A Massachusetts bill to bar banks from charging customers fees on gift cards has highlighted some of the difficulties in building a business case for such cards.
The bill, being considered in the state House of Representatives, would expand Massachusetts' gift-card law to include bank-issued products and would prohibit all customer fees on those cards for seven years. The state Senate approved the bill March 22.
Sen. Michael W. Morrissey, who helped draft the legislation, told The Boston Globe on Sunday that American Express Co. has stopped selling its gift cards to consumers in some states and has indicated it would stop doing so in Massachusetts if the bill passes.
Robert Sherman, an Amex spokesman, would not say whether it plans to stop selling cards in response to the bill.
He said Amex has already stopped selling cards over the Internet to residents of New Hampshire, Connecticut, and Rhode Island. It has stopped selling gift cards entirely in Vermont. He also said Amex is lobbying for legislation that stresses increased disclosures over eliminating fees.
Rhonda Bentz, a Visa U.S.A. spokeswoman, said, "A lot of issuers are going to evaluate their portfolios" if the bill passes. MasterCard International says it has no plans to discontinue selling prepaid gift cards in certain states.
Observers say prohibiting customer fees on bank-issued cards may discourage banks from either entering or pushing further into the gift-card market.
While interest charges generate roughly 70% of the revenue for credit cards, bank-issued gift cards have a very different business model, driven by the card's purchase price, interchange, service fees, and breakage - the percentage of the card's value that is never spent. If the fees are prohibited, the business case for such cards could become less tenable, according to Ariana-Michele Moore, an analyst at Celent LLC.
