Exposed: ‘Toxic’ gift card rip-off fleecing Aussies with hidden fees

Experts say a loophole in the law that allows some gift cards to charge upfront fees should be shut – and you’d be better giving cash anyway.

Experts say gift cards in general are a “toxic” rip-off and consumers would be better off giving cash. Picture: NCA NewsWire / David Geraghty

A loophole that allows gift card companies to charge upfront fees which slash the value of the vouchers should be abolished, a leading consumer advocates says.

Fees for activating cards were banned in 2019 as part of a package of new laws designed to make the sector less predatory.

Cards which offer the convenience of paying through a card system such as Visa or MasterCard were exempted from the ban.

Experts say gift cards in general are a “toxic” rip-off and consumers would be better off giving cash.

Physical gift cards offered by Activ, which is owned by US payments company Blackhawk Network, are available in major supermarkets for a “purchase fee” of $7.95.

The company charges $4.95 for digital versions.

The small print … An Activ-brand Visa gift card with a purchase fee of $7.95. Picture: Supplied

This means a physical card that costs $57.95 can only buy $50 worth of products – a loss of purchasing power of 13.25 per cent.

Lawyer Gerard Brody, who chairs the Consumers Federation of Australia, said Visa and MasterCard gift cards were exempted from the 2019 ban because “ the government at that time said that they weren’t widely used as gift cards”.

“Now, that’s clearly changed since those laws came into effect and we’re now seeing many more of these prepaid cards being offered as gift cards and charging a fee, which is otherwise banned,” he said.

Consumers Federation of Australia chair Gerard Brody. Picture: Stuart McEvoy

Mr Brody said the Albanese government should close the loophole.

“There’s no difference, really, between using a prepaid card or a gift card these days, and that same rule should apply,” he said.

He said the Australian Securities and Investments Commission should also investigate whether gift card companies that charge a purchase fee were complying with their legal obligation to act “efficiently, honestly and fairly” towards customers.

Gift cards are a “toxic product”, payments expert Brad Kelly says. Picture: NCA NewsWire / David Geraghty

Payments expert Brad Kelly said gift cards were “a toxic product and always have been”.

He said about 30 per cent of the money poured into gift cards was never spent and became a windfall profit for card issuers.

“The idea of a gift card is lovely but it’s bad in practice,” he said.

“It’s designed not to be used.”

Mr Brody said: “Maybe you’re better off to gift your friend some cash.”

A spokesperson for Financial Services Minister Stephen Jones said consumers were at the heart of the government’s agenda.

“The government is always looking for ways to improve consumer protections and will give consideration to any proposals that are raised,” the spokesperson said.

Meanwhile, millions of Australians who hold prepaid card balances with travel money schemes run by Qantas, Australia Post and Travelex will be tipped into the hands of a company that has been forced to close its Irish operations by regulators.

Heritage Bank, which issued the cards, has decided to close its rechargeable card business after merging with credit union People’s Choice.

“After considering the ongoing investment needed to maintain this program, we have decided to cease issuing these cards soon,” a spokesperson said.

On Tuesday, holders of the Qantas, Post and Travelex cards will be moved to struggling payments company EML.

EML decided to shut its Irish subsidiary PFS Card Services last month after the entire board said it would quit and amid an investigation by the country’s central bank into alleged anti-money laundering failures.

An EML spokesperson said the Australian operation handling the rechargeable cards was “not impacted by the regulatory remediation issues which are being addressed by other subsidiary parts of the group in the European markets”.

Blackhawk Network did not respond to questions.