Beware: Rebate and promotional cards can expire quickly

They look like gift cards, but they don't enjoy the same legal protection



The offers sound tempting: Give a company some business, and receive a free promotional reward card.

It's an increasingly common marketing pitch used most notably by appliance sellers, cable companies and phone service providers.

They look like gift cards, but they're not. Often too late, people discover the difference. Unlike gift cards, which are regulated by federal law, these promotional and rebate reward cards can expire quickly. In addition, recipients sometimes have to undertake a series of time-consuming steps to apply for and activate the cards.

"The corporations that send these promotional cards out count on the fact that when people get one of them, they don't know what to do with them and they don't use them and they expire," says consumer advocate Harvey Rosenfield, founder of the nonprofit advocacy group Consumer Watchdog. His organization settled a class-action lawsuit against Cingular Wireless in 2011, alleging that the telecom company promised a $50 mail-in "rebate" to customers who bought a Motorola Razr phone but that the rebate was in the form of a heavily restricted Visa reward card instead of cash.

Rosenfield says the cards are often a "marketing gimmick," requiring so many steps to activate that they're akin to telling consumers to "stand on one leg while your hand touches your nose."

Industry players argue those steps are needed to fight fraud, and it's in businesses' interest to create programs that customers actually use, because using them reinforces brand loyalty. Since the Consumer Watchdog suit, and because of new regulations, companies today generally do a better job of disclosing how these reward cards work.

Meanwhile, the use of prepaid promotional cards continues to grow. Analysts say consumers are more likely to use cards than other forms of rebates or incentives, such as coupons. Businesses are expected to load about $14.5 billion onto prepaid consumer incentive cards in 2017, more than triple the amount from 10 years earlier, according to Ben Jackson, director of prepaid for Mercator Advisory Group. (Story continues below.)

Company Promotional card Delivery wait Fees Expiration
Sprint American Express Prepaid Reward Card 10 weeks after activation $3 per month after 7 months None
ATT ATT Reward Card from U.S. Bank 7 weeks $7 card replacement fee, 3% foreign transaction fee 3 months
Goodyear Goodyear Visa Prepaid Card from Citi 6-8 weeks None publicly disclosed 6 months
LG LG Visa Prepaid Card from MetaBank 6-8 weeks None publicly disclosed 6 months
Verizon Citibank Verizon Wireless Prepaid Card 3-6 weeks None publicly disclosed 6 or 12 months
Maytag Maytag MasterCard Prepaid Card from Citi 6-8 weeks None publicly disclosed 12 months
Source: research, September 2015, for rebate and promotional offers active in that month. Offers are subject to change.

Cards trump coupons
As paying with plastic has become more popular over the years, marketers have sought to capitalize on that popularity to help draw customers into stores.

Traditionally, stores might have sent coupons to potential customers, in hopes that those receiving the coupons would bring them to the store and spend money there. The redemption rate on coupons can be as low as 2 percent.

But with plastic becoming popular, the cost of making cards dropping and new technologies being introduced at the register, retailers started sending offers and rebates in the familiar form of a credit card. The plastic might not actually work as a credit card: It might not be swiped at the register or be accepted anywhere else besides the store. But to consumers, it feels more like real money than a paper coupon.

"They see it as actual dollars they are getting," says Euphemia Erikson, a director of product marketing with First Data. "Mentally, it seems to have a much higher value than other forms of redemption."

A 2014 survey by First Data shows that given the choice among various options for store rebates, 63 percent of those surveyed preferred receiving the offer in the form of a card. Compared with direct mail coupons, customers redeem cards up to 15 times as often.

That preference for plastic can pay dividends for the stores. New customers who are actually able to use the cards often don't just redeem the card for the deal itself -- once in the store, they spend additional money. The First Data survey shows that people who redeem a store's cards say they spent an average of $23 more than the value of the card.

Gift cards versus rebate/loyalty/promotional cards: How do you tell the difference?

Their look: On the front of the card, they'll have some combination of the words "reward" or "rebate" or "award" on them. They will not say "gift card." If there is an expiration date, it should also be on the front of the card.

Their legal protections: Under the CARD Act, gift cards have restrictions on their dormancy, inactivity, service fees and expiration dates. Rebate, loyalty and promotional cards were required to disclose their expiration and fees, but had no restrictions imposed on them. 

Their use: The cards won't behave like full-fledged credit cards. You won't be able to use them at the gas pump, and forget about ATMs: You won't be able to use them to access cash. 

Not a gift card
In 2009, President Obama signed into law the Credit CARD Act, which along with new rules for credit cards, restricted gift card fees and expiration dates. Under the law's implementing rules, gift cards cannot expire in less than five years.

When it published the new rules in 2010, the Federal Reserve carved out an exception for "loyalty, award or promotional" cards. Those cards can continue to charge monthly fees and can expire, as long as those limitations are clearly disclosed on the card. In the period leading to the rules, regulators fretted that there would be confusion among consumers, but ultimately acceded to industry requests and issued less-stringent rules. The final regulations allowed disclosures about fees to be conveyed separately, and cards could be identical in appearance to gift cards, as long as the front of the card includes wording that identifies them as a loyalty, award or promotional card.

Amy Pierce, an attorney who specializes in regulatory compliance with Pillsbury Winthrop Shaw Pittman in Los Angeles, says the expiration exception is especially important to many of her clients. They send out a lot of promotional cards, and if they never expired, the companies would be on the hook for potentially lots of money in discounts.

"The expiration is critical for these companies," she says. "They don't want these out there for the lifetime of the cards."

Typically, she says, she advises companies to make the expiration date "reasonable" and to place it on the front of the card. Some state regulations go further. For instance, California requires that disclosure to be in a font size 10 points tall or larger, in all capital letters.

Use 'em or lose 'em
Even with the disclosures, though, some consumers say they feel deceived. Some have become accustomed to prepaid cards such as gift cards have lengthier periods before they expire, and are surprised when the funds suddenly disappear.

In a complaint sent to the Consumer Financial Protection Bureau, one consumer said he agreed to sell his iPhone on eBay because the company was waiving listing fees and promised a $25 reward card. But after selling the phone, he discovered that "in the small print you'll find that the card will be issued at eBay's leisure ... and the card must be used by the date on the card." He said the "card was expired by the time I even knew I had it."

People need to know that when they get these cards, they can't just tuck them away in a drawer.

-- Linda Sherry
Consumer Action

In another complaint, a Minnesota man said he received an American Express reward card for buying electronics from an online vendor. On the front, the card said it was valid through 2020, but on the back, it said it would incur a $2 per month service fee. "This is very confusing," the man wrote. "Funds do not expire, but they clearly do through the [application] of service fees."

A CFPB spokesman said he had no details on the number of complaints received about prepaid promotional cards. The most common complaints about prepaid cards relate to fraud and account management, the CFPB says.

Consumer advocates say that the experiences of people like those highlight the need to spend reward cards quickly after you receive them. Otherwise, recipients are likely to forget about them and lose the value on the card, which is frustrating if it was a decisive factor in spending money at the business in the first place.

"People need to know that when they get these cards, they can't just tuck them away in a drawer," says Linda Sherry, spokeswoman for Consumer Action, a national advocacy organization. "They usually have an expiration date, and they will lose the money."

Sherry says that in the current political climate, Congress is unlikely to alter the CARD Act to address consumer complaints about expirations on reward cards. She says she would like to see the law specify a minimum period within which such cards cannot expire. "If a company advertises a rebate, they should honor it and stand by it," she says.

Activation can be a process
Besides expiration dates, consumers need to know they may need to take several steps to activate the cards. Industry officials say a multistep process is often necessary in order to guard against fraud.

For instance, a diagram on AT&T's site has four steps: activate service with AT&T; within 30 days of activating your service, check your mail for notification of the reward; go to a website to claim the reward; within three weeks of logging in, the reward card should come in the mail. The whole process could take up to seven weeks, the company says.

Asked about the company's use of reward cards, AT&T said in a statement: "Customers can review, redeem, activate and check the status of rewards and rebates on the AT&T website. We've found that customers like the flexibility that a prepaid card provides."

Generally, card issuers want the business' customers to be happy so that they build goodwill and continue to do business with the company, says Brad Garfield of Citi Prepaid, which works with hundreds of companies to issue reward cards.

"We have a vested interest in making sure it's a great user experience," he says. "Making sure it is a really good user experience is key for rebate cards."

See related: Don't be 'breakage' -- 7 tips to avoid losing gift card value

Published: September 10, 2015

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Updated: 10-28-2016

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