WASHINGTON — The Federal Reserve is proposing new rules for
the $50 billion gift-card industry, including limits on fees for not using the
card and requiring that gift cards expire no earlier than five years after
purchase.
Many gift card issuers currently charge fees to recipients
of gift cards that haven’t been used for an extended period of time by
deducting funds from the cards.
“The rules would protect consumers from certain
unexpected costs and would require that gift card terms and conditions be
clearly stated,” the Federal Reserve said on Monday.
The proposed rules come after the Federal Reserve came under
fire for not doing more to protect consumers during the credit bubble.
Responding to a series of actions by a dozen states, national retailers have already
moved to limit fees and expiration dates for gift cards that haven’t been used
quickly.
However, large credit card companies are in many cases still
charging a $2 to $5 monthly so-called dormancy fee starting sometimes as
quickly as six months after cards were issued, according to Consumers Union
senior attorney Gail Hillebrand. She said that in most cases these so-called
service fees begin a year after the card has been issued to a consumer.
The credit-card-issuer gift cards, also known as general-purpose
gift cards, are a small, but growing part of the $50 billion gift card and
certificate industry, according to a study released in October by the Consumer
Federation of America. CFA reports that general-purpose gift cards, which can
be used at most stores, represent nearly $4 billion of the industry.
Hillebrand said credit card-issued gift cards are growing as
a percentage of the gift-card industry, in part, because of major marketing
campaigns by the companies providing them.
Consumers are also choosing not to buy retailer-issued gift
cards, in part, because they are worried that retailers could file for
bankruptcy.
“(General-purpose gift cards’) attractiveness has gone
up because of retail bankruptcies,” she said.
New limitations on gift card fees and expiration date are
part of a larger effort in recent months by the Federal Reserve to step up
consumer protection.
Last week, the Federal Reserve adopted strong rules limiting
bank profits on overdraft fees. Bank customers won’t be charged overdraft fees
on cash withdrawals or one-time debit-card purchases that exceed their account
balance unless they’ve agreed to such fees.
The proposed rule would prohibit a gift-card issuer from
imposing a service fee for gift certificates, store gift cards or prepaid cards
in certain situations such as when there has been a year of inactivity on the
certificate or card.
Any dormancy fees that are charged would have to be
disclosed properly to consumers and it could only be a monthly fee, rather than
more frequent charges.
The rule also prohibits issuers from offering cards that
expire earlier than five years after being issued.
The proposal is based on broad credit card legislation
approved by Congress earlier this year that requires the Federal Reserve to
approve rules on gift cards by Feb. 22, 2010. Interested consumers and
companies can comment on the proposal for 30 days.
The central bank is expected to approve the statute shortly
after the comment period is finished, but the new rules would not take effect
until Aug. 22, 2010, giving companies a transitional period to implement the
regulations.
Gift cards sold prior to the effective date would not be
subject to the new rules.
Sen. Charles Schumer, D-N.Y., a senior member of the Senate
Banking Committee, argued that the Federal Reserve should take steps for the
new rule to take effect much faster than the time frame currently anticipated.
“These rules are the right step, but it would be far
better for them to take effect in time for this holiday shopping season,”
said Schumer in a statement. “We will continue to push the Fed to speed up
the effective date so that we end abuses by gift card issuers as soon as
possible.”
Hillebrand argues that credit card companies could, on their
own, take steps to limit fees in advance of the 2009 holiday season.
“There is nothing stopping the banks today to step up
to the plate and voluntarily rein in their fees,” she said. “People
are sick and tired of the fees. They could do that for the holiday season.”
Via McClatchy-Tribune News Service.
