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)