2009 Gift Card Study
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How the CARD Act impacts gift cards

The Credit Card Accountability, Responsibility and Disclosure Act, also called the CARD Act, doesn't just apply to credit cards. On Aug. 22, 2010, several protections will kick in for gift cards as well.

The provisions apply to gift certificates, store gift cards and general-use prepaid cards, which are usable at multiple merchants and branded by payment networks such as Visa or MasterCard.

Not every type of gift card is covered by the law. Paper gift certificates, reloadable cards not marketed as gift cards (such as Visa or MasterCard prepaid cards), and telephone cards are exempt from the restrictions. So are loyalty, award or promotional gift cards.


Limits on fees and expiration

Consumers will have more time to use gift cards before they lose value. Gift cards and gift certificates can't incur inactivity fees unless they go unused for at least 12 months, and the amount and terms of the fee must be disclosed to the user in advance. After a year, only one fee can apply each month.

In September, American Express decided to do away with its monthly gift card dormancy fee. Previously the card rules were that after a year, a card that had a balance incurred a $2 deduction every month until the balance was zero.

Gift card recipients and buyers should still watch out for other fees not regulated by the CARD Act. For instance, the law doesn't prevent general-use prepaid card issuers from charging an upfront issuance or sales fee.

"There are probably over 50 fees that you can charge for," says Adil Moussa, analyst with Aite Group LLC, a Boston-based research firm focused on the financial services industry. A fee can ding the balance each time the user makes a transaction, checks the balance, requests a replacement card or calls customer service, for example.

Moussa says that typically gift cards expire after a year or two. The CARD Act demands they don't expire for five years after issuance, or since last loaded with money, whichever occurred later. The expiration date must be disclosed upfront.

"Just managing those dormant cards is going to add cost to the issuers," Moussa says. "The way they can compensate for that is by introducing other fees that they wouldn't have introduced in the past," he says, citing fees for balance inquiries as an example.

The Federal Reserve Board must issue the final form of the regulations in this section by Feb. 22.

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