8 December 2004
With the holiday shopping season well under way, we wanted to draw your attention to the issue of gift cards, which are becoming increasingly popular gifts. Most consumers don’t realize it, but many gift cards come with unreasonable expiration dates and fees that can limit their usefulness and drain away their value. They are big business for banks and retailers precisely because consumers don’t understand the perils of giving gift cards. Consumers Union, the non-profit, independent publisher of Consumer Reports, urges you to support legislation similar to the “Fair Gift Card Act” (S. 2969 in the 108th Congress, introduced by Senator Schumer) in the 109th Congress to ensure that these gift cards benefit the intended recipient, and not the banks that issue them.
Gift cards have become big business. Last year, consumers spent an estimated $45 billion on gift cards, according to TowerGroup, a Needham, Mass., research and consulting firm owned by MasterCard International. Sales are expected to grow 20 percent this year. Yet these gift cards are often bad deals for the recipient, especially if they don’t use the cards right away. For example, gift cards issued by banks generally come with monthly service fees, while those from some major restaurants and retailers come with dormancy fees. As a result, recipients lose $2 or more each month from their cards. Moreover, some cards expire after six months or a year, meaning that the recipient may get no value out of the gift card at all. This is unfair; consumers who purchase or receive a $50 gift card should get $50 in value without having to pay excessive fees.
The Fair Gift Card Act protects both gift givers and receivers by prohibiting gift card issuers from imposing a dormancy or service fee, unless the gift card has less than $5 remaining on it after 24 consecutive months of inactivity and the fee does not exceed $1 per month. The bill requires that gift cards remain valid for at least five years and it allows states to enact stronger protections. The bill ensures that gift cards serve their purpose: to allow recipients to spend the value at the store whenever it is convenient for them.
Banks and retailers are advertising gift cards as the perfect gift this holiday season, but too many of them are playing Scrooge by charging excessive fees and imposing short expiration dates. Please protect consumers by supporting legislation similar to the Fair Gift Card Act in the 109th Congress.