Consumer Alert: Are your gift cards safe?

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Are gift cards a good bet this season?

Gift card holders could lose more than $75 million just from store and restaurant closings in 2008, said Brian Riley, senior analyst at Tower Group, a consulting firm. Already, some big retailers, including Sharper Image and Bombay Co., have filed for bankruptcy protection, leaving gift card holders with millions of dollars of what the Bankruptcy Court considers unsecured debt. Both chains have since closed.

Consumers Union said that when Sharper Image filed for bankruptcy protection this year, it left an estimated $20 million on unused gift cards, and maybe as much as $40 million when merchandise certificates and related promotional cards were included. At first Sharper Image said it would not honor the credits. Later it successfully petitioned the court to allow it to accept gift cards if consumers spent twice the value of the gift card on a single transaction.

‘That wasn’t such a good deal, and who knows if anybody used their cards that way,’ said Anthony Giorgianni, associate editor of Consumer Reports, which is published by Consumers Union.

In August, home-furnishing retailer Bombay Co., which closed 388 stores, won approval from a U.S. bankruptcy judge in Fort Worth to pay off gift card holders 25 cents on the dollar.

Shoppers spent an estimated $26.3 billion on gift cards at retailers last Christmas season, compared with $24.8 billion in 2006 and $18.5 billion in 2005, according to the National Retail Federation.

State laws, including one in California, have proved ineffective in protecting gift card holders in bankruptcies, said Giorgianni of Consumer Reports. That’s why Consumers Union is recommending that people avoid giving gift cards this Christmas season. ‘If you don’t know what gift to buy, just give cash,’ he said. ‘It’s something that never expires.’

-- Jerry Hirsch