Imagine getting a generous birthday gift card from Uncle Harry, setting it aside for a while to use for a special purchase down the road, only to discover that, over the past many months, inactivity fees have slowly been eating up that great present, drawing the balance down to zero.
If this sounds implausible, think again. Many gift cards historically have come with hidden fees and expiration dates, and most consumers have been unaware of these, often until personally hit by losses. According to an Opinion Research Corporation consumer survey last year, only one out of two Americans are aware that some gift cards charge a monthly fee six to twelve months after purchase. In addition, only one in three (33 percent) were aware of the cost of purchasing a gift card, which usually ranges between $4 and $7 in addition to the amount of money put on the card.
Well, starting this summer, that’s all about to change. As part of specifying the guidelines for the implementation of the last provisions of the Credit CARD Act of 2009, the Fed recently released new rules for gift cards, set to step into effect on August 22. Designed to protect consumers from unexpected costs, the new provisions require credit card companies and other gift card issuers to offer more consumer-friendly and clearly explained terms of service. Here are the highlights of the new rules issued by the Fed:
1. New limits on Inactivity Fees. Inactivity or dormancy fees can only kick in after a card has been unused for 12 months, and only one such fee is allowed per month. If inactivity fees apply to the card, the issuer must provide the cardholder with clearly stated information on what those fees are and how they may be triggered.
2. Clearly marked expiration dates. Come August 22, a gift card’s expiration date must be clearly printed on the plastic itself. Furthermore, a card may not expire for a minimum of five years after the original issue or the last time funds were loaded onto the account.
3. Clear and conspicuous terms. The issuer must provide all other information pertinent to the gift card in clear, easy to understand terms.
Providing the gift card purchaser/recipient with clearly stated terms up front, on top of regulating what charges and expiration policies may apply, could turn the tide in a rising sea of unused gift card funds. A study conducted by market research firm TowerGroup found that, in 2006, nearly $8 billion of gift cards went unused due to either loss or expiration of value. Gift card usage has been on the rise, so that number has only increased over the past few years.
Until the new law takes effect in a few months, those who purchase or receive gift cards are advised to check with their issuer to find out what fees and restrictions may apply. Gift card recipients may also wish to spend their gift cards quickly to ensure that no inactivity fees kick in. If the balance drops down to an amount too low for purchases, gift cardholders can ask to do a split-tender transaction in which your credit card or another form of payment is used to cover the remaining cost of a charge. Also, once a gift card has been used up, don’t throw it out just yet—in the event of a return, the gift card will be necessary to obtain a refund for items purchased.
