Gift card exchanges are a growing business

Carlos Loyan loves gift cards. He finds shopping so joyless that the prospect of handing out gift cards to friends and relatives for the holidays has been a major relief.

Loyan even went so far as to buy himself a $500 gift card for the one place he does like to shop, Home Depot. He spent only $400 on the card, purchasing it from a company that sells discounted gift cards.

But when he went to Home Depot to redeem it, the card was declined because the balance was $0.

Luckily, Loyan got his money back from the seller, which had guaranteed the value of the card.

Despite that harrowing experience, Loyan, co-owner of Gold-X-Change in Santa Rosa, has decided to take a risk and get into the growing business of buying and selling gift cards.

The company advertised on Craigslist last week that it would buy gift cards and its first acquisitions were for Best Buy, Ross Dress for Less, Trader Joe's and Dunkin' Donuts.

"I'm so fresh into this, I don't know the scams people do," Loyan said. "I'm hoping that the majority of customers are decent people."

To protect the business, co-owner Jake Young has drawn up contracts for gift card sellers to verify their ownership and the value of the card.

"It's become pretty popular," Young said of the gift card market. "It's a big industry, billions of dollars."

As Californians climb out from under a mountain of Christmas presents this month, exchanging unwanted knickknacks or ill-fitting sweaters, many will hit the stores to use new gift cards they've received or they'll find ways to swap the plastic currency for more coveted cards.

In the 2013 holiday season, consumers were expected to spend an estimated $29.8 billion on gift cards, according to the National Retail Federation. Other estimates are higher. Including retail, ecommerce and general gift cards like Visa and Mastercard, Americans were expected to load $118 billion onto gift cards in 2013, according to CEB, a research and advisory firm based in Arlington, Va.

"It's very popular," said Kim Hall, area marketing director for Simon Properties, which owns Santa Rosa Plaza mall. "Each year it changes a little bit in terms of what the offerings are, but consumers in general are still very big on gift cards."

American Express and Visa gift cards are among the most popular cards sold at the mall, Hall said.

Several years ago, about 10 percent of the value of gift cards went unspent. But that number has fallen as options for selling unwanted gift cards have proliferated, and it will soon be as low as 1 percent, according to CEB.

The passage of the Credit CARD Act in 2009, which prohibited the inclusion of expiration dates on gift cards, also eased the problem.

Websites like Cardpool.com and Giftcardgranny.com enable customers to sell gift cards at a loss while other customers buy them at a discount.

On ABCGiftCards.com, opportunities run the gamut from saving small change to big bucks. For example, a shopper can buy a $500 Steve Madden card for $425, a savings of 15 percent, or choose from Burger King gift cards with values ranging from 66 cents to $25, saving 7 percent. The website will pay the $500 Steve Madden gift card seller about $375 through PayPal, check or direct deposit.

Patricia Stephens, a Penngrove resident, has been taking advantage of the deals on ABCGiftCards.com and other websites several times a month. She recently bought a $100 gift card for Chevron gas, which was discounted just 3 percent, for $97.

"It's not a lot of savings, but it doesn't cost you anything to get the gift cards coming to your house," said Stephens, 54, who works with the elderly. "Over time, it's going to add up to something."

Stephens usually buys discounted gift cards for stores she frequents like Safeway and Starbucks. Her biggest purchase was a $300 gift card for Tractor Supply Company in Petaluma, which she bought at a discount of about 12 percent when she and her husband were building a fence, she said.

To protect herself, after receiving a gift card, Stephens calls or goes online to check the card balance. In one case, after taking that precautionary step, Stephens was surprised to find out while shopping that the card's balance was $0.

As gift cards' shelf lives have expanded, so have the opportunities for gift card scams.

The Better Business Bureau cautions that scam artists selling fake gift cards may have an accomplice that will answer the phone to falsely verify the card's value. Or, they might sell a valid $100 gift card, let the buyer verify the dollar amount, and then go to the retailer with the receipt to report the gift card as lost or stolen, replacing it with a new one and leaving the buyer of the original card with nothing.