2010 Gift Card Study
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What the new rules mean for gift cards

On Aug. 22, 2010 consumers gained new gift card protections when provisions of the Credit Card Accountability, Responsibility and Disclosure Act of 2009 took effect. Under the new rules, gift cards can no longer incur inactivity or dormancy fees until a year of nonuse, and funds loaded onto the card have to last at least five years. Consumers can also request a free replacement card if the card expires, but the funds remain valid. Certain disclosures have to be printed on gift cards, including information about inactivity fees and expiration, if applicable.

That was the plan, at least. In July, legislation known as the ECO-Gift CARD Act delayed the effective date for on-the-card disclosures until Jan. 31, 2011. After that date, gift card providers can no longer sell noncompliant cards. Card stock produced before April 1, 2010, can still be sold as long as the card issuer actually applies the CARD Act benefits and communicates the on-the-card disclosures through other methods, such as in-store signs, advertising, customer service phone numbers and websites.

"It's through whatever channels the company was normally communicating to the consumer about the purchase of the card -- that's the channels they would go through to post new information about the new rules," says Crystal Wright, a spokeswoman for the Network Branded Prepaid Card Association.

Through these channels, gift card providers have to communicate that inactivity or service fees will not be charged if the fees are not compliant with the gift card rules, that the funds don't expire and that the consumer has the right to request a free replacement card.

For instance, Simon Malls discloses these rights under a link on its website to "Card Act Information for Consumers" for its network-branded gift cards. The Gardens Mall in Palm Beach Gardens, Fla., does the same on its website.

The upfront disclosures should make the terms of a gift card more transparent at the point of sale. According to a 2009 survey from the National Retail Federation, nearly 13 percent of consumers said that added fees and expiration dates would make them less likely to buy a gift card.

What the rules mean for gift cards

The CARD Act applies to "closed-loop" gift cards, which can be used at a single retailer or a chain of stores or restaurants, and "open-loop" cards, which bear a credit card logo such as American Express or Visa and can be used at any merchant that accepts the card brand.

Not much will change for retailer gift cards.

"I would say probably 99 percent of the nationally recognized retailers have not had to make changes to the closed-loop gift card issuance because we've been self-regulating for the past several years," says Rebekka Rea, assistant director at the Retail Gift Card Association, a member organization of closed-loop gift card retailers. Closed-loop cards, she says, do not generally have fees or expiration dates.

That means you might not be seeing any new disclosures for store gift cards. "If you don't have the expiration date or dormancy fee, there is nothing to disclose, so nothing changes," says J. Craig Shearman, vice president of government affairs and public relations at the National Retail Federation.

With open-loop cards, inactivity fees and expiration dates are more prevalent. In fact, five out of eight network-branded gift cards included in our 2010 gift card survey charged an inactivity fee.

The network-branded cards tend to come with fees, since they get redeemed outside of the financial institution. "The bank-issued cards are strictly, purely, a financial instrument that makes money off of its fees," says Shearman.

What to expect while gift card shopping

Don't expect to see CARD Act signs at gift card kiosks everywhere. Because the ECO-Gift CARD Act didn't pass until a month before the gift card rules were slated to take effect, some new card stock had already been produced in preparation for the holiday season. CARD Act-compliant cards do not require additional disclosures since the cards have the required information printed on them.

People will see a combination of old and new cards in stores, says Wright. Old card stock with terms that contradict the CARD Act, or that don't have the required information printed on them, will trigger the need for additional disclosure.

"They have to have some kind of communication about those old cards that are in there with the new cards about the new benefits," she says.

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