Kmart Corporation will reimburse dormancy fees charged on gift cards as part of its settlement with the FTC. The FTC filed a complaint that charges Kmart with deceptive practices in the advertising and selling of the cards.

According to the FTC, Kmart charged a dormancy fee of $2.10 for each month the card was not used after 24 months. If not used for two years, the dormancy fees would be $50.40. Kmart also advertised that the gift cards would never expire, but dormancy fees could quickly eat up the balance of a card and in the case of those with a value under $50.40, the card could become worthless in two years if not used. Kmart stopped charging dormancy fees after May 1, 2006.

The proposed settlement requires Kmart to reimburse the dormancy fees for consumers who provide an affected gift card’s number, a mailing address, and a telephone number. Kmart will publicize the refund program on its Web site, including a toll-free number, e-mail address, and a postal address for eligible consumers to contact Kmart to seek a refund.

The FTC has established a Consumer Hotline at (202) 326-3569 for consumers who have questions about the refund program. The Hotline will be updated as necessary.

If you’re running out of time for shopping this year and you can’t even seem to find a bad gift, no strange objet d’art like a fish head clock or even a fish head tie, then you will probably end up purchasing a share of the $80 billion worth of gift cards being sold this season.

But know that about 10% of those gift cards’ values are never redeemed and are kept in the pockets of the retailers. Some recipients just aren’t the type to go shopping unless they really need something and others might think that not using the card saves money for the giver.

If you give a card this season, be sure you choose one that the recipient will use. Encourage the recipient to spend the full value of the card and to do it soon, as many cards now carry expiration dates.

Do them a favor by only choosing cards that have safeguards against scams. Don’t buy cards displayed on a rack where scammers could take down the numbers from the card or the envelope and spend the card’s value before your loved one has a chance to.

If all of that seems far too complicated and you are sill shy a gift - consider regifting the fruit cake Grandma sent last year.

Happy Holidays!

The newest scam involves gift cards sold at stores and given as Christmas presents.

Gift cards are often displayed on racks in stores. Usually they come in several styles and they are not activated until you purchase them and give them a value.

However, scammers are writing down the numbers on the backs of these cards. They can then later call an 800 number to find out if the card has been activated and use the numbers to make purchases online, effectively using up the card before the recipient has a chance to even open his gift.

One way to combat this would be to have the cards set behind a counter or available only at the register from the clerk. If you buy a gift card this year, insist on one that has not been on a display rack where it was accessible to anyone wanting to record the numbers on it.

Gift cards are becoming more popular these days as consumers run short on ideas and time for shopping for that special gift. In 2005, approximately $18 billion worth of gift cards were purchased. But the Federal Trade Commission offers these cautions regarding the purchase and use of gift cards:

* Read the fine print before you buy. If you do not like the terms and conditions, buy elsewhere.
* When buying a card, ask about expiration dates and fees. This information may appear on the card itself, on the accompanying sleeve or envelope, or on the issuer’s Web site. If you do not see it, ask for it. Make sure that whatever the salesperson tells you is in writing.
* Check on purchase exceptions. For example, can you use a store-specific gift card at both the physical store and the store’s Web site? Can an “all-purpose” card really be used to buy groceries or gasoline?
* Treat gift cards like cash. If your card is lost or stolen, report it to the issuer immediately. You may be out the entire amount on the card. Some issuers will not replace the cards, but others will replace them for a fee.

Recently some retailers have been skirting state laws regarding expiration dates and fees by issuing their gift cards through national banks, making them subject to federal rather than state laws regarding dormancy and transfer fees. In some cases they impose a monthly dormancy fee after one year and a fee to transfer the balances from an expired card to a new one. In this way the value of the card is eroded and, in time, can render it worthless.

As it is, an estimated 5% to 10% of all gift cards’ original balances go unredeemed. This amount was approximately $6 billion in 2005. Unredeemed balances go right into retailers’ pockets.