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Gift cards may bear unwanted fees
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Gift cards may have brought smiles to millions of faces this holiday season, but a slew of fees could end up turning many of these can't-miss gifts into booby prizes.
Leave a gift card in a drawer too long and it could expire or have its value eaten up by monthly "dormancy" fees. Want to replace a lost card or simply check the balance? That could cost you, too.
Efforts have been growing at the state and national levels to rein in such fees, or at least improve disclosures so consumers aren't caught off guard.
But gift cards continue to cause headaches for many people. So it pays to know the pitfalls.
In general, gift cards issued by individual retailers, such as Wal-Mart, McDonald's or Sears, are more consumer friendly than bank-issued cards -- those with the Visa, MasterCard, Discover or American Express logos that can be redeemed at multiple stores.
Unlike bank cards, retailer cards typically do not carry expiration dates. They also generally have far fewer fees than bank cards.
That's not to say retailer cards are all the same.
Last summer, Darden Restaurants, which operates Olive Garden, Red Lobster, Smokey Bones and Bahama Breeze, disclosed that the Federal Trade Commission found it had violated deceptive marketing laws by not adequately disclosing dormancy fees on its gift cards. The company, which faces a proposed $31 million settlement, quietly ended dormancy fees in October, which previously kicked in if the cards weren't used for 24 months.
An annual review of major gift cards by the Montgomery County Office of Consumer Protection in Maryland found that of 40 retail gift cards it studied in October and November, only two -- Pizza Hut and Shell -- charged dormancy fees. Just three others -- Blockbuster, Bloomingdale's and Macy's -- carried expiration dates. The office noted that since its previous survey a year earlier, eight major retailers had dropped dormancy fees.
In contrast, all 10 bank cards in the latest survey carried expiration dates, ranging from six months to three years.
All 10 also charged monthly maintenance fees ranging from $2.50 to $4.95. Most maintenance fees kicked in six months to 12 months after the purchase date, but one card started charging a $4.95 fee the first month. One also charged a 35-cent fee each time the card was used.
All but one bank card assessed a card replacement fee, ranging from $5 to $15, while two of the 10 charged a fee for telephone balance inquiries. All 10 cards also charged a flat processing fee at the time of purchase, ranging from $2 to $9.95.
Locally, the region's largest bank, PNC, sells Visa-branded gift cards good anywhere Visa is accepted. The processing fee is $3.95 if purchased at a branch, and either $5.95 or $6.95 if purchased online. After the first six months, a $2.50 per month maintenance fee kicks in. The cards expire after 18 months, but any remaining balance can be put on a new card for a $15 fee.
The Maryland study recommended that buyers and recipients of gift cards closely examine disclosures on gift cards, company Web sites, packaging and inserts to be sure of all the terms.
In the meantime, gift card practices continue to be scrutinized.
The FTC's probe of Darden Restaurants was launched last March after several U.S. congressmen asked the agency to review card practices.
In August, the federal Office of the Comptroller of the Currency issued guidelines for bank-issued gift cards, encouraging disclosure of expiration dates and dormancy fees directly on the cards or on stickers affixed to the cards.
At the state level, a handful of states have outlawed expiration dates and dormancy fees, while about half of all states -- Pennsylvania isn't among them -- restrict fees or other terms in some way.
Those laws are being challenged, however.
Simon Property Group, the Indianapolis-based mall operator and owner of South Hills Village, Century III and Ross Park malls locally, is fighting restrictions in a number of states. Simon claims that because its gift cards are issued by national banks, they are subject to federal, not state, regulation.
In Pennsylvania, a bill was reintroduced in the House last month that would ban expiration dates and dormancy fees on retail gift cards. Bank-issued cards -- the main culprits -- would be exempt.
Bank cards were treated differently because they typically allow consumers to transfer the remaining balance from an expired card onto a new card, said Colin Fitzsimmons, research analyst for the House's Consumer Affairs Committee, where H.B. 124 sits.
"Bank cards have a way to give the money back to the owner," he said.
The rub is, most charge a fee to reissue the cards, sometimes a hefty one. In the Maryland survey, the fees ranged from $5 to $75.
At least one local legislator said he may push to extend the Pennsylvania bill's ban on expiration dates to cover bank-issued gift cards.
"You use good money to buy gift cards," Rep. Anthony DeLuca, D-Penn Hills, said. "There is no expiration date on money."
For now, Pennsylvania residents with expired gift cards or gift certificates can try to redeem them through the state's unclaimed property bureau.
Under state law, if a merchant won't honor an expired gift card, it can't simply snicker and keep the money. The unused balance must be turned over to the state, where the owner can claim it.
Money from unredeemed gift cards and certificates must be forwarded to the state two years after the expiration date. (Of course, there may not be any balance by then if the card assesses a dormancy fee.)
Residents can make a claim by contacting the Treasury Department's Bureau of Unclaimed Property at 1-800-222-2046.
The bureau will need a photocopy of the unredeemed gift card or certificate to research the claim, spokeswoman Elizabeth Kupchinsky said.
The state currently has $7 million in unclaimed gift funds sitting in its coffers.
Under Pennsylvania law, money from unredeemed gift certificates or cards must be turned over to the state Treasury Department's unclaimed property unit, where you can claim it.
Issuers have two years after the expiration date to forward the money to the state. If your card or certificate is two years past the expiration, you can file a claim by calling 1-800-222-2046.
If you have an expired card or certificate from a specific retailer, say Home Depot or a local restaurant or movie theater, try using it before filing a claim. Many businesses will honor expired cards because they know the money must be turned over anyway.
If a merchant is putting up a fuss about accepting your expired card, remind the manager about the law. Be persistent.
First Published February 11, 2007 12:00 am
