New Congress Could Tackle Gift Card Fees

  The Consumers Union, publisher of Consumer Reports magazine, expects the U.S. House and Senate to introduce bills prohibiting fees and expiration dates on gift cards when the new, Democrat-controlled Congress convenes in January.
  Susanna Montezemolo, policy analyst for the Consumers Union in Washington, D.C., says her organization and some members of Congress have received many consumer complaints that gift card fees reduce the products' value. Because of this, she says, "[consumers] are not getting what they paid for."
  The bills could be introduced at the beginning of the new session or later in the year, close to the holidays, when gift card sales increase because more individuals are paying attention to them. It is not clear who would introduce the legislation or if such a bill would have a chance of passing.
  Gift cards continue to grow in popularity. TowerGroup, the Needham, Mass.-based consulting arm of MasterCard Worldwide, predicts gift card sales will exceed $80 billion this year, up 20% from last year. Some 30% of gift cards will be purchased between the day after Thanksgiving and Christmas Eve, Tower says.
  Montezemolo contends card fees, including dormancy and service charges, reduce the cards' value for consumers yet provide a continuing source of revenue for issuers. The fees plus unspent money left on cards, called "breakage," are two ways in which issuers make money at the expense of consumers, she says.
  TowerGroup agrees card fees are controversial. "Despite the popularity of gift cards with consumers, the space continues to be a source of controversy in terms of fee structures and redemption rules," says Brian Riley, TowerGroup senior analyst.
  Home Depot, the Atlanta-based home-improvement retailer, recently reported a $42 million gain from breakage, says Riley, adding that breakage has a bigger impact on consumers than the $3.5 billion lost annually to debit and credit card fraud. TowerGroup estimates that nearly $8 billion is lost annually on expiration, unredeemed value and loss of gift cards.
  Consumers' concerns about gift card fees have reached Capitol Hill.
  During the past two sessions of Congress, Sen. Charles E. Schumer (D-N.Y.) and Rep. Rodney Frelinghuysen (D-N.J.) introduced separate bills that address the issue of gift card fees.
  Frelinghuysen's bill, introduced in January 2005 and called the "Gift Card Protection Act," ordered the Federal Trade Commission to write rules prohibiting expiration dates and fees on gift cards. The bill died in the House Committee on Energy and Commerce.
  Schumer, a member of the Senate Banking, Housing, and Urban Affairs Committee, introduced "The Fair Gift Card Act" in October 2004. The bill had strong backing from the Consumers Union. It would have eliminated dormancy, inactivity and service fees, except in special instances. An issuer, for example, could levy a dormancy fee if the card had not been used for 24 consecutive months.
  The bill also would have made it illegal to sell gift cards with an expiration date less than five years from the date the card was purchased.
  The bill died when the Senate Banking Committee did not take it up. The Consumers Union hopes the bill will be revived next year.
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