The Checkout

Cracking Down on Gift Cards

Finally, the government is doing something about gift cards. Trying to head off consumer complaints, especially about expiration dates and hidden fees, two federal agencies are cracking down to make sure the terms and conditions of the cards are clearly disclosed to both card buyers AND recipients. Consumer advocates applaud the efforts but say they may not go far enough as they support a complete ban on expiration dates and inactivity fees.

This week, the Office of the Comptroller of the Currency, which regulates the nation's banks (which usually issue Visa, MasterCard, American Express and Discover gift cards), posted a bulletin directing banks to be more forthcoming about their gift cards.

Specifically, the OCC said any expiration date needs to be clearly posted on the front of the card. Additionally, any added monthly maintenance, dormancy or usage fees should be conspicuously noted, perhaps on a sticker or tape affixed to the card. A phone number or Web site address should also be attached to the card to let consumers know where they can get more information.

The OCC said it has received a very small number of complaints about gift cards, only 106 last year. Still, that was more than triple the 34 complaints filed in 2003. "Our goal is to get out in front of this," said OCC spokesman Robert M. Garsson.

The OCC's directive, however, applies only to national banks. It does not apply to individual retailers, many of whom have cards that come with expiration dates and inactivity fees.

But the Federal Trade Commission appears to be looking into some of those cards. Agency officials have confirmed that it's investigating the marketing of gift cards by at least one company: Darden Restaurants, which owns Red Lobster, Olive Garden and other casual eateries.

In a recent filing with the Securities and Exchange Commission, Darden said the FTC staff had notified the company in July that it believed the company was engaged in unfair or deceptive acts and practices. "The staff asserts that we did not give adequate notice to consumers that our gift cards, if not used for 24 consecutive months, are subject to a gradual reduction in value by a dormancy fee." That fee is $1.50 a month.

It's unclear whether the agency is investigating other companies. FTC officials declined to comment. But earlier this year, in response to a congressional query about gift cards, FTC chairman Deborah Platt Majoras said gift card issuers that do not clearly and conspicuously disclose fees or expiration dates may be engaged in deceptive marketing. While companies may have valid reasons for the fees, she said, "consumers are entitled to know all material terms."

Gail Hillebrand, senior attorney for Consumers Union, applauded the federal efforts but said the OCC should have gone further and directed national banks to comply with state laws that ban expiration dates and/or inactivity fees. There are about 14 states with such prohibitions and there have been a number of lawsuits in those states trying to force banks to comply. But the suits have met with varied success; most recently, a federal judge in New Hampshire ruled that that state's consumer protection laws do not apply to bank-issued gift cards.

OCC officials said they didn't consider such a provision because that issue was a matter of litigation to which the OCC is not a party and it doesn't want to be part of that debate.

By  |  August 16, 2006; 7:00 AM ET Consumer News
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"This week, the Office of the Comptroller of the Currency, which regulates the nation's banks "

The OCC only regulates about 1,800 of the nearly 7,500 FDIC-insured commercial banks in the US.

Posted by: Non-debtor | August 16, 2006 8:57 AM

How can they have a valid reason for a gift card fee? The business already has your money. It's inane to charge dormancy fees. Why does the company care?

Posted by: Gatsby | August 16, 2006 10:51 AM

I would like to point out something -- 106 is not "more than triple" 34. 34+34+34=102. 106 is bigger than 102.

Yes, it's almost triple and that's worth noting, but please don't try to sensationalize something that while a problem may not be as rampant as this implies, especially with the numbers proving otherwise in your own article.

Posted by: R | August 16, 2006 10:53 AM

You're only telling half the story. Merchants apply expiration dates and inactivity fees to giftcards as a direct result of state escheatment laws, which require giftcard issuers to return the unused portion of a giftcard to the state as tax after a certain period of time. This is not an effort to engage in "unfair or deceptive acts and practices."

If merchants (and banks, for that matter) were able to recognize giftcard revenue at the time of the sale (rather than at the time of redemption), there would be little motivation to apply expiration dates or inactivity fees.

Merchants and other giftcard issuers are not looking to fleece consumers. They are reacting to market conditions placed upon them by the government.

The goverment, for its part, sees a lucrative source of revenue and wants to protect it. It's rather hypocritical to position the action taken as "helping consumers."

Posted by: Bruce Cundiff | August 16, 2006 11:02 AM

Thank you for giving me my morning brain cramp. Your post is totally pointless. You are actually AFFIRMING what the article said, that 106 IS more than triple the 34 complaints...albeit from some strange illogical approach. Coffee, please...

I disagree with stores taking some dormancy fees from money they already have in their pockets. But perhaps this is their way of covering the cost of the cards, recouping it, if I may, since not too many gift cards charge for the cost of the card when you buy one. However, it's sneaky and doesn't do much to win over consumers.

Posted by: CyanSquirrel | August 16, 2006 11:02 AM

Unclaimed funds escheated to the government are not taxes or additional revenue to the government. The state is supposed to hold the funds (giftcards, unclaimed/uncashed checks, dormant bank accounts, etc.) in case, and until, the rightful owner shows up to claim it.

Posted by: Karin | August 16, 2006 11:28 AM

I'm always left scratching my head at the posters on this site, who, with their air of intellectual superiority, hone in on details of this blog, and pick them apart.

I chalk it up to a new associate in a law firm, bitter about having to research obscure evidentiary issues, jumping at an opportunity to show off some pointless piece of information learned during Bar-Bri (See, escheat laws, not escheatment.)

Shut up, and stop billing your client to write snarky posts. That's a violation of the Model Rules of Professional Responsibility, and doubtless, the Professional Code of your state.

Posted by: Jay | August 16, 2006 12:38 PM

Re: Karin's comment above -- granted that my 'source of revenue' argument might be invalid. But how can the state verify the rightful owner of a giftcard with a remaining balance of $2.67?

More basically, why should these laws be applied to giftcards? I would see giftcards as inherently different from dormant bank accounts and unclaimed/uncashed checks, both from the ability to verify the owner as well as the nature of the funds themselves (i.e. giftcards and other stored value accounts are purchased with the intent of usage -- they are essentially an electronic form of cash).

Review and change to escheatment laws related to giftcards would eliminate the need for merchants to apply expiration dates and/or inactivity fees. Consumers should be protected from these fees, but only by going to the heart of the problem--which regulators are at least partially ignoring.

Posted by: Bruce Cundiff | August 16, 2006 12:40 PM

I knew there had to be something fishy about this new proliferation of "gift cards."

I was right. Caveat emptor.

Posted by: Gene | August 16, 2006 12:45 PM

This gift card debate always seemed kind of silly to me. I understand that it is reather sneaky to put fees on unused portions of a gift card because the company does already have your money. That's not my question, my question is who sits on a gift card for that long? If someone gives you a gift card to Target for $50 go out and spend $50 at Target! It's not that hard, Americans have more than debt than people of other countries so you would think we could spend all the money on a gift card, sheesh.

Posted by: Melissa | August 16, 2006 12:53 PM

Melissa -- if you get a gift card from a place you don't shop at, you may not use it immediately. I've got gift certificates from my wedding a couple of years ago that I still haven't used, for a variety of reasons.

My question is what the companies have against more complete disclosure? Sure, it's a slight cost to print the terms on the card, but anyone against basic disclosure usually is trying to hide something.

Posted by: ah | August 16, 2006 1:25 PM

"If someone gives you a gift card to Target for $50 go out and spend $50 at Target!"

It amazes me the number of people who get gift cards and certificates often DON'T run out to use them. They sit in a purse or a drawer until someone finally finds them months later and says "Gee, $25 at Borders. I'll go use that." I've had friends totally forget to use a gift card I gave them for $100 that could be used most anywhere -- for toiletries, books, CDs, whatever. I gave them the card because they are disabled and financially strapped, and then they forgot to use it. People are so weird with "money".

Posted by: Anonymous | August 16, 2006 1:56 PM

Americans have more debt because so many of them are lousy with money.

Posted by: Anonymous | August 16, 2006 1:58 PM

I'm with Gatsby. These companies already benefit from the float of having both the card buyer's money and the gift not yet reclaimed.

And, escheatment?! Is that a "Bushism" word like "the Grecians"?

Posted by: Bartolo | August 16, 2006 3:32 PM

R wrote:

I would like to point out something -- 106 is not "more than triple" 34. 34+34+34=102. 106 is bigger than 102.

Sam writes:

And thus concludes today's lesson on new math. Join us tomorrow when we learn about how one and one don't make two, one and one make one, as explained by Roger D.

Posted by: Sam F. | August 16, 2006 4:12 PM

R - Gotta love your math.

Bruce - Thanks for sharing your esoteric knowledge of state escheatment laws. I didn't notice this discussed in the article. Perhaps not all merchants apply expiration dates & inactivity fees because these laws simply aren't relevant to gift cards?

Americans use (or not as the case may be) of gift cards is likely unrelated to their debt or management of money.

I've got several gift cards in my jewelry box right now, for stores that I don't shop at or are not anywhere near me (I live on the Eastern Shore). Guess I better check those expiration dates! Those are just my reasons for not using them yet.

I agree with ah - All we want from the merchants is a little bit of information, clearly visible. How difficult can that be? If the card expires, that's OK. Just make sure that the buyer & recipient know when, by printing that info ON THE CARD!

Posted by: smp | August 16, 2006 4:36 PM

There are web sites where you can exchange gift cards you don't want. You can get close to full value and use that money to buy a card you will use.

Posted by: ProfessorB | August 17, 2006 11:51 AM

re: "If someone gives you a gift card to Target for $50 go out and spend $50 at Target!"

I receive cash from my wife's father at Christmas, so far I've saved it up for about 7 years waiting to buy a treat... So in a way I understand how someone could do the same with an unwanted gift card.

Posted by: Arlington, VA | August 18, 2006 9:05 AM

To encourage speedy and complete use of cards, companies need to make it easier. I have 2 cards with partial balances (about 2 and 12 dollars). To use these cards, I must know the exact balance remaining when I hand them to the cashier. This requires a phone call with 20-digit account codes and passwords! That is a lot of effort for a few dollars. Now, I will have to pay a fee because their poorly designed product is hard to use? Never again! Cards are NOT the same as cash.

Posted by: Better design pays | August 18, 2006 2:11 PM

Actually, "the government" has been doing something about prepaid 'gift' cards for years. What an Inside the Beltway gaffe! And what happened to researching a topic?? More than half of the states have enacted laws to either prohibit or restrict fees and 'early' expirations. These laws cover store cards and, until recently, the OCC agreed that the prepaid cards issued by banks were subject to those laws, too. A federal court ruled otherwise in August, finding that state law cannot be applied to the prepaid cards issued by national banks because they are federally regulated. And stop beating up on the lawyer: unclaimed funds laws and accounting rules that only allow stores to claim the income when the card is USED (it's carried as a liability until then), create a need for finality.

Posted by: Diana | September 23, 2006 10:56 PM

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