The market for gift cards has doubled in the past 10 years. But what happens if the retailer goes bust?
Any regular present-giver must at some stage have considered a gift card. Short of time? Unsure of the recipient's size? Can't remember if they prefer green or purple? A gift card can solve these perennial dilemmas.
Harold Raymond, a book publisher, recognised this when he launched the UK's first gift card more than 80 years ago. After questioning the "capacity for giving pleasure" of many festive gifts, he established a voucher scheme for book tokens in November 1932 just in time to catch the Christmas shopping rush.
Today, the gift card and voucher market is worth some £4.7bn, having doubled in size over the past decade. Businesses account for about half of all sales, with employers using them to reward staff. The industry is expecting a bumper Christmas this year, with expected sales of £2bn.
But gift cards so easy to fall back on come with a sting in the tail. Much of the industry is not regulated, so the cash on gift cards is not protected if the retailer goes bust. Customers can write to administrators with proof of their vouchers, but there is no guarantee they will get their money back.
In July, MPs held a debate on gift-card regulation following a string of retailer collapses. The Conservative MP Penny Mordaunt, who tabled it, said: "Too many consumers are vulnerable because companies will not honour what they put on those vouchers and cards.
"Hopefully, by raising awareness of the problem and the alternatives, people can become more savvy about what to buy and retailers will be prodded to come up with more ethical products."
The list of high street retailers that have collapsed into administration over the past year is long and inglorious. HMV, Blockbuster, Jessops, Comet, Repubilc and Nicole Farhi are just a few that come to mind. Some continued to honour gift cards while others declared them invalid.
When a company goes bust, gift-card holders are classed as creditors and by law must take their place alongside everyone else owed money. Voucher holders are unsecured creditors, so they usually find themselves at the back of the queue.
A spokesman from consumer group Which? said: "If a store goes into administration it may refuse to accept gift vouchers, though this situation may change. If they do refuse and you need to make a claim, write to the administrators with proof of your vouchers.
"Unfortunately there is no guarantee that you will get the full value back, and a claim could take some time for the administrators to process."
If shoppers have bought items costing more than £100 on a credit card and the supplier folds, they can claim a refund under the Consumer Credit Act, which states that a credit card provider has equal responsibility with the retailer for any breach of contract. However, for those who pay for their gift card in cash, the law provides no protection.
The UK Gift Card and Voucher Association says it is in talks with the Department for Business, Innovation and Skills to give voucher-holders better rights.
Andrew Johnson, its director-general, said: "We would like the administration rules to be changed so that holders of gift cards and vouchers move up the priority list." The association is also working with its members to make sure the terms and conditions of gift cards are more transparent.
Deborah Harvey, 48, from Newport (NasdaqGS: NEWP - news) in South Wales, has been fighting for better gift-card regulation with fellow campaigner Louise McDaid since 2006, when both women lost money after the Christmas savings company Farepak collapsed.
Ms Harvey said: "People are not protected and they are often not aware of the problem until the retailer goes bust and by then it is too late."
The two women run the pressure group Safeguard All Savings, which recently joined forces with Prepaid Financial Services in a campaign calling on retailers to ring-fence customers' money this Christmas.
Many shoppers are also caught out by cards expiring after a year or two. The expiry date is set from when the card was bought, not when the gift was given, and the date is not always on the card. Industry figures suggest 6p in every £1 spent on gift cards is wasted.
Anyone considering buying a gift card this Christmas is advised to read the terms and conditions on the back of the card, and only buy from retailers in good financial health. It could be worth checking the financial news to see if there are any concerns over the debt levels of a particular company, for example.
Alternatively, consumers could choose a card that is valid at more than one retailer, such as One4all, which is available online or in Post Offices and can be loaded with between £1 and £500. There is no time limit on spending, but after 18 months a monthly fee of 90p kicks in until no money is left on the gift card.
The card, which is backed by the Bank of Ireland (Berlin: BIR.BE - news) , can be used at 17,500 retail outlets including Debenhams (Other OTC: DBHSY - news) , Argos, WH Smith (LSE: SMWH.L - news) and TK Maxx. Funds from the cards are kept in a separate account, so customers' money is protected in the event of insolvency.
Michael Dawson, chief executive of One4all, says: "There is no excuse for these funds not to be safeguarded.
"This is consumers' money that has been handed over in good faith, and it should be set aside in some form, either by law or on a voluntary basis, to protect the funds so that if something goes wrong, people can get their money back."
Mr Dawson said the UK gift-card industry, while growing fast, was still in its infancy. "In the US, the gift-card business will be worth $110bn this year, and they are expecting 11pc of all Christmas sales to be on gift cards in the UK it is still less than 1pc. We still have a long way to go but the UK market is already too big not to have some basic regulations."
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