Giving gift cards for Christmas? Make sure you know your rights

Are you planning to give gift cards this Christmas, or expecting to get them? Make sure you know your rights, in case the retailer hits trouble and stops accepting them.

Several large high street companies have gone into administration this year, with Barratts Shoes and Blockbuster among the most recent (see the Barratts Shoes and Blockbuster administration MSE News stories).

If you're thinking of buying gift cards for tricky relatives this Christmas, it's important to bear in mind that should the firm collapse, the recipient may never be able to use it. What's more, a refund is even more unlikely (see our Administration Help guide for advice).

Additionally, if you've got any gift cards or vouchers stashed away for a rainy day, you should use them as soon as possible, as firms won't always honour them if they collapse.

It's always better to give cash rather than a gift card – it's less risky and ensures the recipient will be able to buy some sort of present even if their favourite store goes under.

You may think it's unlikely a firm will enter administration. But big name collapses such as HMV, Comet, JJB Sports and Woolworths prove it can happen.

Always remember gift cards and vouchers are likely to have expiry dates – check yours and make a note so you don't forget to use them in time.

No legal obligation to accept gift cards

Insolvency law means it's perfectly legal for firms to stop accepting gift vouchers and cards if they go into administration. So there's very little you can do to redeem any credit you have.

This is because the firm no longer exists in its previous form, the one which sold you the gift card or voucher. So it does not have to honour all its past promises.

But you may find retailers accept gift cards under revised terms and conditions.

For example, when women's fashion store Jane Norman went into administration in 2011, consumers could only redeem gift cards on full-price items where the total spend was at least twice the value of the voucher.

If you've got them, don't ditch them straightaway

Sometimes administrators change their minds about whether gift cards will be accepted or not – so don't chuck them in the bin immediately.

Even if the original retailer won't honour them, other firms may take them instead. When HMV entered administration in January 2013, customers were given the option to exchange them for equivalent vouchers at Tesco, Asda or Boots instead.

What about if the retailer stops accepting gift cards?

There may be a couple of ways to get your money back if the retailer stops accepting gift cards, but don't get your hopes up.

If you bought a gift card or voucher worth £100 or more on a credit card, Section 75 of the Consumer Credit Act 1974 may cover you. It states your card company must refund all purchases between £100 and £30,000, if you don't get the service or the item you paid for. See our Section 75 guide for more.

But there are grey areas surrounding gift cards. So while claiming back under Section 75 is worth a try, we don't guarantee it'll work. Also note that Section 75 only applies to single items worth over £100, so you aren't covered if you buy a number of smaller gift cards, regardless of the total.

If you used a debit card or spent under £100 on a credit card, try using its chargeback facility. Visa, Mastercard and American Express may return your money, regardless of the cost (other than a £10 minimum on Mastercard), if you claim within 120 days of something going wrong. But this is a customer service promise, not a legal obligation. See the Chargeback guide for how it works.

The last resort is trying to claim the cash from the administrator by becoming what is called an "unsecured creditor". Here, the gift card holder would have to lodge the claim.

But don't get your hopes up of getting your money back via this method – it rarely happens. You'll become another person on the administrator's list of people it owes money to, with businesses given priority.

Should I buy gift cards?

The short answer is no. You may not like giving cash, but it carries less risk, is more flexible and guarantees the recipient will be able to buy something.

If you still want to buy one, it's best to go for gift cards that can be redeemed at several different companies' stories, such as Love2Shop.

Here, the recipient gets more choice and if the worst happens, they'll be able to spend it somewhere. But it's not totally risk-free – if the gift card's issuer goes into administration, retailers may refuse its cards.

In any case, it's best to Google a company you're thinking of buying a gift card from, to check its future isn't in peril.