Gift card warning to consumers over Christmas
Vouchers, or gift cards, can be a great idea at Christmas.
Give them to a teacher, a colleague, or a teenager perhaps, and you can show you have at least thought about them, without second-guessing their tastes.
But last year thousands of consumers were left out of pocket, when HMV, Blockbuster, Comet and Jessops all went out of business after the Christmas period.
Most vouchers were eventually honoured but only after a period of uncertainty.
In the case of Jessops, now under new management, some people were offered replacement gifts, but customers with vouchers worth, in total, more than half a million pounds never saw their money back.
The fact is, if you buy a gift card, there is no guarantee it will be honoured if the shop goes out of business.
So can they be trusted?Low priority
Not at the moment, argues Deborah Harvey, from Newport in south Wales.
Creditor Priority List
- Loans on fixed assets
- Administrator's fees
- Staff wages
- Loans on stock, vehicles etc
- Unsecured creditors, including tax, suppliers and voucher-holders
She and Louise McDaid run Safeguard All Savings, a website dedicated to protecting consumers' money.
She believes passionately that gift cards and vouchers should be guaranteed if a retailer goes out of business.
"If I give you £10, I expect to be able to spend £10; not to be told, 'Well actually, your voucher has expired, you can't use it.
And by the way, we've just gone bust, so you definitely can't spend it,'" she says.
She believes the best option would be for voucher money to be ring-fenced.
In other words retailers would have to keep that money in a separate account for a specified period.
Another issue is that voucher-holders are well down the list of creditors, should a retailer go out of business.
They are currently on the fifth tier, alongside suppliers and the taxman.
Only shareholders are less likely to get their money back.Liabilities
The body which represents the gift card business would like to see card holders moved up the priority list.
For the moment, any administrator looking at the books of a retailer is obliged to pay the banks which have lent money to the business, the costs of the administration, and staff salaries, long before they look at gift card holders.
"If a retailer goes in to administration, the decision to continue to accept gift cards and vouchers is down to the individual administrator," says Andrew Johnson, the director general of the UK Gift Card and Voucher Association.
A recent study by a body representing insolvency specialists looked at other possible solutions.
End Quote Deborah Harvey Safeguard All Savings
I'm really concerned that there's going to be something again this Christmas. And it's going to be too late for anyone to do anything about it”
These included the idea of making retailers who offer gift cards buy a protection bond, a form of insurance which would pay out if a retailer went bust.
They also considered the idea of extending the Consumer Credit Act.
Currently anyone who buys vouchers worth more than £100 on a credit card is protected, in theory by both the credit card company and the retailer.
Where a retailer has gone bust, that responsibility in practice rests with the credit card provider.
The Act could, in theory, be extended to include smaller purchases.
However, retailers could be severely affected by such liabilities. Many of them trade on notoriously thin margins as it is.
Indeed some argue that shops might be even more likely to go bust, should they have to honour gift cards.
"All of these options are quite difficult to administer, and they are also quite costly," says Andrew Tate of the Association of Business Recovery Professionals.
"Taking cash flow out of a business in the current economic climate is difficult," he says.Advice
So what should consumers do if they are considering buying gift cards or vouchers this Christmas?
First of all, they should watch their local high street carefully.
Blockbuster, the video chain, has already announced its intention to call in the administrators, for the second time.
"I'm really concerned that there's going to be something again this Christmas," says Deborah Harvey from Newport.
"And it's going to be too late for anyone to do anything about it," she warns.
The UK Gift Card and Voucher Association advises customers to think very carefully about where they buy vouchers from.
It says as long as you trust the retailer, you should trust their vouchers. But the reverse must be equally true.
If you wish to buy more than £100 of vouchers, make sure you buy them on a credit card.
But otherwise there are still no guarantees that your money will be safe.