When the CARD Act went into effect in February, it also included new rules designed to limit some of the more egregious practices of gift-card issuers, like early expiration dates and “dormancy” fees. However, Congress put the Federal Reserve in charge of interpreting the new law, and yesterday the agency unwrapped its new collection of rules. Is it too late to return this one?
The new rules (which take effect in August), among other things, ban dormancy fees during the first year of a card’s life, and require more disclosure about fees and expiration dates. But there are still plenty of loopholes for card-issuers. Here’s Consumer Reports Money’s take:
The new rules don’t adopt several provisions requested by a coalition of consumer groups, including Consumers Union, publisher of Consumer Reports. Among them are a caps on fees, a strict prohibition on card-expiration dates shorter than five years, and a requirement that issuers provide one free replacement of a lost or stolen card.
Also, the restrictions on fees and expiration dates don’t apply to cards issued as part of loyalty, award, or promotional programs, or to “reloadable” cards not labeled or marketed as a “gift card” or “gift certificate.”
Finally, the rules don’t protect consumers if an issuer files for bankruptcy protection or goes out of business. When the retailer Sharper Image filed for bankruptcy protection in 2008, it first placed restrictions on the use of its gift cards and then stopped accepting them altogether.
So, even with their more limited scope, do the new rules make gift cards a good deal? Not really. If you really aren’t sure what to give someone, here’s a better option, which comes with no hidden fees, no expiration date, and is available at thousands of locations (known as “banks” or “ATMs”) nationwide.
Consumers don’t get full protection from Fed’s new gift-card rules [Consumer Reports]
Federal Reserve announces final rules to restrict fees and expiration dates on gift cards–March 23, 2010 [FRB Press Release]