November 18th, 2009
New Rules For Gift Cards Ditch Fees and Expiration Dates
Gift cards are making a comeback this credit-crunched holiday season, so if you plan to give or receive them, familiarize yourself with the new rules on gift cards slated to go into effect August 2010.
True–the regulations won’t be in place till next year, but cardholders often hold on to gift cards long enough that you may see how the new rules will benefit you. The Federal Reserve proposed these consumer safeguards—which are still up for revision this month—as part of the CARD Act. These protections for consumers implement stricter reforms on the fees and expiration date of gift cards, gift certificates, and general-use pre-paid cards.
Here’s a rundown of the proposed rules: Issuers are not allowed to charge dormancy or service fees on inactive cards unless it has been inactive for at least a year. After that, issuers can only fine the card for inactivity once a month. Also, monthly maintenance fees, balance-inquiry fees, and re-loading fees will be banned. Expiration date is extended so that all gift cards are usable up to 5 years after the purchase date. And finally, issuers are required to have full disclosure of the possible fees, dormancy charges, and fine-print policies your gift card is subject to.
As we wait for the CARD Act’s gift card reforms to take place and revamp the rest of the gift card marketplace, consumers can also take steps to protect the value of their gift card:
If you are buying a gift card, read the fine print and look out for any upfront fees. For example, general-purpose gift cards offered by issuers like American Express and MasterCard typically charge $4-$7 for purchasing a card and may have additional policies that could cost you. The CARD reforms do not prevent upfront sales fee, so don’t be surprised if issuers decide to raise this cost in the next few months. Also, you can save money and shop around for discount gift cards. Check out Plastic Jungle, which is part of a growing crop of gift card trading marketplaces that allow you to trade, sell, or buy gift cards at a discounted price. UPDATED 11/20/09: Also, check out this article on 13 Ways to Buy Gift Cards For Less for more ways you can save money gift-giving by opting for these little plastic presents this season.
If you receive a gift card, read the fine print and look out for maintenance fees, which charges you if the first purchase is made but you leave a balance on the card. Also, keep the receipt of your gift card just in case your card is lost or stolen and your issuer does not replace for free. Finally, try and use it as soon as possible so you don’t have to worry about the extra cost of fees and expiration dates prior to the effective date of the new reforms. And always keep track of your balance so you don’t make a bigger purchase than your card can afford.
Some big issuers have revamped their policies to be more consumer friendly, however these federal reforms are necessary to make sure gift cards are regulated just credit cards. In September, American Express eliminated its $2 monthly dormancy fees that it charged. Also, Macys ended expiration dates for any gift cards purchased after February 2008, and Best Buy gift cards no longer have any inactivity fees, usage fees, and expiration date. The gift card marketplace is already shaping up, just in time for the holidays.
With these reforms in place and less fees to worry about, gift cards are becoming a no-risk alternative to spending credit or debit. As long as you’re mindful of the fine print, its financially-savvy to take the leap and gift with gift cards.
At Credit Karma Blog, what goes around comes around… So what do you think about this post? Agree, disagree, or have something more to say? We’d love to hear your reactions!
As a general rule of thumb, retailer specific gift cards almost always have the most consumer protection. Ones issued by credit card companies will generally have fees because they are in the transaction business. Retailers are in the retailing business, so their goals are to sell more product.
State legislatures have also done a great job in recent years to protect consumers from fees and early expirations. You can find the different protections in your state at the National Council of State Legislatures site here: http://www.ncsl.org/IssuesResearch/BankingInsuranceFinancialServices/GiftCardsandGiftCertificatesLegislation/tabid/12474/Default.aspx
Finally, many web services have emerged in recent years to help purchase, send, redeem, and swap gift cards without fees. GiftZip.com, for instance, helps users navigate to retailer cards that can be delivered electronically, and does it completely free of charge. Others can be found in a recent Entrepreneur article here: http://www.entrepreneur.com/magazine/entrepreneur/2009/november/203738.html
Hope this is informative.
Sam Hogg
Founder and CEO, GiftZip.com