Gift cards, touted in retail circles as this season’s hot seller, may not be so giving.

State officials are cautioning that the value of some cards can be eaten away by monthly maintenance fees. Others come with time limits that could leave card holders with nothing but worthless plastic unless they pay an extra fee. And some require activation fees that add to consumer costs without offering any real value, consumer advocates say.

Then there’s the “lost, stolen or forgotten” issue: By one estimate, 10 percent of the cards go unclaimed, a potential windfall of $1.7 billion for the merchants, banks and other businesses that offer the cards.

And, finally, there’s a 2003 Maine law that says if anyone is going to take remaining balances from dormant gift cards, it’s the state.

Still, sales of gift cards will soar nationally this year as nearly three of every four Christmas shoppers add at least one to their holiday giving mix.

Retailers love them. “There’s no end in sight to the popularity of gift cards,” Tracy Mullin, president and CEO of the National Retail Federation, said in a press release. “From nephews to nannies, gift cards are a great option for almost any name on the holiday shopping list.”

Jim McGregor says one of his favorite presents – a gift card to Barnes and Noble – will come from his son this Christmas, as it does every year.

“It’s wonderful. He gives me the gift of reading, and I get to pick the book,” said McGregor.

That McGregor likes the cards shouldn’t be a surprise. He’s the executive vice president of the Maine Merchants Association. Many of his members offer gift cards or gift certificates.

He says the giving options are much appreciated by those receiving them. They show thoughtfulness, he says, as well as respect for the recipient’s tastes in products, styles, colors and even stores.

“It’s not like the old days when a gift certificate from a fast-food restaurant” was a sure tip-off that someone “forgot a birthday or Christmas,” said McGregor.

Indeed the cards and, on a smaller scale, gift certificates have become so popular that nearly every store and restaurant offers one or more options. Many service providers such as spas also offer them.

Popularity, however, doesn’t mean the cards aren’t problem-free.

Fees in the ointment

The state’s largest retail center, South Portland’s Maine Mall, offers not one but two gift card options: A mall card good at any merchant there and an American Express gift card that works at mall stores and anywhere else American Express cards are accepted.

But the mall’s cards are examples of what to watch out for, according to state consumer advocates.

Simply to activate a Maine Mall card costs $1.50; $3.95 for the Amex card. Then there are dormancy or maintenance fees. On both cards, after the first year of issue, holders will have $2 deducted each month for the next six months on remaining balances.

In addition, at some point the cards are no longer valid.

Mall manager David Faulkner said last week the cards show a “valid through” date of 2007.

Service desk workers, however, were telling customers any remaining balances on the cards would disappear after 18 months.

“We’ve got a lot of new people here,” said Faulkner, noting he would set them straight.

“The valid-through date doesn’t mean that you lose your money,” he said. “It’s just that the card isn’t any longer valid. You need a new card, or we’ll send you a check.”

That’s if the customer pays the reactivation fee, Faulkner added.

Since the mall has been selling the cards for only the past six months, Faulkner said no customers have been assessed dormancy or maintenance fees, and certainly none has seen any balances forfeited.

Good thing, particularly where balances are concerned, says Denise Ducharme. Those balances in essence become unclaimed funds and fall under state stewardship according to a law passed last year, she said.

Ducharme, the state treasurer’s unclaimed funds manager, says Maine frowns on any business seizing money remaining in a gift card account no matter what period of time passes.

You’re stealing’

“It’s called private escheat,’ and it’s against the law,” said Ducharme of the practice. “That money belongs first to the consumer (who bought or received the gift card) and second, if the consumer can’t be found, to the state where the money came from.”

For the mall or any other business to claim a consumer loses their money when a gift card goes unused for any time span simply isn’t right, she said.

“You’re stealing,” said Ducharme. “You’re stealing from your consumers, and it’s an incredibly bad business practice.”

Fund balances should be forwarded to her office, she said. The treasurer will then make an effort to find the owner of the money. Failing that, the money goes into the state’s general fund.

Ducharme also takes exception to any dormancy or maintenance fees, noting state law bans any fees that are “unconscionable.” She described that as anything a reasonable person would consider unreasonable.

She said she doesn’t see a $2 monthly maintenance fee as being reasonable. “That’s ridiculous. It doesn’t cost that much to monitor accounts electronically.

“I’m surprised consumers haven’t already joined in a class-action lawsuit” over the fees, she added, suggesting that might be the way “to get the attention of those big companies.”

Ducharme said businesses already have the consumer’s cash up front and enjoy earning interest on the float until cards or certificates are redeemed.

Ducharme’s advice to consumers: Don’t buy cards with fees.

“I’d give my kids money,” she suggested, or purchase a gift certificate directly from a retailer that has the desired gift.

Bonnie Delano is the state treasurer’s outreach coordinator for unclaimed funds. She says she plans a seminar soon on gift cards that retailers and others might find beneficial to attend.

“I get a lot of the consumer complaint calls forwarded to me” from the Attorney General’s Consumer Division, said Delano. Many – too many, she says – deal with gift cards and gift certificates.

Closings a problem

Often, said Delano, it’s because the business has closed, leaving a customer or recipient holding a worthless gift certificate. “There isn’t much we can do in many of those cases,” she said. “You can’t get blood from a turnip.”

Delano said she’s had some success running interference for consumers who have lost gift certificates or cards – they’re considered almost the same as cash or bearer bonds.

National retailers tend to be more familiar with state unclaimed funds laws, often doing the required self-reporting without prompting. Maine also joins with several other states, said Delano, in conducting contracted third-party multi-state audits of the largest retailers and related businesses to ensure they are complying with the unclaimed property laws.

The newer wrinkle on the scene comes in the form of banks that offer gift bank cards such as Visa. Some, she said, begin charging maintenance fees of $2.50 a month after only six months.

She’s seen some bank gift cards lose their entire value to such fees, Delano said.

That’s in contrast to many merchants. For instance, Home Depot and Wal-Mart, she said, have dropped gift card maintenance fees in response to consumer complaints.

State laws governing both gift and bank cards vary widely, she added. That can make enforcement scattered and difficult.

In Maine, which doesn’t have an audit staff devoted solely to unclaimed funds, it makes enforcement just short of impossible.

“We rely heavily on education,” said Delano, telling companies what’s right and what’s wrong, and then depending on commercial conscience to treat their customers properly.

Consumer education, she added, is also crucial.

Anyone buying gift cards or certificates should know what they’re buying, Delano and Ducharme both said. They suggest that people ask about activation fees, dormancy or maintenance charges, reactivation fees and valid-through or expiration dates.

Despite their potential drawbacks, “I don’t know that I will ever turn people away from them,” said Delano. “They seem to love them.”