Fans of gift cards got a rude awakening this week as four high profile shopping centres refused to accept their own branded gift cards.
Shopping centre gift cards are popular because of the range of stores in close proximity for which they are valid. But shoppers using Dublin’s Liffey Valley and The Square Tallaght shopping centres, as well as Mahon Point in Cork and Whitewater in Newbridge, Co Kildare, this week found themselves turned away with the centres saying they are currently not accepting their own branded cards.
The problem lies with the company that manages the funds on the cards, a payments firm called UAB PayrNet, until recently a subsidiary of a British payments group Railsbank Technology until that company had to be rescued from the brink of insolvency earlier this year.
It’s not just Ireland that is affected, and not just gift cards. UAB PayrNet processed around €7.5 billion last year, according to Bloomberg. Apart from gift cards, it is also behind a number of debit cards, including those used by some Irish credit unions. The group operated across the EU but had its licence revoked abruptly on June 22nd in Lithuania where it is licensed for “for serious, systematic and multiple violations of legal acts”.
“The assessment of the money laundering and terrorist financing risk of the institution’s clients was inadequate and, in some cases, not performed at all,” the regulator said.
The good news is that Lithuania’s central bank, which regulated UAB PayrNet says the funds are being “safeguarded in separate dedicated accounts”.
According to the rules put in place by the Lithuanian authorities, UAB PayrNet is now required to return funds to its customers – the shopping centres in this case or the Irish company managing their gift card programmes – within 15 working days of losing its licence. That means the money should once again be available by July 12th or 13th ... if the system works as it is supposed to.
For now, the shopping centres are simply saying they are working on resolving the issue with no timeline provided. It’s hard to see how they will be able to sidestep the issue if the money is not returned. Legally, they might have an out; reputationally, it would shred their gift card schemes.
The issue raises once again some of the downsides of gift cards.
In this case, there was absolutely nothing customers could have done to mitigate the risk: they would rightly assume the shopping centres would be able to stand over the cards they issued rather than finding themselves hostage to a company they will never have heard of.
But it is the latest in a series of unwelcome surprises on gift cards.
Legislation was brought in four years ago to protect consumer rights after it emerged that some shops imposed expiry dates of as little as three months on gift cards and others refused to refund any outstanding balance after a purchase.
The new law imposed a mandatory minimum five-year lifespan on gift cards and a requirement for stores to refund any unused amount on a gift card either in cash, a credit note or on the gift card itself.
However, many consumers are not aware that not all cards are protected.
Cards provided by individual stores are okay, as are cards, like the ones that ran into trouble this week that relate to a single shopping centre.
However, cards that can be used in more than one shopping centre are not covered by the regulations for some reason.
More importantly, One4All cards – probably the most popular in the Irish market – which can be used in a variety of stores across the State are also excluded form the scheme. However, these are regulated under EU (Electronic Money) Regulations – as are the prepaid debit cards used for tax efficient small benefit exemptions by many workplaces – and the good news is that they have no time limit on their use.
Then there are charges that can quickly whittle away the value of your gift, especially as many gift cards are for relatively small amounts.
Dundrum Town Centre will deduct €3 a month from your card balance after a year. One4All charges a more modest €1.45 a month in what it calls an inactive balance charge. Since last November, it has extended the no charge window to 18 months from 12. With the average value of gift cards hovering around the €50 mark, those charges will quickly take the gloss off the gift.
The four shopping centres affected by last week’s licence issues all also charge €3 a month on outstanding balances from month 13 but, as you would expect, all have said that these charges will not apply while customers’ cards are frozen.
And of course, if the company that sold the card goes out of business, you might be left out of pocket as you will be one of presumably many creditors and will rank low on the priority list for repayment from any remaining assets.
Even if the business is bought out of liquidation, there’s no obligation on a new owner to honour cards issued by the old business, though some will choose to do so.
Gift cards can clearly be a handy option for consumers but it does pay to know your rights and, most importantly, not to leave your gifts lying unused so that charges eat away at your money.