States make gift cards friendlier to consumer

Attention, shoppers: that $30 gift card that you plan to use to buy a new shirt? It might not be worth $30 by the time you redeem it. In fact, it might not be worth anything at all.

If you received a gift card this year, you're not alone - the credit-card-sized gift cards are expected to be the season's most popular present. They seem to be the perfect one as well, allowing recipients the freedom and convenience to buy what they want, when they want it.

But some cards come with expiration dates or maintenance fees that make using them a hassle. For example :

  • Macy's and Bloomingdale's gift cards expire two years after they were last used.
  • Shell's gas cards impose a fee of $1.75 each month after a year of non-use.
  • The All-Access Visa Gift Card charges a processing fee, a $4.95 monthly fee after the first year, and 50 cents just to check the balance of the gift by phone.

That could be a problem if you're one of those people who buries a gift card in the depths of their wallet, or stuffs it into a drawer, not to be seen again for months. But take heart - eight states this year have made life a little easier by limiting expiration dates or fees. Florida and Minnesota outright banned them on most retailers' cards.

Florida state Sen. Lee Constantine (R) sponsored his state's new law after experiencing frustrating gift card incidents. One time Constantine watched a friend dig into his pockets for more money to pay for lunch after learning that his $25 gift card was only worth $18.75 because the restaurant started charging a monthly fee after six months.

"Frankly, $25 should be worth $25 no matter when you use it," Constantine said. "It is a card that is being purchased, and those folks should have a reasonable expectation that it will be worth the value of the money they put down."

This year Illinois and New Mexico passed bills requiring cards to last at least five years before expiring (though Illinois' law takes effect next year and was moot for this holiday season). Arkansas, Oregon and Utah require gift cards to disclose the expiration date, and Arkansas and Oregon even go to far as to require it be printed on the card in 10-point type. North Carolina's new law states that all fees be disclosed and that no fees take effect until a year after purchase.

In total, 30 states have some sort of limitation on expiration dates or fees, while another seven require that fees and expirations be disclosed.

State gift card action started in earnest in 2004 and has increased steadily along with the cards' popularity. The annual holiday survey released before the holidays by financial services firm Deloitte found that for the fourth straight year gift cards would be the top holiday gift. The National Retail Federation estimated that customers would spend $26.3 billion on gift cards this year, six percent more than last year.

However, states cannot do much about cards with the biggest limitations: those issued by national banks that are regulated by the Federal Reserve, which experts view as being out of states' jurisdiction. Even states with strong laws generally exempt these cards. The prepaid cards, which can be used at any store and are affiliated with companies like Visa and American Express, have the highest processing fees, monthly service fees, and expiration dates.

Craig Shearman, a spokesman for the National Retail Federation, said gift card fees cover the additional costs associated with offering them. His group opposes any restrictions on gift cards, saying that expirations and fees should be left up to individual retailers.

If gift card legislation is necessary, Shearman said, he would prefer to see it at federal level so that retailers could deal with one law instead of the patchwork state laws. "At a certain point if it becomes exceedingly expensive and exceedingly burdensome for a company to offer a product in some states, it may be efficient for the retailers to simply stop offering the product," he said.

In recent years, many major retailers have moved away from expiration dates and fees. Since 2003, companies like Barnes & Noble, Blockbuster, CompUSA, Kmart and Toys R' Us have dropped their expiration dates and service fees.

Bernie Horn, a spokesman for the Center for Policy Alternatives, which promotes progressive policies in the states, said one reason so many companies have moved away from fees and expirations is the flurry of state activity in recent years.

"What happens in this and other areas is that when states force the policy change in some states, it's easier for the company to just change it in all the states," Horn said.

Even without card fees, retailers are still raking in money because many gift cards never get used. Nationally, about 10 percent of the value of gift cards is never spent, and in 2006, that added up to $8 billion.