When a rebate isn't a rebate -- it's a ripoff

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VisaThey call them "rebate" cards. But they're hardly a rebate. Instead, they are a mechanism to take millions of dollars due to consumers and give them back to the companies.

"Rebate cards are a colossal ripoff because sellers who long ago figured out how to make rebates difficult to obtain have now found a clever way to make them difficult to spend too," said consumer advocate Edgar Dworsky, who runs the web site ConsumerWorld.org. "These are just inherently deceptive the way they are advertised."

They are considered so deceptive that Canada recently issued guidelines to stop companies from using the word rebate when issuing consumers a card instead of a check.

Use of rebate cards is growing rapidly. In 2008, more than $4 billion worth were issued -- up more than 50 percent over 2007, according to CreditCards.com.

Not only are these cards not actual rebates -- although a handful of companies allow consumers to draw cash from them at ATMs -- they come with hurdles that will keep all but the most industrious users from spending the full amount.

"The consumer has to go to the web site of the issuer and put in the password and find out how much money is left. If you go to the retailer without knowing the exact amount on the card they can't take the card," said Barbara Anthony, undersecretary of the Massachusetts Office of Consumer Affairs and Business Regulation.. "We are leaving money on the table that belongs to us because some retailers make it very difficult to find out what's left on the cards. Millions of people across the country have these cards."

Little government action has been taken so far about the cards in the U.S. partly because of how silently the money is drained away from the consumer and back to the company.


Mitch Katz, a spokesman for the FTC said, said his agency is aware of the issue and welcomes any consumer complaints about problems with the cards.

AT&T, which issues the cards in certain offers with its wireless phones, took a hit earlier this year when New York Attorney General Andrew M. Cuomo announced he had reached a $2.63 million agreement with the company over "a misleading and deceptive sales promotion involving rebate offers that were fulfilled with onerous and condition-laden rebate cards."

Massachusetts' Anthony is particularly concerned, because of the growth in the use of these cards at the expense of the time-honored rebate -- the actual return of money by check or deduction at the register. At first glance, these cards might seem like a reasonable alternate way to get back the promised money, but once you get one it's pretty clear it isn't.

Anthony has been hearing increasing complaints from consumers about these cards. Unlike store gift cards, which show you a balance remaining on your receipt, the balances on these cards cannot be seen or determined at the store.

So, if you have $25 left and try to spend $25.01 the card will be rejected. No mechanism is offered to allow the $25 to go through and the consumer pay the penny difference. To add insult to the insult, the cards often carry fees that can be drawn from them without the consumer's knowledge and can expire in as little as 120 days, as AT&T's do.

"It's hard to take a lot of money from people – but it's very easy to take small amounts of money from millions of people," Anthony said.

WalletPop used one of the cards and found just the situation Anthony described. It is nearly impossible to drain the card of its full value. Two other consumer officials told WalletPop that they, too, were stuck with these cards in their wallets. The trick to using them is going to a store, such as Target, that allows so-called split tender transactions. You need to know the value of what's left on the card and apply that first, then pay whatever else is left by another method. Otherwise, the transaction will get rejected.

" When most people think about rebates they don't really think about a debit card," Anthony said. "They're thinking cash. This is something that has been fixed in our minds for generations."

That same sort of thinking led the Canadian government this month to let companies know that they don't consider the cards to be rebates and should not be marketed as such.

"We felt that gift cards couldn't be considered to be a rebate because they were not applicable to the end price of the product for which the rebate is being offered," said Madeleine Dussault, an assistant deputy commissioner in Canada's Competition Bureau -- similar to the U.S. Federal Trade Commission.

The issue over the cards in Canada stemmed mostly from trying to protect consumers from being misled, she said. A rebate, Dussault said, should involve the reduction of the price of a product either at the register or later by check. Companies can issue the cards, she said, they just can't call them a rebate. They are gift cards, she said, and should be called that.

Some companies, such as Cooper Tire, explain in their rebate ads that Canadians will be issued checks, and U.S. customers will get the cards.

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