FTC Cracks Down on Monthly Maintenance Fees on Gift Cards

Retailers love gift cards. They get your money up front, so they can earn interest on your “deposit.” Cards bring customers into the store, where they often spend more than gift card value. Other consumers will forget they have the card, and the retailer keeps the money without selling anything. Nice margins!

Plus, there’s the fine print: Many gift cards have a monthly fee that kicks in when you don’t use your card for a while. But maybe not much longer. (Some states have rules prohibiting this. Illinois residents, for example, are lucky: Gift certificates and cards can never expire.)

Now the Federal Trade Commission has brought its hammer of justice down on Kmart for their gift card practices. What took them so long?

In its first enforcement action involving gift cards, the FTC claims that Kmart advertised its branded gift cards as good as cash when, in fact, hidden fees would render them worthless after a certain amount of time.

Specifically, the FTC alleged that Kmart, a subsidiary of Sears Holding, told consumers that its gift cards never expired. However, the agency claims the retailer didn’t clearly inform customers that a $2.10 monthly fee kicked in retroactively if a gift card went unused for two years. According to the FTC complaint, this meant an unused card’s value was immediately reduced by $50.40 after two years.

Without admitting any wrongdoing, Kmart has agreed to settle the FTC charges. Under the agreement, which is not final, the retailer will reimburse the dormancy fees to consumers who provide an affected gift card’s number, a mailing address, and a telephone number. Kmart has also agreed to publicize the refund program on its website, including a toll-free number, e-mail, and postal address so that eligible consumers can seek a refund.

The problem is that many people may have discarded cards that had been reduced to zero. Unless you’ve got a card, or receipt that says you bought a gift card at the big red K, you may be out of luck. Still, it’s a start. Let’s see that it spreads to the rest of the gift card industry. MARK ASHLEY

FTC case on gift cards is payback — for some [Boston Globe]
(Photo: akeg)

Comments

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  1. PatrickIs2Smart says:

    Wait– people still shop at Kmart?

  2. kerry says:

    Retroactive monthly fees! That’s a new one on me. Shame on Kmart!

  3. FangDoc says:

    Here in Pennsylvania, we’ve had a state law against gift certificates and gift cards expiring for several years. However, I hope the federal law will go through, not only to provide protection to other states, but also to raise awareness of the protection we already have.

    Not many people know their gift cards can’t expire here, and many of the national retailers put expiration dates on their stuff as a matter of course. It’s sad enough that people lose their unused gift cards; sadder still, the idea that people are throwing them away because they incorrectly believe them to be worthless due to expiration.

    Etiquette be damned — subvert the retailers and just give cash!!!

  4. hop says:

    this dosen’t bother me, i have the word out, nothing from k-mart……sears is starting to look alittle ragged too…………

  5. tedyc03 says:

    California prohibits gift cards and gift certificates from expiring as well. Maintenence fees are also illegal.

  6. Bay State Darren says:

    My beloved Commonwealth also has such a law. A few years ago, they went after Simon Malls for violating it. The defendant’s claimed that even though the malls were here, the cards were sold here, etc., the laws of Massachusetts didn’t apply, only federal. Great logic, huh? If I recall correctly, it didn’t work.

  7. cuyahoga says:

    In Washington State, gift cards don’t expire, they can’t charge a “maintenance” fee and they must give you cash if the remaining balance is $5 or less. Too bad most people don’t know this.

  8. acambras says:

    Even if I didn’t live in CT (with a law against giftcard expiration), I wouldn’t give money to any giftcard company that penalizes the recipient over time with maintenance fees, inactivity fees, etc.

    It’s like paying annual fees for credit cards — there are too many no-fee cards out there to put up with that crap.

  9. Mary says:

    I just recently got burned for about $20 by a gift card that was offered “free” with my tax filing last year. It basically said they would either charge you $10 to file the way we did, or you could get a gift card that worked like a visa card.

    Not only did the card automatically ring as debit, but it charged me $1 for each debit transaction. THEN we realized that by not using the last eight or so dollars on the card, we were being charged “non-usage” fees that wiped it clean.

    I can’t decide if it’s a good or a bad thing that I didn’t even think this could happen because I work for a retailer that prominently advertises that they charge absolutly no fees and their gift cards never expire. So I mistakenly assumed that most people would be reasonable.

    It’s amazing sometimes what retailers will do for those extra fifty cents they can manage to milk out of a person.

  10. abbamouse says:

    What I would like to know is why theaters are allowed to get away with a similar scam. They charge full price for passes, but then block anyone with a pass from attending new releases. This is not advertised on the pass, and it really does reduce the value of the pass. So why don’t they have to declare “not valid for new releases” on the front of the passes instead of selling them and only then announcing “no passes” when the movies premiere?