If you buy a Chase gift card for a friend or relative or employee, you may notice that it comes with snowflakes or bubbles or one of the other decorative choices the bank offers. One thing you may not notice is that it also comes with an “inactivity fee” which kicks in after twelve months and starts removing $2.50 in value from the card every month. For slow-to-spend shoppers, that works out to a $30-a-year fee for letting Chase hold onto your money.
Gift cards are expected to be the #1 gift this holiday season. More than 80 percent of shoppers will buy at least one this year, according to a recent retailer-backed study – and they will spend an average of $156.86 per card. Many cards come from traditional retailers like L.L. Bean and Dell, which are both also using gift cards as an inducement to buy other gift cards— so-called promotional cards. Some givers, knowing neither what their aunt or nephew might want nor where they would want to shop, will turn to bank gift cards like the one from Chase.
But while gift cards are an easy fix that seem more festive and considerate than simply handing over a wad of cash, they often come with lumps of coal in the fine print, which is why many feel they should be more stringently regulated. Sen. Richard Blumenthal (D-Ct.) has introduced a bill in Congress that would ban gift cards from imposing non-use fees or expiration dates altogether, which would strengthen a 2009 law that prohibits cards from expiring within five years or imposing no-use fees in the first year. ConsumerReports.org, which backs the bill, says it “would be the ultimate gift for those who give and those who receive.” But banks and retailers will no doubt fight it hard – because these gift card technicalities add a lot of money to their bottom lines.
Unlike the 2009 law, the new bill would also apply to promotional gift cards, which are notorious for their quick expiration dates— which are often hard to spot. The Dell $75 eGift Card, which the company is giving away to customers who buy $400 in gift cards, expires in just 90 days. Outback Restaurants is offering a “Bonus Card” for that comes with an even trickier catch – it can only be used during a 41-day window starting Jan. 1, 2013.
The bill would also require companies that go into bankruptcy to honor gift cards and prevent them from issuing new ones. As things now stand, all bets are off. In 2008, the Sharper Image announced that it would only redeem gift cards for 50 cents on the dollar – and then, after it declared bankruptcy, it stopped accepting them entirely, leaving customers with $43 million in useless gift card credit.
When consumers’ rights bills like this one come along, companies often argue that they need the fees to remain profitable. But companies that issue gift cards are already getting a huge windfall from cards that are never redeemed. One retailing analyst estimated that from 2005-2011, as much as $41 billion in money on gift cards was lost or was not likely to be cashed in. The windfall has likely declined since 2009, when the new rules on expiration dates and inactivity fees were adopted. But there is still a lot of money from credit card “breakage” – industry-speak for unredeemed value – going to corporate bottom lines. In 2010, Best Buy reported $43 million in income from gift cards that were unlikely ever to be redeemed, and in 2011 that leapt to $53 million.
Although there is likely to be strong opposition to the Blumenthal bill in Congress, consumers have a right to expect that cards retain the value that they were sold for. After all, the gifts are supposed to be for the people who receive the cards—not the companies that issue them. Without more regulation, gift cards may end up being just one more piece of new technology that did not make life better – and more people may decide to return to the simplicity of sticking a few crisp bills into an envelope.