Legislators Aim to Protect Value of Popular Gift Cards
Gone are the days when gift certificates were seen as the ultimate lazy man's present.
The latest incarnation -- plastic gift certificates shaped like credit cardsare increasingly popular because they're easy to give and fun to receive. But gift cards also are the focus of growing complaints from shoppers who sometimes feel they've been ripped off when their $25 gift card, let's say, isn't worth $25 at the cash register.
Expiration dates and service feessome as much as $2.50 a month on cards not used within a year or two of purchaseare depreciating the value of some gift cards and stirring a wave of consumer protection legislation.
Retailers say they're merely passing on costs they incur in offering the convenience of gift cards. But legislatures in nearly half the country are considering following the lead of California and a half-dozen other states in regulating the state-of-the-art gifts.
"It's just so unfair, I can't stand it," said state Sen. Katherine Klausmeier (D), sponsor of a bill that passed the Maryland Senate March 12 that would ban most expiration dates and service fees on gift cards. "People work too hard for their money for big business to be taking it away." The measure now goes to the state House of Delegates, where it could face a tough battle.
Rhode Island Rep. Brian Kennedy (D) said he began pushing for a ban on fees and expiration dates after a constituent's son tried to redeem a Toys R Us gift card only to find its purchasing power eaten away at by service fees.
"Basically, what merchants are doing is they are thumbing their noses at people who have gift cards by saying, You better redeem your entire gift card, or we are going to take away your ability to redeem that gift card,'" Kennedy said. "We're not going to stand for that."
Kennedy's bill to protect the value of gift cards cleared the Rhode Island House in February. He said it has the support of the state attorney general and state treasurer. It now goes to the state Senate.
Gift cards, with their electronically coded strips that keep tabs on how much value is left on a card, are offered by most major retailers. A survey last year by the National Retail Federation found that close to 70 percent of consumers planned to purchase a gift card last holiday season, spending an average of $34.24 per card.
Some retailers, such as Target, Gap and Home Depot, don't charge service fees or enforce expiration dates. Wal-Mart, the world's largest retailer with stores in all 50 states and abroad, until late February charged a $1-a-month service fee on cards not used for two years. Now the company has voluntarily lifted all service fees and expiration dates.
Wal-Mart spokeswoman Suzanne Haney said the decision to lift fees on gift cards was not directly linked to shoppers' complaints. But Wal-Mart representatives have been negotiating with legislators in several states that are considering bills on the topic.
California pioneered the regulation of gift cards in 1996 when it became the first state to pass a ban on expiration dates on all gift certificates, including gift cards. On Jan. 1, another gift-card law took effect that bans service fees, unless the card is worth $5 or less, hasn't been used in at least two years and is rechargeable, meaning more value can be added to it.
Connecticut, Iowa, Maine, Massachusetts, New Hampshire and New Jersey also have rules that limit the conditions under which gift cards can expire or depreciate.
But even in states with consumer protection regulations, shoppers should beware that not all gift cards are created equal.
Under a recent federal rule change, state laws protecting the value of gift cards might no longer apply to the kinds of gift cards known as association gift cards that often are affiliated with a national bank. Association cards are often issued by shopping malls or backed by a credit card like Visa and don't restrict shoppers to a single retailer. Industry experts estimate that association cards still represent a minority of gift cards issued in the U.S.
The Office of the Comptroller of the Currency, a division of the Department of the Treasury, announced in January that states do not have the authority to regulate national banks. The policy, which more broadly could affect state banking regulations, also could mean that state consumer laws wouldn't apply to most association gift cards.
The National Conference of State Legislatures, a bi-partisan organization that represents state legislators, quickly came out against the federal rule. Cheye Calvo, an NCSL spokesman, said state governments because they are smaller can be more responsive to consumers' needs.
The comptroller's office characterizes the new rule as a clarification, not a substantive policy change. The issue now is being hashed out in Congress, where the House Financial Services Committee in February narrowly supported nonbinding language indicating the comptroller's office had overstepped its bounds. The Senate Banking Committee is slated to consider the issue.
The retail industry is against state legislation on gift cards and instead favors educating consumers.
"Many retailers have fees and depreciation for a reason," said Ellen Tolley, spokeswoman for the National Retail Federation, the world's largest retail trade association.
Many retailers outsource the production, processing and maintenance of gift cards to a third party, which charges a service fee for non-use that the retailer passes along to consumers, Tolley said. Many retailers place expiration dates on gift cards and gift certificates because in some states the money on the card can be considered abandoned property after a certain period of time and is forfeited to the state, never getting to the retailer.
"Consumers can really take this issue into their own hands and only purchase gift cards from retailers whose policies they understand and can work with," Tolley said. "We need to work as hard at educating consumers as we have at legislating, and the problem will take care of itself," she said.
Consumer advocates such as Gail Hillebrand, senior attorney in the West Coast office of the Consumers Union of the United States, disagrees. "We don't think disclosure is the way to go here," Hillebrand said. "We don't think that it's enough."
The Consumers Union, the nonprofit publisher of Consumer Reports, was instrumental in passage of California's service fee ban.
The issue could become more complicated as additional states pass gift card rules.
Twenty-three states -- Arizona, Colorado, Connecticut, Georgia, Hawaii, Illinois, Iowa, Maryland, Massachusetts, Michigan, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, Utah, Virginia and Washington are considering adding gift card regulations this year.
State-by-state variations in gift-card rules could prompt retailers to limit offering gift cards, Tolley predicted. "If each state had a different policy, retailers would have to take a step back and consider, possibly, which states they are going to offer gift cards in and which states they are going to accept gift cards in," she said.