Federal Reserve Proposes Rules On Gift Cards

Here’s your chance to sound off on another consumer protection issue. In accordance with the CARD Act, today the Federal Reserve proposed new rules that would protect consumers from fees and expiration dates on gift cards, and they’ll soon be accepting comments on the rules.

Here’s what the rules would enforce:

- Cards can’t expire for at least 5 years from date of purchase.
– Monthly fees can’t be applied until the card has been inactive for one year.
– Only one fee can be charged per month.

Feel free to submit comments on the proposed rules. You have to wait until they’ve been published in the Federal Register, the daily government paper that that prints everything going on in the government. The Federal Reserve doesn’t have a date for when that happens, only that it will be soon. Once they’re published, you have 30 days to submit feedback.

DATES: Comments must be received on or before [TBD].

ADDRESSES: You may submit comments, identified by Docket No. R-1377, by any of the following methods:

Agency Web Site: http://www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.

E-mail: regs.comments@federalreserve.gov. Include the docket number in the
subject line of the message.

FAX: (202) 452-3819 or (202) 452-3102

Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, N.W.
Washington, DC 20551

If you want to be the first to know when the proposed rules will be published (or more realistically, if you want to be one of the only people to know), you can subscribe to a daily email that lists what’s in the Federal Register that day. Visit the Government Printing Office’s LISTSERV and click the “Online mailing list archives” link, then on the next screen click the third link, “FEDREGTOC-L – Federal Register Table of Contents.”

“Federal Reserve proposes rules to restrict fees and expiration dates on gift cards” [Federal Reserve]
“Fed proposes new rules to protect users from fees” [Los Angeles Times]
(Photo: Mr. Thomas)

Comments

Edit Your Comment

  1. dasunst3r says:

    May I suggest the Greenback Ultimate Gift Certificate? It comes in $1, $5, $10, $20, $50, and $100 denominations and is legal tender for all debts, public and private!

  2. sirwired says:

    The Fed? Huh? Wouldn’t this be more of an FTC kind of thing?

  3. biggeek3 says:

    There’s no reason gift cards should have any fees paid by the recipient at all.

    • azzie says:

      @biggeek3: First, businesses can not have indefinite liability and carry it on the books forever. Second, States usually want to reclaim forfeited/abandoned property, and unused for long period gift cards will qualify. Third, IT dept does not want to store old account data online as it makes growth more complicated.

      To avoid dealing with these issues, businesses implement maintenance fees and/or expiration dates. The primary goal is to get rid of inactive accounts. Making money is secondary.

      • wvFrugan says:

        @azzie:
        “The primary goal is to get rid of inactive accounts. Making money is secondary.”

        Boy are you full of shit, who are you a shill for?

      • Coles_Law says:

        @azzie: All valid points, but look at some of the fees on a Visa gift card-activation fee, monthly fees, usage fees, non-usage fees, balance check fees. That is excessive.

        I’ve got a gift card now that I’ve been sitting on for a few months. It won’t start losing value for a year, at which point it will be another year or so before it is consumed by fees. I’m fine with that-no need for the company to keep track of that $30 until 2025 if I’m too lazy to use it. But if there was a $5 activation fee and $3/month fee, it would already have lost over a third of its value.

        • azzie says:

          @Coles_Law: I absolutely agree with you. Many company cross the line with fees, which dilutes the value of the gift card from the face value advertised on it.

          Speaking of Fed’s regulations, allowing monthly fees to kick in after a year of inactivity sounds reasonable to me. If I had any say, I would also add that those fees should not exceed, say, 2-3% of the face value of the card per month.

      • Thorzdad says:

        @azzie: Then they shouldn’t be in the business of offering the cards. I mean, it isn’t rocket science to understand that a lot of these cards will sit unused for a long time. They know this going in. If you can’t manage this type of product offering to match the way you KNOW the consumer will use it, then stay away from this market (Unless your actual goal is to profit on fees in the first place, of course)

        The very fact that you argue the cannot have these on the books indefinitely is actually an argument FOR clearly revealing the fees and expiration dates up-front, at point of purchase. And, by “clearly” I mean plain english in 10pt type on the card itself. Not buried in 5pt compressed legalize along with all the other legal disclaimers, copyright notices, etc.

      • TuxthePenguin says:

        @azzie: To your first point (don’t want a liability sitting on their books), GAAP rules allow for companies to write off gift-card and related liabilities. The classic example is Disney five-day passes. Technically, they never expire. They are, in effect, a gift-card for five free passes. Disney’s auditor (I think it is what is now KPMG) disagreed with Disney’s accounting to not carry that liability on their books after the first month or so.

        Disney, though, showed that the vast majority of the time if the five day pass isn’t used within the first WEEK, they are never used. Therefore, there is no real liability. FASB and the SEC agreed with the reasoning and its part of GAAP now.

        The same thing applies to gift cards. But I believe their write-off to revenue is something like two years.

  4. rachmaninov1 says:

    I’m not sure where the authority for Fed intervention truly rests, but it appears to me that these gift cards are cash substitutes, and as long as the Fed controls the dissemination of cash (through its wonderful ability to purchase cash from the US Treasury at production cost), it just might have some say over those who can also seemingly magically create cash substitutes.

  5. CaptZ says:

    I agree, Fed should saty out of this busimess. Fed seems to do nothing but screw things up.

  6. MooseOfReason says:

    Actually, I saw an American Express sign at the store by the gift cards, and they said “No fees after purchase.” So I guess they’re already doing that.

    By the way, what happened to the comments system? It’s all shoved over to the left.

  7. gStein_*|bringing starpipe back|* says:

    Chris Chris Chris Chris Chris… i know HTML is hard, but…

  8. FatLynn says:

    To quote the late great Mitch Hedberg, “I don’t understand why you’d buy someone a gift card. You take money, which is good everywhere…”

  9. willystyle says:

    How unfortunate a choice for Ms. Johnson’s parents (or perhaps marriage)…JJJ…

  10. Loias supports harsher punishments against corporations says:

    The fees need to be tied into something, such as no more than apercentage of the balance. I don’t see a cap on the amount of fees they can impose (only the frequency) which is troubling.

  11. tailstoo says:

    The Fed is now trying to show that it actually cares about consumers, after Dodd proposed that the new Consumer Protection Agency be separate from the Fed. Now that it looks like they might lose some power, they are desperate to do something that they can point at to say how great they are to the masses.

    It’s nothing more than an act. They’re a board of bankers. Like they care if we get ripped off.

  12. SatisfriedCrustomer says:

    I was hoping for rules like “Gift cards cannot be given as birthday presents, and in the case that one is given instead of a real present, the recipient is not required to say Thank you.”

    • hotdogsunrise says:

      @SatisfriedCrustomer: I’ve never understood why people are unhappy with plain ol’ cash. Because then I can take it and actually buy what I want! Or put it toward bills! I mean, someone is giving you money, for whatever reason: sweet!!!

  13. AustinTXProgrammer says:

    Gift cards: You make an interest free loan and they charge you for it!

    We need to form a non profit to promote cash giving. It used to be ok, but somehow all the marketers pushed that as being to impersonal. The setup the flimsy foundation gift cards ride on.

    As a child I would often ask for cash, so I could pool it and buy something big. I would shop for the best price when I got ready to buy, so it was a good thing I didn’t get locked into a store.

  14. CrazyBooduh says:

    What I would REALLY like is for it to be illegal to say “Gift cards cannot be used on daily specials or happy hour items.”

    Gift cards are paid for with cash at your establishment and should be considered as such. This is easily my biggest complaint about gift cards.

  15. ninjatoddler says:

    They just need to make gift cards simple.

    1. 365 days to use after activation with no fees.
    2. 365 days after activation, monthly fees can be injected until balance is drained to 0.
    3. 1 year as total time limit for an inactive card before it is automatically activated.

    How hard was that? BTW, I just got a stupid Toys R Us gift card instead of a discount on some items I purchased and the gift card expires at the end of year. Somehow, I need to use it up before Jan 1, 2010???

  16. SatisfriedCrustomer says:

    We need an after-market clearing house for gift cards, like Cash4GiftCards.com. Do you have dozens of old gift cards? Turn them into CASH with Cash4GiftCards.com! Simply place your old cards into the insured envelope , and in 2-6 short years you’ll receive cold hard cash in the mail!

  17. pdxazn says:

    I’ll not buy any gift card with expiration date or fee. They are already using my money paid on the gift card for free without rendered the service or merchandise. Some even charges you for buying the gift card. It costs them little or nothing to keep the gift card alive. What right do they have to take my money away without giving me the services?

  18. LostAtoll says:

    @bhr: who cares as long as the scam is being shut down, right?

  19. RandomHookup says:

    @bhr: If I’m not mistaken, several of the banks in the market are claiming the states don’t have jurisdiction on these instruments since they are federally-chartered banks. Thus, someone at the Federal level needs to be involved to keep the fight from going 51+ jurisdictions.

  20. Shaggy says:

    @xtc46 – thinksmarter on twitter: Actually, since the cards are usually issued by banks (and then re-branded by businesses), the Fed is the perfect regulator for this. And, no, it’s not like “telling the store how much to charge”, it’s more like telling the store to stop ripping off their customers.

  21. wvFrugan says:

    @xtc46 – thinksmarter on twitter:

    Ever hear of contract law?

  22. nbs2 says:

    @Shaggy: Good point. Maybe. Are we talking about store gift cards or the CC issuer gift cards? I’m pretty sure that the store gift cards (e.g. the stuff you get when you return a purchase for store credit) you get are issued by the store, not a bank.

    Hey Chris – If you have some inside sources, can you find out what gift cards are they talking about?

  23. aloe vera says:

    @katstermonster:
    Thanks, Richard Bluementhal!
    Now we need to work on the liquor store thing.

  24. samspot says:

    @shepd: When he says IT doesn’t want to store it, he means that ancient data makes system upgrades overly complex (lots of extra man hours).

    The devaluing transaction is most likely completely automated and minor compared to what goes on in that database. Once a month is nothing when you are doing millions or billions of transactions a day.

  25. shepd says:

    @samspot:

    Once a month, for EVERY item in the database. And, if the card doesn’t specify a date, once a month per card, which means running through 1/28th of the entire database every day on one month.

    A decent database server would just leave untouched data on disk and only cache the index in RAM. That would leave plenty of room for billions of gift cards, more than any store will ever deal with. But, unless you more than double your index space, as you’re now storing not only a simple serial, you’re also storing a complex renewal date as indexes, and that will, obviously, require a lot more overhead.

    Or, you’re not indexing on the date and therefore have a slow, terrible system when it comes to expiring cards–or you have a quick, simple system because you don’t need to index any dates.

    A well designed database with even access (shudder!) as the underlying server simply would not have any problem with not expiring records like these.

  26. samspot says:

    @shepd: It sounds like you know enough about databases to understand that the card devaluation transaction is trivial.

  27. shepd says:

    @samspot:

    Yes, it is trivial. Heck, you could implement it as a stored procedure. But, the fact remains that the database itself becoming “overloaded” is not a good excuse for expiring cards. Removing the old entries takes more effort (however little it might be) than leaving them there. Overall, the effect of expiring cards is to increase the workload.

    Now, I suppose you could be storing a lot of data with each record, but… why? And, for an unused card, if you’ve done proper rationalization, it still shouldn’t be taking more than a few bytes of space even if you store a lot of details about its use.

    Just my 2 cents. :)