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How Gift Cards Lose Their Value

Oct 25, 2019 6:00 PM

A group of Canadian consumers recently discovered that the value of gift cards can disappear very quickly. 

Most provinces have rules to protect consumers who purchase gift cards, but if the retailer goes out of business, gift card holders are likely to be treated as unsecured creditors with few options. 

This story from Cabin Radio describes how a number of Yellowknife, NWT consumers purchased cards for $100 or more at a customer appreciation event shortly before a retailer was set to go out of business. Customers were particularly disadvantaged because the Merle Norman brand chose not to backstop its franchisee’s gift cards, and because the Northwest Territories is one of the few Canadian jurisdictions without gift card legislation. 

Consumers Council of Canada Executive Director Ken Whitehurst is quoted in the story. He noted that civil claims might be the only option for any recovery. He also noted that consumers with no other recourse could consider complaining to the Competition Bureau of Canada or to the Canadian Anti-Fraud Centre.

The Federal Government’s Financial Consumer Agency of Canada provides a link to the different provincial rules on gift cards, but as Ontario’s Consumer Protection site notes “If you have a gift card for a business that has closed, your options may be limited.”

Here are a number of guidelines for consumers to protect their gift card or gift certificates’ value: 
1. Don’t rely on brand image when buying a gift card. Know who is issuing and standing behind it. 
2. Read the terms and conditions to understand how the merchant may attempt to limit its liability to you. 
3. Understand your rights and the laws in the province or jurisdiction you live in. 
4. Don’t hesitate to report any problem collecting on a gift card to your provincial or territorial consumer protection department. Some say they can have non-binding influence with the merchant or franchisor. 
5. Share the experience with the Consumers Council of Canada through, so we can work on improving protections for consumers in the future. 
6. If the value of a gift card is large, enter a claim for restitution in writing with the merchant and franchisor. In the event a bankruptcy ensues, unsecured creditors could receive partial compensation. 
7. Some businesses will negotiate an exchange of products still in inventory in order to settle, if they haven’t already filed for bankruptcy. Consumers can propose creative solutions to get all or part of their value back. 
8. Be suspicious of gift cards sold just days before a business closing and alert authorities. Fraudulent misrepresentation to raise cash by a business that expects to soon fail is not acceptable. A consumer who feels unsure about whether they have been defrauded, can discuss their experience with Canada's Anti-Fraud Centre
9. Although consumer protection law may provide your rights, it may be up to you to enforce those rights through a court to collect against them. 
10. If enough consumers are harmed and the right of claim is relatively clear, lawyers experienced in class action may be interested in making a case for you and other consumers as a class, without cost to the affected consumers. The Canadian Bar Association has an online “find a lawyer” service to help identify lawyers experienced in class action.

Advertising & Sales, Credit, Payments, Right-Basic Needs, Right-Information, Right-Redress, Beware, Action  




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