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December 24, 2012 • Issue 12:12:02

Blumenthal bill targets gift card fees, expiration dates

sellingprepaidOn Nov. 23, 2012, U.S. Senator Richard Blumenthal, D-Conn., introduced the Gift Card Consumer Protection Act. If enacted into law, the legislation would modify the Electronic Fund Transfer Act to unilaterally eliminate expiration dates and certain fees from all types of gift cards, including promotional and loyalty-driven cards.

S. 3636, entitled A bill to provide increased consumer protections for gift cards, reads, "It shall be unlawful for any person to impose a dormancy fee, an inactivity charge or fee, or a service fee with respect to a gift certificate, store gift card, or general-use prepaid card."

Sen. Blumenthal said, "This bill bars absolutely draconian deadlines and abusive fees and charges that unfairly confiscate consumer gift card cash. Gift card companies fatten their profits and shrink consumer wallets with exploitative expiration dates and petty, underhanded junk fees. Gift cards should not be the gift that keeps on taking. This measure assures that consumers get their money's worth, no matter when they use the gift card."

Consumer protections overdue?

Zilvinas Bareisis, Senior Analyst at consultancy Celent LLC, believes the bill addresses gaps in consumer protections. "I think, in fairness, gift cards probably needed some additional consumer protection," he said. "And I think the fact that you would have these maintenance fees … by the time you get around to using the card, half of it might be depleted – all of that probably sounds unfair to the customer."

The bill also prevents issuers or retailers from offering basically any kind of prepaid card if they had filed for bankruptcy protection; in addition, those entities must honor unredeemed cards even if the entities are in a state of bankruptcy. "This provision would prevent consumers from buying or being stuck with a worthless gift card after a company goes out of business," Blumenthal's office said.

Blumenthal referenced the 2008 bankruptcy of electronics retailer Sharper Image: the company's customers were forced to spend double the amount on their unredeemed gift cards, and then the company stopped accepting gift cards altogether after it filed for bankruptcy. The office also noted two other companies, Circuit City Stores Inc. and Linen 'n Things, that filed for bankruptcy protection in 2008 but allowed customers to buy gift cards from their stores anyway.

"If the firm is bankrupt and can still sell you a gift card, that's probably not a good way of treating your customers," Bareisis said.

Consumers Union, the advocacy arm of Consumer Reports, endorses Blumenthal's bill, especially the bankruptcy prohibition, according to Consumers Union Senior Staff Attorney Michelle Jun. She said allowing bankrupt retailers to sell gift cards "simply doesn't make sense."

A solution looking for a problem?

S. 3636's expiration date prohibition would also extend to loyalty, promotion and reward cards. "These are cards consumers receive by redeeming credit card points or buying a certain product," the senator's office said. "Currently, most of these cards have very short expiration dates – sometimes as short as 30 days, which confuses customers who assume these cards have the same protections as gift cards. Under the Gift Card Consumer Protection Act, these cards would have the same protections as gift cards."

Banning expiration dates on such cards is one aspect of the bill that troubles Rebekka Rea, Executive Director at the Retail Gift Card Association. "Promotional gift cards are designed to enhance the enjoyment level of a product or service one has already received," she said. Promotional cards are issued to reward consumers for completing certain tasks, such as making purchases, filling out surveys or returning to store locations at future dates, she noted.

"A restaurant may promote a special offer of a free $5 gift card when you buy a $20 gift card," Rea said. "If it is a promotional gift card, then there would be a set timeframe that the $5 promotional gift card may be used. If the recipient chooses to use it, great. However, if they choose not to use it, they have not lost anything, as it was a free gift to them. If a consumer chooses not to use a gift or participate in a special reward offer, what do they need protection from? They didn't buy the promotional gift card, it was a bonus.

"By lumping promotional gift cards into a nonexpiration category, the unintended consequence of the Blumenthal bill will be that the added perks and benefits that consumers have enjoyed from their favorite brands will no longer be offered."

But that is not all that Rea takes issue with concerning the Blumenthal bill. She said closed-loop, retailer-specific gift cards never have expiration dates and dormancy fees because the industry self-regulated those practices out of existence years ago. "While we certainly support consumer protection, we believe this is a solution looking for a problem," she added. end of article

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