New Regulations Give Gift Cards More Value, Report Concludes

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 new research from TowerGroup.

TowerGroup expects the value 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 rules prohibit dormancy, inactivity and service fees on gift cards unused for at least one year. They also state issuers may charge no more than one fee per month after one year.

Other parts of the new rules stipulate the cards cannot expire within five years from being issued and that the terms of expiration must be clear and conspicuous (see story).

In 2007, TowerGroup research estimated that fees, lost cards and expired value caused consumers to lose 10% of total funds loaded into gift card accounts, or $8 billion. That figure in 2009 dropped to 6.4%, or $5.8 billion, thanks to public awareness and the threat of regulatory changes.

Brian Riley, a research director for bank cards at TowerGroup, believes eventually there will be more regulations, and they might come from the 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 says.

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 The Sharper Image Corp., filed for bankruptcy and went out of business. The high-end electronics retailer suspended gift card acceptance during the process, and consumers lost any funds on their cards (see story).

Circuit City gift cardholders faced a similar dilemma in 2009, but a bankruptcy court allowed consumers to redeem the card’s value (see story).

Overall, TowerGroup projects gift card loads to grow to $91 billion in 2010 from $86 billion in 2009. The total should exceed $100 billion by 2012, TowerGroup says.

“We’re still seeing slow growth because we’re really not sure when the recession will be over,” Riley says.

TowerGroup included electronic gifting in its 2010 forecast, though it did so based on anecdotal evidence. Still, products such as First Data Corp.’s e-gifting Facebook application (see story)  should contribute some $3 billion in volume by 2012.

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