Prepaid cards are essentially open-loop gift cards without the word “gift” on them and are often marketed as a viable alternative to a bank account. Wal-Mart recently announced that it will be paying employees through prepaid debit cards instead of direct deposit.

Consumers Union decided to weigh in on the topic and has published an in-depth review of prepaid cards; it isn’t pretty. But of course, if you’ve read any of the other information published here about open-loop gift cards, you already guessed that. The bottom line is prepaid cards are chock full of fees, do nothing to help someone build credit, and have inadequate protection against loss.

To get a better idea the value lifespan of an All-Access Visa gift card, one of the most highly reviled and complained about gift cards due to their very short no-fee period and their very high ($4.95 monthly fee), it is helpful to graph the value left on the card over time.

A $25 gift card will be worthless after 12 months, a $50 gift card after 17 months, and a $100 gift card after 27 months.

If All-Access showed a graph like this on their gift card packaging, people wouldn’t be so excited to buy their cards.

Perhaps the above images should be incorporated into the All-Access logo. :)

I’ve seen plenty of estimates of how much of total gift card sales gets left on the table by consumers each year ($8-10 billion), but I’ve never seen someone give a number for the TOTAL in gift card value that sits unused. An article in Business Week (here) says that there is about $40 billion in unused gift cards sitting out there.

US Bank recently announced that it is the number one issuer of Visa branded gift cards. An analysis of their gift card fees shows that they are even worse than everyone’s least favorite gift card, the All-Access gift card. The US Bank Visa gift card starts charging a $2.50 monthly fee ONLY six months after issuance, charges $0.50 for every call (after the first two) to the AUTOMATED balance check number, strictly prohibits resale of US Bank gift cards (huh?), and charges $15 to replace a lost or stolen gift card.

Is it just me, or are gift card companies getting even more brazen with their high fees? Perhaps they feel that because they have escaped regulation thus far, anything goes.

Sounds good, doesn’t it? GiftCards.com recently announced, as a gesture to help people for whom every buck counts, a gift card that has no montly fee. Their normal gift cards come with plenty of fees, including a per-transaction fee, ATM fee, international use fee, and even a fee to change your PIN number. The new montly feeless NMF Visa gift card, while it has no montly fee (until the expiration date passes), seems to make up for it in other ways, including a higher per-transaciton fee, a $15 expiration fee (that is assessed when your card expires), and a higher issuance fee. It also isn’t clear from the language in the press release and the cards terms & conditions, but it appears that the NMF card expires after only one year, unlike their normal cards that expire after 2 years.

Not such a good deal after all.

One of these days I’m going to survey every open-loop gift card I can find to figure out which one of them is the best, or most likely in the realm of gift cards, the least worst.

You can now be the proud owner of a Capcom Street Fighter sponsored Visa debit card that sets a new low in the fees it charges, including:

* $9.95 activation fee
* $4.95 monthly fee
* $0.25 per debit use
* $1.50 per ATM withdrawal (not including whatever fee the ATM charges)
* $10 to close the card (and you can’t just stop using it, because besides the $4.95 monthly fee, there’s a $5 dormancy fee

It appears that the monthly maintenance fee kicks in immediately, which would be a first, as far as I know. (article and card)

Westfield malls is HUGE, with 55 malls in the US and more outside of the US. They sell a lot of gift cards. Their gift cards happen to be American Express branded cards and can be used anywhere Amex cards can be used. As Amex/open-loop cards, they come with all the downsides that everyone complains about, such as high dormancy fees and difficulty using up the small remaining balance.

But since it is a Westfield branded card, you would think you wouldn’t have a problem using it up fully at a store in a Westfield mall. Not so according to this story, about a woman who is making a stink about Westfield retailers not accepting cards with less than ten bucks on them. Worse, the retailers tell her the cards had nothing on them, when they in fact did have money left on them.

Westfiled turned to the fine print and said all the terms and conditions were in there, such as the fact that Westfield retailers could choose to accept or not accept the Westfield gift card. Here is the funny part, when she asked them where she could use the card, they named three retailers out of the perhaps hundred in the mall. Three.

It is also interesting to note that according to American Express merchant guidelines and agreements, retailers can not specify a minimum amount for credit or debit card charges.

The jury is in, open-loop (Visa, MasterCard, Amex) gift cards are simply a raw deal. Stay away from them.

For a while I thought I was the only one talking about the fact that multi-store, aka open-loop or bank issued gift cards are exempt from most laws that limit expiration and fees on gift cards. Finally at least some articles are beginning to mention them.

As this article points out, merchant agreements with credit card processors specifically prohibit merchants to have minimum purchase amount requirements for credit card use. This applies to gift cards as well. If they say you need to meet the minimum purchase amount, tell them it is against their merchant agreement. If they still refuse, report them to MasterCard, Visa, or American Express.

Of course, it’s not really the merchants fault. They have minimum purchase amounts because for small purchases their fees end up being a much larger percentage of the overall price and they may lose money on the purchase. However, if enough consumers complain about merchants, perhaps enough merchants will complain about the credit card fees, which are what really need to change.

Consumer reports says that 25% of gift cards go unused each year. A commonly accepted breakage value (the amount of gift card value that doesn’t get spent) is 10% of the total amount on gift cards sold each year. For these two numbers to make sense, the cards that go unused must be heavily weighted in the smaller values. Perhaps the psychology behind this is that people are less likely to forget about a gift card with more value on it.