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.
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