Consumer Group Proclaims the Perils of Giving Gift Cards

By Susan Jones | July 7, 2008 | 8:22 PM EDT

( - Beware of gift cards that include unexpected fees and looming expiration dates, a consumer group says. In fact, the group says there ought to be a law protecting consumers from gift card ripoffs.

"Millions of consumers are expected to buy or receive gift cards this holiday season, but many will discover their cards come with a catch," the Consumers Union said. The group, which publishes Consumer Reports, is calling on Congress to pass the Fair Gift Card Act -- S. 2969, sponsored by Sen. Chuck Schumer (D-N.Y.)

"Banks and retailers are advertising gift cards as the perfect present this holiday season, but too many of them are playing Scrooge by charging excessive fees and imposing unreasonable expiration dates," said Gail Hillebrand, a senior attorney with Consumers Union's West Coast office.

"Congress should pass the Fair Gift Card Act so consumers don't get stuck paying hefty fees." The Consumers Union has written a letter to lawmakers, urging them to support the bill.

Gift cards have become big business, Consumers Union said. Last year, consumers spent an estimated $45 billion on gift cards, according to TowerGroup, a Needham, Mass., research and consulting firm owned by Mastercard International. Sales are expected to grow 20 percent this year.

According to the Consumers Union, gift cards issued by banks generally come with monthly service fees so that recipients lose $2 or more each month from their cards. Gift cards sold by some major restaurants and retailers come with dormancy fees that penalize recipients with a monthly charge if their card remains unused after a certain period of time. Other cards automatically expire as early as six months after they are issued. Only a handful of states have enacted laws to address these practices.

The Fair Gift Card Act protects consumers by prohibiting gift card issuers from imposing a dormancy or service fee, unless the gift card has less than $5 remaining on it after 24 consecutive months of inactivity and the fee does not exceed $1. The bill requires that gift cards remain valid for at least five years and allows states to enact stronger protections.

The Consumer Reports Money Advisor recommends that consumers check on gift card expiration dates and fees, which usually can be found on the card, on an accompanying sleeve, or on the issuer's web site.

"If you're the giver and you think the rules are too restrictive, don't purchase the card," the press release said. It also said consumers should stick to store cards rather than bank cards because store cards don't usually charge up-front fees and are less likely to charge dormancy fees or have expiration dates.

"If you receive a gift card, use it soon to avoid monthly maintenance or dormancy fees. And finally, instead of a gift card, consider a cash gift, which never expires and carries no extra fees.

The Consumers Union describes itself as an independent, nonprofit testing and information organization offering unbiased advice about products and services, personal finance, health nutrition, and other consumer concerns.

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