Getting the most out of gift cards by avoiding hidden charges
Sander Freedman paid $150 for a Vanilla Visa prepaid card at Shoppers Drug Mart in February 2017. He was planning to use it on an upcoming trip to Thailand.
“I didn’t have a credit card at the time, so this was a way to have access to a card in case I needed one for a hotel or car rental,” he said.
Unfortunately, his card did not work when he tried to activate it. He sent information by email, as instructed, but gave up after two tries with no response.
He recently found the unused card and receipt while cleaning up. He was leaving Canada again soon and reached out to me for help activating the card before he threw it away.
The same day I forwarded his email, Shoppers Drug Mart called with an apology and a promise to fix his problem with the card provider.
“We occasionally hear about concerns with third-party gift cards, but it’s a fairly rare occurrence,” said Catherine Thomas, spokesperson for Loblaw Companies, which owns the pharmacy retail chain.
“While each situation is unique and our third-party partners have their own protocols, ultimately we all want customers to be satisfied with their purchase. We sincerely regret the inconvenience Mr. Freedman experienced and are disappointed that a resolution was not provided sooner. We will be reviewing these processes with our customer service team.”
Prepaid cards are issued by financial institutions, which link you to payment card networks such as Visa, MasterCard and American Express. They can be used at most stores that accept credit cards from the same payment card network, as well as online.
While they look like gift cards, prepaid cards have significant differences. Here’s a guide from the Financial Consumer Agency of Canada (FCAC), which sets rules for federally regulated financial institutions.
- Once you buy a prepaid card at a store, you can reload it as many times as you want until the card expires.
- If the card expires with money still on it, the issuer will send you a new card or a cheque for the remaining balance on the expired card. But it may charge you a fee for these services.
- Fees can lower the value of your prepaid card, giving you less to spend. Depending on the product you have, you may need to pay fees to activate the card, make purchases, check your balance, load more money onto the card or maintain your card if you don’t use it for a certain period of time.
The fees often come as a shock. Here are some complaints I’ve received from readers:
Activation fees: Marian Stinson bought a $50 prepaid Visa at Shoppers Drug Mart and didn’t notice it had a $4.95 card activation charge until she saw it later on her bill. It reduced the balance on her card to $45.05.
The store manager pointed to the small print on the packaging, shown under the face value of the card, saying a fee would be charged.
“In my view, Visa should be transparent about the cost,” Stinson said. “It takes about 30 seconds to activate the card. Charging a 10 per cent fee is outrageous.”
You pay the activation fee only once, says the FCAC. The fee is not refundable. It can be a flat fee or can depend on the card’s value.
Maintenance fees: In December 2015, Frank Coppola bought six $100 Visa prepaid cards for his son, who wanted to buy a gas barbecue. He removed the cards from their packaging, so they would be easier to put into a wallet.
His son finally decided to buy the barbecue in June 2018, only to find that each $100 card was now worth only $46. The reduced balance was the result of a $3 maintenance fee deducted each month.
Coppola called the customer service number and managed to reverse the fees on five of the cards. He asked for help with the sixth card, whose balance had now shrunk to $43. Those fees were also reversed.
“The Perfect Gift Visa, as it’s called, states it’s good through 12/18. There is absolutely no reference to a monthly maintenance fee. Since the cards were never used, there was no reason to think that the balance was anything less than $100,” said Coppola, a Toronto real estate broker.
“Is this not misleading advertising? Is it not against the law in Canada?”
Financial institutions are allowed to charge maintenance fees, according to the FCAC. But they can’t start adding maintenance fees for at least one year after a prepaid card is activated.
The law requires an information box on the exterior packaging of prepaid cards, showing the issuer’s name, a toll-free phone number for inquiries, all fees that may apply and expiry dates.
My advice: Don’t let prepaid cards languish. Try to use them within the first 12 months or you could lose half the value to fees in the months afterward.
Read the packaging before you buy, even if you need magnifying glasses. If the activation fee seems high, just walk away. Don’t throw out the packaging when giving cards as gifts.
Please share your stories with prepaid Visa, MasterCard and Amex products. Did you run into surprise snafus? Do you think the fees and expiry dates were disclosed clearly? I’ll use your responses in a future column.
Ellen Roseman is a columnist based in Toronto covering consumer affairs. Reach her on email: .