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You Said You Were Sending Money

The friendly Sears dealer promised a $75 rebate on our new washer and dryer. Since I hate filling out paperwork, she obligingly offered to do it for me, and a few weeks later an envelope arrived in the mail.

But when I opened it up, expecting to find my rebate check, I found a prepaid debit card instead.

I immediately flashed back to the last time this happened. It was several years ago, when Cingular promised me a rebate and delivered it in the form of a $50 card. I used the card once, and, after that, it stopped working, my money trapped within.

So, this time, we called Sears and fought our way through a labyrinthine phone system. When we finally reached a person, she was glad to exchange the card for a check. It arrived after a few more weeks, and we finally had our $75 in the bank.

Each state has laws governing the terms of in-store gift cards to protect customers from having their funds eaten away by undisclosed fees. But these regulations do not always apply to cards, like those issued by credit and debit card companies, which can be used to make purchases from multiple unaffiliated merchants.

The prepaid debit cards companies use for rebates frequently have expiration dates or monthly account maintenance fees, meaning that if you don’t use them immediately you might never be able to get your money. Some of the cards expire in as little as four months.

The cards also are diabolically inconvenient. Typically, in order to use them, you have to know the exact balance on the card. If you try to charge more than is on the card, it is flat-out denied, and, sometimes, a hold is placed on the remaining money. Customers unfortunate enough to be stuck with these cards can find themselves playing elaborate guessing games at the cash register: “Can you try charging $5?  That didn’t work.  Hmm, let’s go with $4.50.”

While actually getting money out of rebates has never been easy, at least with checks the hassles end when the envelope shows up.

Companies favor the debit card system because it gives them more branding opportunities. With a check, you can easily forget where that money came from, while the debit card is a constant reminder of the source of your funds. But sticking a brand in a customer’s face seems counterproductive if you tarnish the value of that brand by making the customer miserable.

Debit cards also provide a source of revenue. There are transaction fees paid by merchants and any monthly maintenance fees forced onto the consumer. These fees belong to the issuing banks and to the credit card networks, though I suspect they may sometimes be shared with issuing merchants. In some cases, card issuers also may keep a portion of unused balances, while in other situations the funds must eventually be turned over to the state as abandoned property. Even then, the companies benefit by holding on to the money until the state claims it.

In a letter written to a dissatisfied customer, Staples, which issues some refunds using prepaid cards, claimed that customers should be happy with the switch from paper to plastic. Reporting the findings of an alleged pilot study, Staples said “customers noted convenience, ability to immediately spend the rebate, and elimination of check cashing fees as the main reasons they were satisfied with the switch.”

If people are so pleased with the prospect of receiving rebate cards, you would think merchants would be certain to tell their customers the good news, advertising in big letters, “For your convenience, rebates will be delivered on prepaid cards.  Some terms and conditions may apply!”

In fact, however, companies have been somewhat less than eager to let their customers know about the switch. In 2007, Cingular customers sued that company (now AT&T) under California’s consumer protection laws, saying they were never informed that their rebates would arrive as prepaid cards. Harvey Rosenfield, one of the lawyers in the case, said “instead of getting money back, consumers get a VISA Reward card. Purchasers never got the promised discount. None of this was made clear to consumers.”

In a ruling rejecting Cingular’s motion to have the suit dismissed, the court said it found “that a reasonable consumer, upon seeing an advertisement that promises a ‘rebate’ of a certain amount, would generally understand that advertisement to mean that the amount will be returned to the consumer in cash, check or its equivalent.”

Maybe retailers will someday give customers on-the-spot rebates and deal with manufacturers themselves. In the meantime, when I open a rebate envelope, I want to see a check.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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