West Virginia’s governor is expected to sign legislation this month that would limit the fees banks could collect on gift cards and force them to turn over unused gift card dollars to the state treasurer.
But bankers say the damage could have been worse.
The original legislation, fiercely opposed by bankers, would have eliminated nearly all fees associated with the gift cards. The current language — drafted as two separate bills — was worked out during negotiations last week among the West Virginia Bankers Association, the West Virginia Association of Community Bankers, and the state treasurer’s office.
Joe L. Ellison, the chief executive officer of the West Virginia Bankers Association, said his members still disagree with the legislation “but we are not fighting it.”
If passed, the legislation would apply to all businesses in the state that issue gift cards.
Both bills have passed the Senate and are headed to the House, where they are also expected to pass before the legislative session ends March 11. Gov. Joe Manchin 3d, a Democrat, has said he would sign the bills into law.
Gift cards’ popularity is steadily rising — Americans spent $18.5 billion on gift cards this past holiday season, up nearly 7% from the previous holiday season, according to the National Retail Federation.
The growth has been driven in part by demand for bank-issued gift cards. These prepaid cards generally carry a Visa, MasterCard, or American Express logo and can be used wherever those companies’ cards are accepted.
Banks make money from the cards by charging service fees when they are issued, if they need to be replaced, or when they are not used by a certain date. The last is known as a dormancy fee.
When a card is not being used, bank fees can continue to accrue until the amount of money on it is exhausted. Nationally, 26% of gift card dollars goes unspent, according to West Virginia Treasurer John D. Perdue, who championed the legislation. And if a gift card expires before it is used, the funds are generally forfeited to the issuer.
Mr. Perdue said his aim is to protect West Virginia consumers from fees that slowly eat away at the value of gift cards.
“A gift card should be worth what it says it’s worth,” he said.
Mr. Perdue also argues that the unspent dollars on gift cards should be considered unclaimed property and turned over to the state instead of remaining on cards to be gobbled up by fees.
Under the first bill, introduced Feb. 22, any unspent gift card money would be classified as unclaimed property three years after the date the cards were sold. Mr. Perdue said the state would try to find the rightful owners of the gift cards but would be entitled to keep the interest earned off of that money. Cash that remained unclaimed would be put in the state’s general revenue fund.
Under the second bill, introduced Feb. 24, dormancy fees could only be charged 12 months after the date the card was issued and could not exceed $3 a month. (The fee would increase to $4 a month in 2011 and $5 a month in 2016.)
The bill would also make it unlawful for a card to expire less than three years after the date it was issued.
Mr. Ellison said he expects the bills to pass. But “in reality it hurts the consumer,” he said. “Because if banks can’t make a profit, they will stop offering” gift cards.
Roughly a dozen states have abolished or limited the fees a bank or retailer can charge on gift cards and eliminated or set conditions on expiration dates. An Iowa law passed in 2004 says that banks and retailers can set expiration dates on gift cards and certificates but must hand over unused balances to the state after three years.
