Clearer disclosures of gift fees terms and conditions were mandated by the Fed in August 2010 and still impact gift cards today.
Gift cards were once a Wild West financial product, with a variety of fees, expiration dates and other consumer-hostile features that let the value leak out of gift cards. People often paid for gift cards but the recipient got snagged by the traps and never got to fully enjoy them.
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The federal CARD Act of 2009 set limits that prevented the most-obvious abuses, but consumers still must be alert and understand their gift cards to get the most out of them.
“The rules protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated,” the Fed said in summarizing the rules, which specify how it also enforces the CARD Act. These regulations took effect Aug. 22, 2010.
Gift card purchases totaled $80 billion in 2016, according to Persistence Market Research. Whether giving or receiving gift cards, it’s in your best interest to understand gift card rules and regulations.
Federal gift card rules
- Following the CARD Act of 2009, the Federal Reserve enacted regulations to restrict fees, expiration dates and unexpected costs from gift cards.
The rules, which went into effect Aug. 22, 2010:
- Limit inactivity (dormancy) fees.
- Improve disclosure requirements.
- Forbid expiration for five years.
- Regulate additional fees.
Limits on inactivity fees
Dormancy fees may not be imposed unless the card has been unused for at least 12 months. Only one such fee can be charged per month after the first year, and the issuer’s policy on dormancy fees must be clearly disclosed.
Bulked-up disclosure requirements
Disclosures of all fees and service charges must include the amount and the frequency at which they will be applied. Disclosures must be made before the consumer buys a gift card, regardless of whether the certificate or card is purchased in person, over the internet or by telephone.
“The law cleaned up many of the tricks the industry used to drain your dollars, such as immediate inactivity fees. Gift card buyers also have clearer information on how the product works, rather than sifting through a sea of fine print,” said Rohit Chopra, senior fellow with Consumer Federation of America. “However, the Consumer Financial Protection Bureau still fields complaints from consumers about troubles they encounter, particularly when these cards are stolen.”
Gift cards cannot expire for at least five years after they were last loaded with money. These policies also must be “clearly and conspicuously stated.” The Fed’s 2010 regulations let issuers choose how to accomplish this – either by making the expiration date five years away, or with prominent disclosures that point consumers toward their replacement cards.
The rules also prohibit “the imposition of any fees for replacing an expired certificate or card to ensure that consumers are able to access the underlying funds for the full five-year period.”
Virtually all issuers print a “valid through” date on gift cards, which allows recipients to use the cards for online and telephone transactions.
In many cases, that date also represents the card’s expiration date.
In addition to restricting dormancy, inactivity or service fees, the Fed rules also include a catch-all phrase covering all other fees: The rule requires, “The disclosure of all other fees imposed in connection with a gift certificate, store gift card or general-use prepaid card. These disclosures would have to be provided on or with the certificate or card and disclosed prior to purchase.”
Keep in mind that these regulations only apply to conventional gift cards. They do not apply to:
- Prepaid telephone cards.
- Reloadable cards that are not marketed as or labeled as gift cards.
- Loyalty, rewards or promotional cards. Consumers should be especially alert to these products. They look almost exactly like gift cards, but can expire very quickly.
- Cards that are not available to the general public.