Gift Cards 2010: New consumer tips for the holiday season

Gift Cards 2010: New Consumer Tips for the Holiday Season

The year 2010 saw many new developments for gift cards.  The gift card provisions of the Credit CARD Act went into effect on August 22, 2010, giving all gift cards minimum protections against early fees and expiration dates.  And “virtual” or “e-gift” cards, which you can buy and email to others without having a plastic card, have become increasingly popular with last-minute gift givers.

But before you buy or receive a gift card this holiday season, be sure you know which laws and protections apply to your card – they may vary depending on the type of card you buy, and in many cases merchants are allowed to sell gift cards with incorrect expiration dates because of a loophole in the new federal laws. 

Federal Protections Cover All Gift Cards.

Under the Credit CARD Act, your gift card funds:

  • cannot expire for five years,
  • cannot be charged a dormancy/inactivity fee for any 12 months of inactivity, and
  • cannot be charged more than one fee a month after 12 months of inactivity. 

These protections apply to both traditional plastic and “virtual” or “e-gift” cards.

Some states offer stronger protections for consumers with retailer gift cards (e.g., a Target gift card).  To see if your state offers additional gift card protections, click here.

“E-Gift” Cards Have the Same Federal Protections as Plastic Gift Cards.

Recently, a new type of gift card has been cropping up on the Internet: the virtual gift card, sometimes referred to as an “e-gift card.”   Instead of buying a plastic gift card for family and friends, you can now buy an electronic credit, which comes with a number or code that you can email or text to the recipient.  The recipient either prints out the information and takes it to a store, or uses the account number to shop online just like you would use a plastic gift card.  The e-gift card is marketed as a convenient last-minute gift to loved ones that doesn’t have the same risk of being lost or stolen because it doesn’t rely on a plastic device.

E-gift cards are covered by the federal Credit CARD Act, so they are subject to the same protections limiting fees and expirations dates.  However, they may not be covered by state laws that offer stronger protections for retailer gift cards, depending on how the state law defines gift cards.

Don’t Be Confused by Early Expiration Dates Printed on Some Gift Cards – You Still Have Full Federal Protections for Your Gift Card Funds.

Due to a loophole in the new federal law, banks and other card issuers are still allowed to sell plastic gift cards that were made before April 1, 2010 – even if they have terms printed on them that would now be illegal under the new law.  These cards may be printed with an early expiration date, but your funds are still entitled to full protections under the Credit CARD Act.  Issuers selling these cards must put up signs and make information available to consumers to clarify that the funds on these cards still can’t expire for five years, won’t be charged any dormancy fees for the first 12 months, and won’t be charged more than one fee a month after 12 months of inactivity.  But issuers are allowed to sell these cards until January 31, 2011, which means consumers may receive cards through the end of this year with the wrong information.

If you receive one of these gift cards with incorrect terms printed on them, you can ask the issuer for a new card with the correct expiration date and other terms printed on it.

Don’t Forget to Use Your Gift Cards.

Gift cards often go unused and forgotten.  According to a 2007 Consumer Reports survey, 27% of gift card recipients hadn’t used all their cards after one year.  Consumers may be even more likely to forget to use all of their e-gift card funds if they don’t have a plastic card in their wallet as a reminder.  Although the Credit CARD Act and some state laws help limit expiration dates and fees, it is still possible to get a gift card, forget about it, and then lose part of its value because of fees or lose all of its value because of an expiration date.

If you receive a gift card, spend it right away!  You may lose your money to fees or expiration dates otherwise. 

You May Lose Funds on a Gift Card if a Retailer Goes Bankrupt.

Even if you plan to use your gift card soon, there’s no guarantee that your funds are safe.  If you have a retailer gift card, and the retailer holds the funds and then goes bankrupt, you may lose all your money or wait a long time to receive only pennies on the dollar.  Once in bankruptcy, the retailer must petition the court to set aside gift card funds.  If the court does not approve, or the retailer never makes the request, then the only recourse is to file as an unsecured creditor with the court – and you’ll probably get little to nothing in the end.

Multi-use, network-branded cards (with a network logo like Visa or MasterCard) do not have this problem because they are issued by national banks and can be used at a variety of retailers – but note that these types of gift cards can come with extra purchase fees.

Consider Giving Cash or a Check Instead of a Gift Card.

This holiday season, consider giving cash or sending a paper check as a gift.  That way, the money won’t expire or be subject to fees.

If You Give a Gift Card, Make Sure the Recipient Understands the Fees and Expiration Dates.

If you do give a gift card, make sure the recipient understands the fees and expiration dates, if any.  Since retailers can still sell cards with incorrect terms printed on them until January 31, 2011, it may be confusing for recipients to figure out which terms apply to their card.  If you buy one of these cards, make sure your recipient knows that the full federal protections still apply to the gift card funds, and that the recipient can ask the retailer for a new card with the correct expiration date and other terms printed on it.

Need More Information?

For more information on gift cards, click here.