear to be particularly the case for open loop gift cards. While issuers of closed loop gift cards are able to make a return on the sales made with gift cards, open loop gift card issuers may have to rely on fees. These fees may be applied on a number of occasions including upon issue or per transaction. These fees ensure that gift card programs are profitable and that costs can be recovered.

Fee transparency

Gift card issuers should be transparent about any fees that apply to the use of a gift card. While upfront fees may be more apparent, other fees such as dormancy or per transaction fees may not be clear to the gift card holder. Of the fees applied in the Australian gift card market, the most common fee type appears to be an upfront fee. For example, the Commonwealth Bank charges a $5.95 issuance fee for their MasterCard Gift Card. While there may be some other fees to access post sale services such as a customer service hotline, it would appear as though other fees are uncommon in the Australian market.

Findings

There does not appear to be any reason why fees other than upfront fees should be applied to cover costs where gift card issuers retain gift card breakage and are able to make a return on sales. With the exception of some open loop gift card products, fees and charges do not appear to be common in the Australian market. Where there is transparency around fees, consumers have sufficient choice to allow them to avoid fees if they wish to do so. Most fees applied in Australia are limited to upfront fees paid when purchasing a gift card. Dormancy and other fees are not as common in Australia as they are in other countries.

It would be appropriate for ACL regulators to continue monitoring the Australian gift card market to observe whether there are any changes to the manner in which fees are applied.

Other issues relating to gift card terms and conditions

A number of other issues have been raised with respect to the terms and conditions that apply to some gift cards in the Australian market. These issues were not raised as key concerns for consumers.

Restrictions on low value use

Some gift card issuers apply limitations on low value use. This may include restrictions on purchases of items below a certain value or limits as to how much can be loaded onto a particular gift card. Issues about restrictions on low value use were not raised as a major issue in the submissions received.

While CCAAC received few submissions75 from gift card issuers commenting on restrictions on low value use, it would appear as though any restrictions of this kind are applied for operational reasons. CCAAC has learned that gift card issuers typically pay fees on a per transaction basis to gift card program operators. As may be the case with other forms of electronic payments, retailers may place restrictions on low value use where the cost—financial or otherwise—of accepting certain forms of payment is too high relative to the value of the transaction. It is reasonable for issuers to ensure that gift card programs are sufficiently profitable; however, any restrictions on low value use should only be imposed where they are reasonable to protect the legitimate commercial interests of the issuer. Furthermore, any restrictions that apply should be clearly disclosed to the consumer.

Limitations with respect to retailers that accept gift cards

Some gift card products are advertised as being for use at a particular group of retailers. These retailers may be linked as being part of a chain, franchise group or shopping centre. Issues may arise where certain retailers within an identified group do not accept the gift card. While it may be made clear at the point of sale that a particular retailer within the group does not accept the gift card, on other occasions it may not be made clear to the purchaser, or final user of the gift card.

Where a gift card is marketed as covering a particular retail category and a number of exceptions apply, there is a clear need to disclose this to the consumer. Even where a gift card is not strictly advertised as such, any exceptions should be disclosed to the consumer if it is reasonably likely that th
ey would be left with such an impression. By way of example, a consumer is likely to assume that a shopping centre gift card can be used at any tenant retailer even if the gift card is not promoted as such. To comply with existing requirements under consumer law, the issuer should ensure that consumers are familiar with the participating retailers, including whether there are any notable exceptions.

The Shopping Centre Council of Australia has commented that consumers are made aware that shopping centre gift cards can only be used at participating retailers and that consumers are referred to a list of retailers that accept the gift card on a website. Furthermore, for some shopping centre gift cards, consumers are notified of any major retailers where the card is not accepted. However, evidence from consumers indicates that the quality of such disclosures may vary. CCAAC notes the importance of procedures at the point of sale to ensure that these disclosures are made consistently.

Findings

In relation to restrictions on low value use or limitations with respect to retailers that accept gift cards, CCAAC notes that these restrictions have the potential to create difficulties for the consumer where they are not appropriately disclosed. However, CCAAC is not aware of any overwhelming evidence of structural consumer detriment from these issues.


33 For example, John Mason, p 1. Susan Griffin, p 1. Graeme Wass, p 1.

34 See Appendix 6.

35 For example, Australian Retailers Association and Australian Merchant Payments Forum, p 8. Float & Therapies Pty Ltd, p 1.

36 For example, gift cards issued by Bunnings, Toys 'R' Us, EB Games, sharedvalue.com.

37 For example, gift cards issued Myer, JB Hi-Fi.

38 For example, those offered by some small businesses or other promotional gift cards.

39 Australian Retailers Association and Australian Merchant Payments Forum, p3.

40 For example, Kathy Patterson, p 1. Diana Wang, p 1. Allan Radford, p 1.

41 Griggs, L (2012) 'Gift Vouchers—the forgotten present?', Competition & Consumer Law News, February 2012, pp 228-230.

42 For example, the Consumer Action Law Centre, p 2.

43 A parallel requirement exists in Section 12 BF of the Australian Securities and Investments Commission Act 2001 for gift cards that are financial products.

44 For example, the Consumer Action Law Centre submission, pp 2-3.

45 For example, National Retail Association, p 6.

46 For example, Carol Stanley, p 1.

47 For example, Australian Retailers Association and Australian Merchant Payments Forum, Australian National Retailers Association, p 14.

48 For example, Australian National Retailers Association, p 4.

49 For example, Bunnings Warehouse, EB Games.

50 For example, Blackhawk Network, p 6., Indue Ltd, p 8.

51 Consumer Action Law Centre, p 2.

52 For example, see C Feinson (2011), 'The steep rise of gift card purchases by the consumer is changing the method of accounting and reporting of gift card income by corporate retailers', Journal of Business & Economics Research, Vol 6 No 4 pp 7-12 for an outline of some methods that can be used to account for unredeemed gift card balances.

53 For example, Judith Powell, p 1.

54 Choice (2010) 'Gift card traps', 1 July 2010, Cardlimbo, p 2.

55 Australian Retailers Association and Australian Merchant Payments Forum, p 3.

56 It is further estimated that when grace periods are taken into consideration, only 0.2 per cent are not redeemed.

57 For example, Wright Express Australia Pty Ltd, p 5.

58 Tversky, A; Shafir, E 1992, 'Choice under conflict: The Dynamics of Deferred Decision', Psychological Science, Vol 3 No 6, pp 358-361.

59 For example, where gift cards are issued as part of a promotion to encourage additional spending during non-peak periods.

60 For example, shopping centre gift card programs or unauthorised gift card issuers.

61 For example, the Australian National Retailers Association, p 6. the Australian Retailers Association and Australian Merchant Payments Forum, p 6.

62 External administration is a generic term used in the Corporations Act 2001 to refer to situations where an external party (a liquidator) is appointed to control a company or some of its assets. The term covers the appointment of a receiver to an asset, the appointment of a receiver and manager with control over all of the company's assets, the commencement of a voluntary administration, or winding up in insolvency.

63 For example, Judith Powell, p 1. Laura Lindley, p 1. Phillip Lane, p 1.

64 See Appendix 6.

65 For example, the MoneySmart website may contain information relating to specific insolvencies as they arise.

66 Queensland Consumers Association, p 2.

67 Universal Gift Card Pty Ltd, p 7.

68 Myer, p 4.

69 Consumer Action Law Centre, p 3.

70 Reid Industry Group, p 1.

71 CCAAC meetings with industry groups on 11 May 2012

72 A more general comparison of gift choices is at Appendix 4

73 Australian Retailers Association and Australian Merchant Payments Forum, p 6.

74 Universal Gift Card Pty Ltd, p 6. Westfield, pp 2-3.

75 Australian National Retailers Association, p 6.