Gift cards, the ultimate no-brainer present, are forecast to be the most popular purchase again this holiday season.
But many on the giving and receiving end may not know the rules covering them changed this year — and change again Jan. 31.
When Congress overhauled credit card laws in 2009, it also made some consumer-friendly changes to the way banks and retailers profit from dormant gift card fees and keep the money on cards never cashed in. That's key, because while this year 53 percent of shoppers plan to buy at least one gift card, about 12 percent of cards get regifted — and 13 percent will likely never be used.
Last year, about $7 billion of $88 billion worth of gift card cash sold was never spent. While that can be a profit bonanza for banks or retailers, paperwork is a necessary annoyance. That's because accounting rules forbid booking gift card sales as revenue until they are actually cashed in. While many states try to seize the unspent leftovers to fatten the state treasury as unclaimed property, Florida is one of 35 states that does not put up a fight with banks or retailers who keep the cash.
The big new changes:
• Dormancy or inactivity fees, which once typically whittled down an unspent balance up to $5 a month, can no longer be charged the first year.
• Store card issuers have to make the rules more visible by printing them on the card, disclosing them at the point of sale or having a website and toll-free number.
• Regardless of what the card says, the new law made all cards sold since April good immediately for five years from their last loading. Previously, many expired in less than two years.
While dormancy fees have been pushed back, there is no limit on how big they can be.
"The new law may lead to card issuers charging higher fees after the first year," said Laura Lane, a vice president at the Keane Organization in Philadelphia who advises retailers on how to recover unclaimed assets. "They have to recoup the increased costs of compliance somewhere."
The new law took effect Aug. 22, but the Federal Reserve and later Congress eased disclosure deadlines until Jan. 31 to give a break to card issuers confronted with destroying more than 100 million blank cards sitting in warehouses to be sold this Christmas season. But the new, five-year lifespan for all cards went into effect in August anyway, meaning many cards don't have expiration dates or rules printed on them.
Thanks to heavy industry lobbying, none of the new restrictions apply to prepaid cards that can be reloaded and carry the logos of American Express, MasterCard and Visa. That's because those cards function more like debit cards and can be cashed in anywhere those branded cards are accepted. The new stored-value card rules also do not apply to food stamp cards, prepaid phone cards or loyalty program rewards or rebates that are often distributed through gift cards.
"Most retailer-issued gift cards don't charge fees, so this really brings into line bank-issued cards that were giving gift cards a bad name," said Craig Shearman, vice president of government relations for the National Retail Federation.
Mark Albright can be reached at firstname.lastname@example.org or (727) 893-8252.