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Gift card rules mean fewer fees, more time to use cards

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Concerned that your old gift cards may become little more than worthless plastic before you get the chance to use them?

Exhale. That's much less likely than it used to be.

The Fed issued new rules reining in gift card fees.
More from our 2011 gift card package

Federal Reserve rules, the last of which took effect in January 2011, protect consumers from having the value of their gift cards trickle out or suddenly vanish. Under the rules, gift cards typically cannot expire in fewer than five years, are restricted from losing their value due to fees and must come with terms and conditions that are clearly disclosed prior to purchase. Those rules are part of the landmark Credit CARD Act of 2009, which aims to protect consumers from the card industry's worst abuses.

Consumers have long expressed anger about gift cards that became worthless over time. In the past, when consumers bought a gift card and either set it aside or forgot about it for a year, they might find that the plastic had expired or that a parade of fees -- monthly maintenance fees, fees for not using the card, etc. -- would have eaten up its value. The fees may have only been a couple of dollars per month, but over time, it added up.

"A gift card purchase shouldn't be treated differently than any other purchase," consumer Diane M. Mogavero said in comments submitted to the Fed after the gift card rules were proposed in November 2009. She was one of more than 200 commenters, including consumers and industry groups, who spoke their minds when the Fed initially proposed the rules. "If a consumer purchases a table, does the vendor have a right to come later and remove a portion of the table, say a table leg, if the table isn't being used? Hardly."

What the rules require
The rules ban a number of fees that can drain the value from gift cards over time. So-called dormancy fees, inactivity and service fees -- including recurring maintenance fees and fees for reloading, checking your balance, using an ATM and more -- cannot be charged unless:

  • The gift card hasn't been used for at least one year.
  • No more than one of these fees is charged each month.
  • The consumer is provided with "clear and conspicuous" explanations about the fees.

The Federal Reserve, the U.S. central bank and chief banking regulator, requires that these disclosures be provided to the consumer before the card is purchased. Along with providing details about fees, issuers must also include a toll-free phone number (and a website, if one is available) that cardholders can use to learn about card fees or request replacement cards.

Exceptions to the rule
There are some types of cards where the rules do not apply. The exceptions include:

  •  Prepaid cards for long-distance telephone services, wireless telephone service and voice over Internet protocol (VoIP) access time.
  • Reloadable cards that are not marketed or labeled as gift cards or gift certificates, including payroll cards and flexible-spending account cards.
  • Cards that are not available to the general public.
  • Loyalty, award or promotional gift cards.

Dan Horne, a marketing professor at Providence College in Rhode Island, notes that open-loop cards -- products which display a Visa, MasterCard, Discover or American Express logo and can be used anywhere those cards are accepted -- have been mostly exempt from the rules. "Market forces, however, are creating pressure on those products to provide better terms and services, which necessarily makes them more consumer friendly," Horne says.

See related: Fed issues rules restricting gift card fees, expiration, A guide to the Credit CARD Act of 2009, What's NOT covered by the credit card reform law

Published: March 23, 2010



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