Gift cards are about to get a lot better. On Sunday, new federal rules go into effect that regulate fees and expiration dates for all gift cards, whether they’re sold by a merchant, shopping center or credit card company.
"It's a new day for gift cards,” says Linda Sherry, director of national priorities for the advocacy group Consumer Action. “This holiday season, consumers can purchase cards for family and friends in full confidence that the funds won't disappear in a puff of fees.”
The new gift card regulations are part of the Credit CARD Act (Credit Card Accountability Responsibility and Disclosure Act of 2009) passed by Congress last year to eliminate many of the abusive practices in the credit card industry.
Here are the highlights of the gift card rules:
- An inactivity fee cannot be charged until the card has not been used for 12 months.
- Gift cards cannot expire for at least 5 years.
- No more than one fee (of any kind) can be charged to the cardholder in a single month.
- Information printed on the card must disclose fees and expiration date and provide a toll-free phone number or website where you can get more information.
- A one-time fee can be charged when you buy the card.
“This adds consistency to gift cards because now everyone is playing by the same rules,” says Greg McBride, senior financial analyst with bankrate.com. “It helps consumers because now a gift card is a gift card. It really doesn’t matter who it’s purchased from, the terms are the same.”
The companies that sell gift cards support the new rules. “It’s a great thing,” says Crystal Wright, a spokesperson for the Network Branded Prepaid Card Association. “We think the rules are a win-win for everybody.”
(Note: The new rules do not cover reloadable cards, such as prepaid phone cards or rechargeable debit cards from the big credit card companies. Rebate and loyalty reward cards are also exempt.)
Still room for confusion
Disclosure is an important aspect of the new gift card rules. They require gift cards to list all fees and any expiration date on the card. But not all gift cards will have this information right away.
Congress recently passed a law – requested by the industry – that exempts gift cards produced before April 1, 2010 from these new disclosure requirements until January 31, 2011. Under the exemption, card issuers must use alternate ways to alert buyers and recipients about their terms and fees. This can be done through in-store signs, messages displayed on websites and provided during customer service calls, as well as general advertising.
The industry says the delay will prevent the needless destruction of more than 100 million plastic cards produced earlier this year. Consumer groups see this as a needless loophole that creates customer confusion.
“They can still sell a card that does not tell you the whole truth about your rights through this holiday season,” says Gail Hillebrand, a lawyer with Consumers Union (publisher of Consumer Reports). “Just remember, you have the same rights whether or not they’re printed on the gift card.”
For years, consumer groups have criticized gift cards because of inactivity fees and short expiration dates. Now those nasty “gotchas” have been reduced. But there still can be a one-time transaction fee when you buy the card. And that fee can vary from card to card. So be sure to check.
Something else you need to know. Under the new gift card rules the physical card can have an expiration date, but not your money. So if your card expires and there’s still money left on it, call the card company and ask them to send you a new one. They must do this for free or return the remaining balance.
If you get a gift card, use it before you lose it or forget about it. Remember, that card will be worthless if the company goes out of business.
“Don’t put the card in a drawer,” advises Bill Hardekopf, president of lowcards.com. “Put it in your purse or wallet so you’ll have it with you when you go shopping.”