Gift card provisions that took effect in August under the Credit Card Accountability, Responsibility and Disclosure Act should continue to diminish the lost value of unused funds on the cards, according to a TowerGroup report.
The Needham, Mass., research firm expects the value that consumers lose on gift cards in 2010 to drop to 3.1% of total funds loaded into gift card accounts, or $2.5 billion, thanks to the new regulations. The report was released Nov. 24.
The rules prohibit dormancy, inactivity and service fees on gift cards unused for at least one year. They also say issuers may charge no more than one fee per month after one year. Other parts of the new rules stipulate that the cards cannot expire within five years from being issued and that the terms of expiration must be clear and conspicuous.
In 2007, TowerGroup estimated that fees, lost cards and expired value caused consumers to lose 10% of total funds loaded into gift card accounts, or $8 billion. In 2009 that dropped to 6.4%, or $5.8 billion, thanks to public awareness and the threat of regulatory changes.
Brian Riley, a senior research director for bank cards at TowerGroup, said in an interview that eventually there will be more gift card regulations, possibly from the new Consumer Financial Protection Bureau. "Gift cards are a good example of a financial services product that blossomed before it had time to get rules around it," he said.
TowerGroup contends gift cards still need the same protections as debit cards regarding dispute resolution and billing accountability.
Consumers also have limited rights when retailers go out of business. During the past couple of years, several high-profile retailers, including Sharper Image Corp., filed for bankruptcy and ceased operations. The high-end electronics retailer suspended gift card acceptance during the process and consumers lost any funds on their cards. Circuit City Stores Inc.'s gift-card holders faced a similar predicament in 2009 but a bankruptcy court allowed consumers to redeem the cards' value.
Overall, TowerGroup projects that gift card loads will increase 5.8%, to $91 billion in 2010 and exceed $100 billion by 2012. "We're still seeing slow growth because we're really not sure when the recession will be over," Riley said.
TowerGroup included electronic gifting in its 2010 forecast, though it did so based on anecdotal evidence. Products such as the e-gifting Facebook application from the Atlanta processor First Data Corp., a unit of Kohlberg Kravis Roberts & Co., should contribute about $3 billion in volume by 2012.