Last week, I listened to a webinar on the new gift card rules that take effect on Aug. 22 under the Credit CARD Act of 2009. Consumers can expect mostly positive changes in terms of fees and disclosures.
The rules prohibit inactivity or periodic "service fees" such as ATM fees from depleting the funds unless there has been no activity on the card for a year. Gift card issuers who put expiration dates on their cards also have to make sure that customers can purchase gift cards that will remain valid for at least five years. Certain disclosures will have to be on the card itself.
Store gift cards or "closed-loop" cards won't see many changes, notes Judith Rinearson , a partner in the New York office of international law firm Bryan Cave LLP, which hosted the webinar. "Most of those cards never had the fees and the expiration dates," she says. Closed-loop card issuers made money without having to charge fees because the cardholder could only spend it at the retailer.
On the flip side, "open-loop" cards that carry a network brand such as Visa or MasterCard only make money for the financial institutions that issue them through fees, such as the upfront charge for activation. "You don't go to the bank and spend that $50 card," Rinearson says. "I think you're going to see the upfront fees getting bigger."
Fewer service fees likely
Rinearson thinks the requirements will also result in issuers dropping some of their fees. Issuers will have to disclose information on certain fees right on the card, including fees for nonuse and other periodic service fees. For space considerations, issuers may have to dump some of the fees that they used to assess.
In addition, only one periodic service fee or inactivity fee can be charged per month after 12 months of inactivity. Issuers will have to choose which fee to charge after a year of nonuse.
Fees that are likely to be charged only once, such as a fee to "cash out" the remaining balance, are exempt from the 12-month inactivity requirement.
Ample time to use gift cards before they expire
"I think the good news is that they're pretty much guaranteed a gift card when they buy it is going to have five years on it," says Rinearson. "If they buy plastic that shows less than five years they're going to be able to get a replacement card."
Gift card recipients who aren't sure how much time they have left to use the card can simply call the toll-free number required by law to appear on the back of the card.
Good or bad news for consumers?
Do you think the new gift card rules provide needed protection for consumers? Will the possibility of higher upfront fees on bank gift cards steer you to store gift cards?
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