By James Limbach
ConsumerAffairs.com
November 16, 2009
The Federal Reserve Board is proposing rules that would restrict the fees and expiration dates that may apply to gift cards. The rules would protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated.
The proposed rules would prohibit dormancy, inactivity, and service fees on gift cards unless:
• There has been at least one year of inactivity on the certificate or card;
• No more than one such fee is charged per month; and
• The consumer is given clear and conspicuous disclosures about the fees.
Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.
The Board's proposed rules generally cover retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand.
Among gift card complaints ConsumerAffairs.com has received from readers:
• Anne T. from Duxbury, Mass, tells ConsumerAffairs.com, "I was given three (Borders) gift cards in varied amounts and put them away for a vacation trip only to find they are outdated. This is truly ridiculous. The card is cash and should be able to be used at any time as it is a gift. Why is there an expiration date on it?"
• Consumer S. M. of Phoenix, Ariz., learned that his Kmart gift was worth nothing when he went to the check out counter. He writes ConsumerAffairs.com. "the clerk actually first tried telling me that it must have been used already. That was of course B.S. Then she said they eventually just expire. Guess that was my particular situation. FYI: This problem does NOT occur at Target. Their gift cards are always good until actually used."
• Lynn R of San Diego, Calif., came right to the point in describing for ConsumerAffairs.com her problem: "Received American Express Gift Card # 3790 142854 45106 in the amount of $25. Card 'valid thru' date is 03/11. Was not aware that there was a $2/month fee for non-use. Went to use the card and there was only a $5 balance."
The proposed rules are issued under Regulation E (Electronic Fund Transfers) to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009.
Proposed rule highlights
The proposal would amend Regulation E to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). It proposal would set forth new protections for consumers that purchase or use certain prepaid products, primarily gift cards.
Products covered
The proposal applies to gift certificates, store gift cards, and general use prepaid cards, as those terms are defined in the Credit CARD Act.• Covered products include retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network branded gift cards, which are redeemable at any merchant that accepts the card brand.
• Consistent with the statute, the proposed rule would not apply to other types of prepaid cards, including reloadable prepaid cards that are not marketed or labeled as a gift card or gift certificate, and prepaid cards received through a loyalty, award or promotional program.
Restrictions on dormancy, inactivity, or service fees
The proposed rule prohibits a person from imposing a dormancy, inactivity, or service fee with respect to a gift certificate, store gift card, or general-use prepaid card.• Dormancy, inactivity, and service fees may only be assessed for a certificate or card if: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees.
• Fees subject to the proposed restrictions would include monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, such as reload fees and point-of-sale fees.
Restrictions on expiration dates
. The proposed rule prohibits the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date a certificate or card is issued or the date funds are last loaded.• The expiration date restrictions would apply to a consumer's funds, and not to the certificate or card itself. The proposal includes provisions intended to help ensure consumers have at least five years to use a certificate or card from the date of purchase.
• The proposed rule prohibits the imposition of any fees for replacement of an expired card or certificate if the underlying funds remain valid.
