What to do when gift cards lose value or impose fees

Value Judgments

April 03, 2005|By EILEEN AMBROSE

EVERY year, a few issues galvanize the public, ignite lawmakers and launch a flurry of remedies in response.

This year, the gift card is one of those.

Politicians are getting an earful from constituents who are angry at discovering that gift cards lose value or even become worthless over time. Some cards expire. Others charge a monthly fee if the card sits unused. Consumers might pay a fee to find out their balance or to reactivate an expired card.

"How big of a gift is it if it evaporates? It's a disappearing gift," said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.

Consumer awareness about card fees and restrictions has grown as the cards have become convenient substitutes for shopping for that perfect gift. Nearly two-thirds of adults said they received or purchased a card last year, according to ValueLink, a Colorado company that offers gift card programs and processing. Gift card sales are expected to reach $55.5 billion this year, up $4.1 billion from last year, reports the research firm TowerGroup of Massachusetts.

The pressure is increasing on card issuers to make the plastic gift more convenient for consumers. Some have made changes on their own. Others are getting a shove from state legislatures.

Ninety-two bills involving gift cards have been introduced in 31 states this year, including five in Maryland, according to StateScape, which tracks legislation. Bills generally range from requiring disclosure of terms to prohibiting expiration dates and service fees on certain cards.

In Maryland, Perry Hall resident Phil DeFlavis inspired legislation in the state Senate. The hair salon owner said his employees had given him $200 in gift certificates. A year and a half later, when he tried to use them at a mall, the certificates had expired and were worthless.

"Up until that time, I didn't realize people put expiration dates on them," DeFlavis said. "That money should always be there. Someone gave that money for you to use at your leisure."

He took his complaint to Sen. Katherine A. Klausmeier. When the Baltimore County Democrat first introduced legislation three years ago to eliminate expiration dates, DeFlavis said he was the only consumer to testify. This time he had company, including state Comptroller William Donald Schaefer, who described his outrage at finding that his $50 Giant Food card had diminished in value over time.

Schaefer admits he didn't read the fine print on the back of the card, but said, "I don't think that's fair. ... They use your money all that time until you use your card. I was upset about it."

At Giant Food Inc. supermarkets, most customers use their gift cards within 90 days of purchase. The grocer begins charging $2 a month after 18 months if the card hasn't been used, said Barry Scher, a Giant spokesman.

"There are costs when we have to maintain cards in our system," he said.

Card issuers tend to support proposals to add disclosure but object to limits on fees and expiration dates. They say gift cards are to be used within a short period of time, and it costs them money the longer cards remain unspent.

Retailers must carry unused cards on their books as a liability and can't collect any sales tax on the cards until they are redeemed, said Tom Saquella, president of the Maryland Retailers Association. Yet retailers and other card issuers must pay income taxes on that money if the card isn't redeemed after two years, he said.

Bank-issued cards, which typically can be used anywhere like a credit card and are processed differently from retailers' cards, charge fees to offset the expense of maintaining accounts, industry experts said.

Three states are suing Simon Property Group of Indianapolis, the nation's largest mall owner, claiming the company's gift-card policy violates their consumer protection laws. Simon maintains that because its card is issued by a national bank, it comes under federal law.

Nevertheless, Simon settled last month a lawsuit brought by New York Attorney General Eliot Spitzer, agreeing to pay $125,000 in penalties and costs, and to comply with the state's fee restrictions on cards sold to New Yorkers.

At the same time, Simon announced other changes that it said were unrelated to Spitzer's lawsuit. The expiration dates on cards, which can be used anywhere Visa debit cards are accepted, has been extended from 12 months to 18 months and a fee for calling customer service has been eliminated.

What's a consumer to do?

Shop around when buying a card. Terms and fees vary widely. You don't want the recipient to unhappily discover that your gift does a disappearing act.

Check out the recommendations in the annual card survey by the Montgomery County consumer affairs office. It's available online at www.montgomerycountymd. gov/.

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