Need to know
- In the 2010s, CHOICE put a lot of work into making gift cards fairer for consumers, resulting in some much-needed regulation
- While regulation has improved, grey areas remain, as CHOICE member Helen recently discovered
- She purchased a $475 Woolworths e-Gift Card with her Commonwealth Bank credit card and was surprised to see it treated as a costly cash advance
Gift cards are tricky financial instruments that can come with unwelcome surprises, such as the business in question going bust or the card expiring before you can use it. They're purchased with cash but generally can't be exchanged for cash. It's funny money with little of the flexibility of actual money.
In the 2010s, CHOICE put a lot of work into making gift cards fairer for consumers, resulting in some much-needed regulation.
Since November 2019, gift cards have had to remain valid for at least three years with the expiry data clearly shown, and any conditions or restrictions on the use of the gift card must be clearly communicated. (There are some exceptions to these rules when it comes to reloadable gift cards and one-off promotional vouchers.)
Businesses are also not allowed to charge you unfair fees, such as activation, account keeping or inactivity fees. Having to make these rules illustrates the kind of tricks that gift card issuers had gotten up to.
Unexpected fees plus interest
But while regulation has improved, grey areas remain, as CHOICE member Helen recently found out. In August she purchased a $475 Woolworths e-Gift Card with her Commonwealth Bank credit card and was surprised when a cash advance fee of $14.25 was applied. Obtaining a cash advance via your credit card is never a good idea and is usually only done when others options have been exhausted.
"I contacted CommBank and its response was that 'a cash advance is when you use your credit card to access cash rather than goods and services'. Presumably CommBank interprets the purchase of a gift card as accessing cash and hence they can charge you in this fashion," Helen says.
I contacted CommBank and its response was that 'a cash advance is when you use your credit card to access cash rather than goods and services'
CommBank customer Helen
The fee was bad, but the interest rate was worse, as is often the case with credit card cash advances. For Helen's CommBank card, it was 21.99%, calculated daily and charged monthly, with no interest-free period. In other words, interest on what was now treated as a $475 loan began immediately.
After a month, the interest and fees payable on that gift card purchase would have been about $23. After a year it would be about $95. Paying off the $475 debt, of course, would put a stop to the interest.
What counts as a CommBank cash advance?
CommBank says the following scenarios count as credit card cash advances:
- Withdrawing money from an ATM with a credit card
- Transferring money from a credit card to another account
- Buying money transfers or traveller's cheques with a credit card
- Using a credit card for gambling or other cash equivalent transactions (such as lottery tickets, money transfers or travellers cheques)
Using a credit card to buy a gift card is notably absent from the list, so we contacted CommBank in pursuit of an explanation.
We got one, but it took us down into the weeds of what's known as Merchant Category Codes. These are four-digit identifiers assigned to merchants by credit card schemes such as Mastercard and Visa which determine whether a transaction is considered a cash equivalent.
Cash or cash equivalent transactions can be considered a cash advance based on how the merchant categorises the transaction
CommBank spokesperson
The CommBank spokesperson tells us that purchasing a 'stored value' card (including gift cards) with a CommBank credit card is treated as a cash advance by the bank when it's purchased through a third-party payment platform, due to the category code kicking in.
Notably, it wouldn't be a cash advance if purchased directly from Woolworths, either online or in-store.
"Cash or cash equivalent transactions can be considered a cash advance based on how the merchant categorises the transaction," the spokesperson says.
This ambiguous statement would have come as news to Helen.
She acknowledges that she paid for the Woolworths gift card with her CommBank credit card through PayPal, but she had done so several times previously.
"In January and July this year, I purchased Woolworths gift cards in exactly the same way and I was not charged a cash advance fee. I attempted to ascertain whether this was a new policy but I did not get a clear answer from Commbank," Helen says.
Cash advance policies of other banks
All the major banks include the same cash advance scenarios outlined by CommBank on their websites, but none – including CommBank – list the use of third-party payment platforms. Only one major bank, ANZ, says gift cards purchased with a credit card will be treated as a cash advance in addition to the other scenarios.
ANZ Bank also says that paying a bill with your credit card in person at a bank or post office will be treated as a cash advance, which may come as a surprise to some customers.
I am not very happy with the situation and the response from Commbank has been unsatisfactory to date
CommBank customer Helen
While this hiccup in Helen's finances is not a life-changer, it means she'll be changing the way she pays for gift cards. And she's still not clear on why she accessed a cash advance without meaning to.
"I would imagine that many seniors purchase Woolworths gift cards as they are able to access a 5% discount. If it's treated as a cash advance, then the discount is nearly wiped out. Needless to say, I am not very happy with the situation and the response from Commbank has been unsatisfactory to date."
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