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Blog: Paper Doll, Tackling The Stacks And Piles
The Gift Card Revolution (Part 1): What The New Regulations Mean For You



The shopping season is upon is. While we'd like to delight in finding the perfect presents for friends and family, we are often stymied by obstacles. Busy schedules or inclement weather may keep us from getting out to the stores. Perhaps there are people on our lists for whom, no matter how hard we try, we're just uncertain what item (or size) would be right. This is exactly why the gift card was invented.

Actually, it's why the gift certificate was invented, but in 1994, Blockbuster (remember them?) started using plastic gift cards to replace gift certificates, which had begun being counterfeited in large numbers. Gift cards have become so popular over the last decade and a half that the National Retail Federation reports that 57% of Americans rank gift cards as their first choice for holiday presents.



A survey by Visa found that 85% of respondents would appreciated receiving a branded gift card, and 65% prefer gift cards to "non-essential" gifts like scarves or cologne. And as of this season, members of Facebook will be able to buy and send retailer gift cards via the social networking site.

ADVANTAGES

It's been a long time since gift cards were seen as boring or generic gifts. It's not just that recipients are eager to replace Aunt Gertrude's tastes with their own. Gift-givers, recipients and retailers all benefit from gift cards due to:

Portability -- Shipping costs are high and always increasing, but gift cards are small, light and can be mailed, along with a holiday card, at no extra cost.

Traveling over the river and through the woods to Grandmother's house for Christmahanukwanzaakah? Once you, your spouse, the kids, Fluffy and Rover and everyone's accoutrements make it into the car, along with refreshments and gadgets and "Mom, he's touching me!!!!", oversized or oddly shaped giftwrapped presents offer one headache too many. And air travel with gifts adds insult to injury. Not only must we now pay extra just to bring luggage on the plane, but security rules require gifts to be unwrapped, such that we must now cringe at the hands of strange TSA agents pawing the delicate gifts transported to loved ones. Gift cards, conversely, fit the SUV or the carry-on bag without muss, fuss or cringe-inducement.

Uniform size -- Gift certificates varied widely in dimensions and materials. They were usually too large to tuck neatly in wallets and tended to get thrown in drawers and baskets until they were long-forgotten and eventually expired. (Yes, that happens with gift cards, too, but at least the size gives them a fighting chance.)

Visual appeal -- Many gift cards bear attractive, whimsical or message-laden designs to counteract the generic size and shape.

Electronic system authorization -- Unlike bus and train cards or the ubiquitous Vendacards Paper Doll used in college to make photocopies, gift cards don't have stored values. Instead, gift cards are encrypted at purchase with dollar values stored in centralized data banks. This is good for retailers, because stores need not worry about counterfeiting, and good for consumers, because one phone call allows provides access to the current balance without having to keep up with receipts.

DISADVANTAGES

Unfortunately, for many years, most consumers remained unaware of the serious drawbacks of plastic gift cards, including the existence of administrative, inactivity and dormancy fees, expiration dates, and the comparative differences between Open and Closed Loop gift cards.

Open Loop cards are "network-branded" cards issued and backed by financial institutions like Visa or American Express and can be used practically anywhere those institutions' credit cards are accepted. Closed Loop cards can only be redeemed at the issuing retailer; for example, Walmart, Bed, Bath and Beyond or iTunes. While Closed Loop cards tend not to have expiration dates or administrative fees, Open Loop cards expire and pile on fees. (After all, as with credit cards, the big guys make their money not from the purchases you make, but from fees -- like those associated with you forgetting you've got the gift card in the first place.)

THE NEW RULES


AllThingsGiftCard

Back in February, Paper Doll told you about the Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, designed to enact new consumer protections. What you may not know is that while the CARD act was primarily about credit cards, it also included some nifty provisions related to gift cards, which went into effect on August 22, 2010. These new regulations level the playing field -- with all retailers, in all states, subject to the same federal guidelines.

The highlights in the consumer's favor:

Longer Periods Before Expiration -- One year limits are old news. Now, gift cards can't expire for at least 5 years from date of issuance. That means five years from the date of purchase for gift certificate-style cards, or five years from the "date of last load of funds (in the case of a store gift card or general-use prepaid card)", according to the Federal Reserve.

Gift Cards Expire -- But Your Money Doesn't! -- This is the biggest news, and the aspect Paper Doll thinks the media has failed to report loudly enough. If the expiration date on your gift card passes, but there's still a balance on the card, call the card company at the toll-free number and request a new card. Retailers are required to either do this free or return the remaining balance. (So, when you purchase a gift card and notice the expiration date is only 4 years and three months away, you might want to let your recipient know the date of purchase...that's what starts the meter running.)

No Inactivity Fees...at least for the first year -- Retailers aren't allowed to apply inactivity fees until at least 12 months after the last use of the card -- whether that use involves decreasing or increasing the value of the card. So, if you'd like to give Grandma a gift card for her favorite store, restaurant or spa chain, but she's only up from Boca Raton in the summertime, don't fret. Those inactivity fees won't start for 12 months, rather than the previous one to six months that were often standard.

Monthly Fee Limits -- Now, no more than one fee of any type can be applied to the card in any one month. So, for example, if you've not used a gift card in more than 12 months, while a retailer may charge an inactivity fee or an administrative fee, it can't charge both.

Written Disclosures -- Every gift card must include the following in writing: disclosure of fees, an expiration date and a toll-free telephone number or website where you can get more information about the card.

Stronger State Laws Still Reign -- If you live in a state with even more stringent laws than those provided by these regulations, your state's law will prevail. To find out more about the regulations that pertain to gift card purchases in your state, the National Conference of State Legislatures has put together this summary of state regulations, current as of September 2010.

There is one drawback associated with the new rules. Retailers may still charge a one-time fee when you purchase a gift card. However, this tends to only occur with Closed Loop "network branded" cards, which generally charge $3-7 per card; store cards rarely have fees associated with purchase.

Lastly, these new regulations only apply to actual gift cards, and not to reloadable cards for pre-paid phone service or rechargeable (credit card-like) debit cards, loyalty cards or rebate cards.

A HITCH IN THE GIDDYUP

Although the law passed in late 2009, retailers protested that in order to make the original deadline, upwards of 100 million otherwise serviceable gift cards would have had to have been destroyed, and gift card manufacturers might not have been able to produce replacements in adequate numbers in time for the holidays. Thus, via the ECO Gift Card Act, a codified "interim final rule" from the Federal Reserve, Congress exempted cards produced prior to April 10, 2010 from the new disclosure agreements until January 31, 2011.

So, you just know that lots of stores nationwide will still have pre-April 2010 cards hanging next to cash registers from Portland, Maine to Portland, Oregon and everywhere in between during the 2010 shopping season.

All is not lost, however.

Under this ramp-up period exemption, retailers can't just party like it's 1999...or 2009. Card issuers are required to use alternate methods to inform consumers and gift card recipients about card fees and terms of usage...they just don't have to have the messages printed on the cards. They can alert us through general advertising, signage in the stores, language on their websites and even during "customer service calls", though one wonders how intently an agitated homeowner, drowning in soap bubbles from an over-agitated washing machine, will be paying attention to gift card mumblings from a customer service telephone rep.



Learning how the new regulatory protections apply to you is a great first step, but there's more to know. 

Next week, we'll explore services for identifying and buying the best gift cards while avoiding cards from companies potentially in financial distress. We'll also discuss how you can protect yourself from gift card fraud and organize the gift cards you receive to minimize loss and maximize rewards. And we'll check out some exciting new options for turning the gift cards you know you'll never use into cash.

Until next week, here's a mini-quiz. (No cheating by Googling...just offer up your best guess.)

What organizing-related retailer do you think is highest on the list of best bets for gift cards?

posted on: 11/16/2010 10:30:00 AM by Julie Bestry
category: Paper


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Paper Doll, Tackling The Stacks And Piles


by Julie Bestry

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