Tulsa World: Gift-card fees keep on giving

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Gift-card fees keep on giving — to issuers

By CHARLES JAFFE Market Watch
Published: 11/25/2009 2:20 AM
Last Modified: 11/25/2009 8:26 AM

Just in time for the holidays, the Federal Reserve announced rules that will restrict fees and expiration dates for gift certificates, store gift cards and general-use pre-paid cards. But like a gift card that was improperly activated, the Fed only provided the rules — it didn't put them into place.

In fact, the changes won't be effective until the holiday season in 2010. As a result, you need to be aware of the rules and protect yourself and your loved ones if you are planning to give gift cards and certificates this year.

The new rules, part of the Credit Card Accountability Act, will prohibit issuers from charging dormancy fees on cards unless they have been inactive for at least a year. After that, issuers are limited to one fine per month. In addition, monthly maintenance fees, balance-inquiry fees and re-loading fees.

Also, cards can't expire any less than five years from when the funds are loaded and the card is issued or sold.

The rules apply to cards issued by banks and lenders — general-purpose cards that can be used like a Visa or MasterCard — as well as to retail cards, although most industry observers say that stores have been moving away from fees and expiration dates for years.

Since the new rules won't be in place until next year, however, that leaves consumers with plenty to worry about now.

According to TowerGroup, an industry consulting firm, Americans spent $88.4 billion on gift cards last year but left $6.4 billion unused. That was down from 2007, when some $97 billion in gift cards were purchased, with $8 billion unused.

Anyway you slice it, roughly 8 cents on the dollar per card winds up not being cashed in short order, leaving it vulnerable to the fees and charges.

"The problem is that most people who buy gift cards and certificates don't pay any attention to the rules," said Linda Sherry of Consumer Action. "The lawmakers had heard from so many of their constituents that these were such a rip-off because the value just disappeared, so that Congress felt that it had to act. But that's not going to save you this year."

There are several key areas that consumers want to avoid when it comes to buying gift cards. Sadly, unless you take a magnifying glass to your favorite place to buy a card, you will likely have a tough time figuring out just what applies to your gift.

Your worry starts with dormancy fees, charges placed against the card even if there is no activity. Under the new rules, those charges can't be applied to a card until it has been dormant for at least a year, and can only be applied once every month. Since the rules are not in effect now, however, dormancy fees can be more regular and can start sooner.

Perhaps anticipating the law changes, American Express announced in September that it would stop deducting the monthly $2 dormancy fees that it had charged after a year of inactivity on its "general purpose" gift cards. There's still an activation fee — plus the money you put onto the card itself — but the new rules "should make American Express a popular choice this year," Sherry said.

Beyond dormancy fees, consumers looking at general-purpose cards should check out the issuer's maintenance fees, which sometimes kick in as a monthly charge once the first purchase is made but the balance is not exhausted. They also should know how they can check their balance (preferably free of charge), should understand the fees that are applied at purchase (store cards tend to be purchased at face-value, but many general-purpose cards carry fees that are paid by the buyer at check-out, adding a hefty charge on top of the gift amount).

And be sure to look at policies for lost or stolen cards; many general-purpose cards can be replaced, compared to store gift cards that are typically like losing cash.

Chuck Jaffe, senior columnist for MarketWatch, can be reached at cjaffe@marketwatch.com or at Box 70, Cohasset, MA 02025-0070.

By CHARLES JAFFE Market Watch

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