Wednesday at 8:15 AM

My Take on the New Gift Card Rules

In 2006 the United States had $8 BILLION worth of sold gift cards just sitting out there in limbo, waiting to be used. These gift cards were money in the retailers’ pockets and an excellent deal for them. They received free money, and all they had to do was wait for the gift card recipient to lose the card, forget about it, regift it (to someone else who would lose it or forget about it), or just come to the store too late, after the gift card value had been eaten up by fees. In fact, in that same year, consumer electronics retailer Best Buy revealed a $43 million gain from gift cards that were unlikely to be used.

Years later, times have changed. If you live in the United States, you are now protected by the Federal Reserve’s new gift card rules, implemented in August 2010. What does this mean for you?

Benefits of the New U.S. Gift Card Regulations

The new U.S. gift card regulations have four major components:
  • Gift card money must be good for at least five years and, if you recharge a gift card, that money must also be good for another five years. That means no more digging through your purse or wallet and finding a Walmart gift card that you were supposed to have used by last week.
  • If your gift card has an expiration date you still may be able to use unspent money that is left on the card after the card expires. For example, the card may expire in five years but the money may not expire for seven. If your card expires and there is unspent money, you can request a replacement card at no charge. Check your card to see if expiration dates apply.
  • Fees on gift cards must be clearly disclosed (although this doesn’t necessarily mean that the “legalese” (lawyer-speak) on the gift cards will be understandable!).
  • Fees on gift cards are limited. While you can still have those dreaded “inactivity” fees, they cannot start until after at least one year. If you go into Best Buy with a 365-day-old gift card, it should still have its full value. If you take the same Best Buy gift card in on day 366, the value may be lower due to the gift card inactivity fee. For additional consumer protection, these fees can only be charged monthly. The new restrictions for gift card fees apply to dormancy or inactivity fees for not using your card, fees for using your card (sometimes called usage fees), fees for adding money to your card, and maintenance fees.

Keep in mind that the new gift card regulations only apply to gift cards, not pre-paid cards. The federal government has decided that some “reloadable prepaid cards are not intended for gift-giving purposes”. Reloadable, prepaid bank cards (such as those with a MasterCard, Visa, American Express, or Discover brand logo) are deemed to be checking account substitutes and are not covered under the new rules. Additionally, cards that are given as a reward or as part of a promotion are permitted to have different fee schedules. An example of these types of cards is when you buy two bags of dog food and receive a $5 Target card as a bonus.

Disadvantages of the New U.S. Gift Card Regulations

While these new gift card regulations are a step in the right direction, no amount of legislation can keep everyone happy. For example, Linda Sherry, spokesperson for Consumer Action, says the new rules don’t go far enough. Her consumer education and advocacy group continues to lobby for no fees and no expiration date on gift cards. “People put their hard-earned money toward these cards,” Sherry stated in a recent interview. “There’s no substantive reason that their money should be taken away even after five years, or in fees eating up the balance after one year.” She promotes buying single-retailer gift cards rather than general-use cards like Visa gift cards. No matter what gift card you purchase, always check the disclosures—especially the fees—first.

Also, this Christmas season, you will still find yourself receiving gift cards that you don’t want. Don’t worry—just sell them to a gift card exchange and get yourself something that you can truly use. That’s the easiest way to prevent finding a perfectly good gift card at the bottom of your junk drawer.

New Rules for Gift Cards, Board of Governors of the Federal Reserve System.

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