Dec. 27, 2012 at 7:11 AM ET
Chances are you gave or received at least one gift card for Christmas or Hanukkah. Once again this year, these cards were the most requested holiday present.
Despite their popularity, gift cards are not the same as cash. They can expire after five years (unless prohibited by state law) and there may be dormancy fees for not using them.
Sen. Richard Blumenthal (D-Conn.) wants to ban inactivity and service fees, and prohibit expiration dates on all gift cards and gift certificates. His Gift Card Consumer Protection Act would do that and much more.
“This bill bars absolutely draconian deadlines and abusive fees and charges that unfairly confiscate consumer gift card cash,” Sen. Blumenthal said in a statement. “Gift card companies fatten their profits and shrink consumer wallets with exploitative expiration dates and petty, underhanded junk fees. Gift cards should not be the gift that keeps on taking. This measure assures that consumers get their money's worth, no matter when they use the gift card.”
The Gift Card Consumer Protection Act would also prevent loyalty, promotion and awards cards from expiring. These are the type of gift cards you get as a bonus for buying a product or redeeming credit card points. Many of these cards expire in as little as 30 days.
The bill would also reduce the chances that you’ll get stuck with a worthless gift card. It would require a company that files for bankruptcy to honor its unredeemed gift cards and prevent that retailer from selling any more of them while under bankruptcy protection.
Sen. Blumenthal’s office reminds us that when Sharper Image filed for bankruptcy in 2008, the electronic gadgets store stopped accepting its own gift cards.
“We think this bill is a welcome present for anyone who’s been short-changed by a gift card,” said David Butler with Consumers Union, the advocacy arm of Consumer Reports. “We believe you ought to receive the full value of your gift card. You should be able to use it when you want it without any concern that the card has expired or that it’s no longer accepted.”
Companies that issue gift cards generally oppose the bill. The Network Branded Prepaid Card Association calls the proposed ban on expiration dates and service fees “unworkable restrictions” that could change the market for these cards.
“Consumers would likely lose access to many gift and promotional cards if all fees are prohibited – even after 12 months of inactivity – because the card programs would likely be discontinued as uneconomical for program providers,” said NBPCA president Kirsten Trusko in a statement to NBC News.
While inactivity fees provide profit, Trusko said they also pay for things such as customer service, protection against lost or stolen cards and fraud protection. Expiration dates are needed on promotional gift cards, she insisted, because like coupons they encourage consumers to visit a store or restaurant during a specific sales period.
“Forcing promotional cards to have no expiration date would undermine the usefulness of such cards for promotional purposes,” she wrote.
The American Bankers Association (ABA) hasn’t officially opposed Sen. Blumenthal’s bill. Instead, it questions the need for more government regulation in this area.
“The law is not necessary,” said ABA spokesperson Nessa Feddis. “We don’t know what it would do.”
Feddis wants everyone to know that a gift card never really expires, even when there is an expiration date on the card.
“The funds can’t expire, only the card,” she said. “All the customer has to do is call the company to get a new card issued.”
Feddis also emphasized that the companies that issue these cards don’t get to keep the money if they’re not used. After a certain period of time, normally seven years, any unused funds go to state’s unclaimed property office.
What to do with unwanted gift cards
Plastic Jungle, a company that buys and sells unused gift cards, estimates that the typical American household has unused gift cards worth an average of $300. That’s billions of dollars sitting in purses, wallets and dresser drawers.
Don’t let this money go to waste. If you don’t plan to use the card for yourself, use it to buy a present for someone else, donate it to a charity or turn that card into cash.
“If you received a gift card to a store you don’t like or a restaurant that you don’t go to, the card is essentially useless to you,” said Kendal Perez with GiftCardGranny.com. “So being able to exchange it for cash gives you the ability to get something out of that card.”
For a popular store, such as Target, Amazon or Wal-Mart, Kendall said they pay 90 percent or more of the card’s value. For other merchants, expect 70 to 85 percent.
TIP: Shop around if you want to get the most for that unwanted gift card. Offers can vary greatly from site to site.
Eliminating gift card 'gotchas'
Gift cards are big business. The TowerGroup expects total sales for the year to hit $110 billion. As the market for gift cards has grown, so has the need for improved regulation.
The Credit CARD ACT of 2009 prevents gift cards from expiring for at least five years. That’s good, but more should be done to eliminate the remaining gift card “gotchas.”
The Gift Card Consumer Protection Act makes sure you won’t be shortchanged when you give or receive one of these cards.