The not-so-hidden costs of gift and prepaid cash cards

Gift cards fall under federal and provincial legislation while pre-paid cash cards are governed by a different set of rules. Gift cards often have no fees or charges, while cash cards do. Not knowing the type you have could mean less money to spend over time.

Fees and charges can deplete a card balance, but it's all in the fine print

Unlike gift cards, prepaid cash cards, like those issued by Mastercard and Visa, often have fees and administration charges. These fees often kick in after a grace period but can drain a card balance even if its never been used. (Garrett Barry/CBC)

If you've been holding onto a gift card or prepaid cash card, you might want to consider using it sooner rather than later.

The type of card you have, and how long you've had it, could determine just how much money you have to spend.

In Canada, gift cards are federally and provincially legislated and often have no expiry dates, fees or administration costs. 

Prepaid cash cards, on the other hand, don't follow the same rules.

What's in a name

Peter Moorhouse, president and CEO of the Better Business Bureau for the Atlantic provinces, explains what this could mean for consumers.

"Prepaid Visa and Mastercards fall outside that legislation," explains Moorhouse. "So they are allowed to expire and they also are allowed to incur fees."

"The issuing company will charge a fee that will ultimately over time deplete the balance until it reaches zero ... and that card is essentially not worth anything anymore."

That is true whether the card is used or not.

We're very used to agreeing to things without fully reading them.- Peter Moorhouse, Better Business Bureau

For card holders, determining what kind of card they have can be challenging. Often both types have the word 'gift' printed directly on the card, for example.

In an email to CBC News, Service NL helped to clarify this.

They say gift cards can include electronic and plastic cards, written certificates or vouchers, including gift certificates, issued for the purchase or delivery of goods or services.

A 'cash card' or 'prepaid card' is generally issued by a credit card company and will display that companies logo and may come with fees.

Fees hiding in plain sight

Each prepaid cash card has its own sets of rules and fees unique to them. Some offer a grace period, often of 12 months, before such charges kick in. Charges can include a monthly maintenance fee, a fee to check a card balance or even to make purchases.

Information specific to the card is required by federal legislation to be included in the product packaging. In addition, the card itself must also include how a consumer can access the information electronically or by telephone. 

Peter Moorhouse, president and CEO of the Better Business Bureau for the Atlantic Provinces, says consumers are often too quick to agree to terms and conditions of gift and cash cards. (Peter Moorhouse)

A complete list of fees and rules for prepaid cash cards can be found on the Financial Consumer Agency of Canada website.

While Visa and Mastercard declined to comment for this story, both said that despite having their logo on the card itself, they do not decide the rules and fees for it. They simply provide the network on which the cards are used.

For Moorhouse, it's an exercise in becoming an informed consumer.

"We're very used to agreeing to things without fully reading them," he said. "So just make sure that you've read and fully understand the terms and conditions that you're agreeing to when you activate that card."

In cases where a business or retail location has closed due to bankruptcy, gift and cash cards often become worthless.

"From a practical perspective, you're pretty much out of luck because by the time that all the secured creditors get their money there really is nothing left for any unsecured creditors."

The good and the bad

Both gift cards and prepaid cash cards offer consumers their own set of pros and cons. Gift cards often have no fees or expiration dates, but can limit spending to a specific store.

While prepaid cash cards allow for more freedom to spend, they have those fees and administration charges that can drain the card balance.

Moorhouse says the onus is on the consumer to read the terms of service provided and choose the card that best fits their needs.