Despite New CARD Act, Gift Card Pitfalls Remain

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Gift Cards: New Rules and What You Need to Know

By: Kwame Kuadey

The gift card provisions of the Credit Card Accountability, Responsibility and Disclosure ACT of 2009 (CARD Act) went into effect in August, 2010, and have made gift cards more consumer-friendly. The new ACT has allowed for shoppers to be more comfortable when purchasing and using these gift cards, and explains why gift cards will continue to be a popular gift.

Some of the key features of the new CARD Act that benefit purchasers and users of gift cards include:

  • Even though gift cards can expire, the money used to buy or reload a gift card cannot expire and must be useable for at least five years. During the five year period, the card issuers must either replace expired cards at no charge or refund any balance.
  • For one year, inactivity, dormancy and service fees cannot be imposed.
  • The gift cards will have to display a contact number and/or website of the issuer.
  • Any allowed fees cannot be charged more than once every month.
  • The gift cards must clearly display inactivity fees, service fees and expiration dates.

Despite these provisions in the new law, there are still gift card loopholes out there that consumers should be aware of:

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Not All Gift Cards Are Covered

Not all gift cards are covered by the new law. Paper gift certificates, reloadable prepaid cards (such as Visa or MasterCard prepaid cards), phone cards, and loyalty or promotional gift cards are exempt from the new restrictions.

Beware of Prepaid Card Fees

Gift cards can still charge fees; the CARD Act only requires them to be clearly disclosed at the time of purchase. Be careful when you buy prepaid gift cards, which usually carry a host of fees, including purchase fees, inactivity fees, balance check and ATM fees.

Purchase fees are particularly a talking point, if someone buys a gift card from a credit card issuer or back, most times he has to pay more than the face value of the gift card. This is very common with brand name cards.

The banks and card companies that charge these fees claim they are for services offered on the cards like online balance check, customer service help, etc.

The recent introduction of the Kardashian Kard, a prepaid card introduced by reality TV stars Khloe, Kourtney and Kim Kardashian was widely panned due to the layers of fees that came with the card. To get the Kardashian Kard, you had to pay a $59.95 purchase/set-up fees, $1.50 to use at an ATM, $1 to check the balance, $1.50 to speak to customer service, $2 to make an online payment, $9.95 to replace a lost card, and $6 to cancel the account. The card was eventually pulled after the public backlash, but it goes to show how much latitude prepaid card issuers still have with fees.

Even the most popular prepaid card in America, Wal-Mart’s Money Card, charges a $3 monthly fee, $3 to reload money onto the card, $2 to withdraw money at an ATM, and $1 to check the balance.

There Is No Protection Against Bankruptcy

The new gift card rules do not protect consumers if the card issuer files for bankruptcy or goes out of business. Several large retailers have gone bankrupt in the last two years including The Sharper Image, Linens ‘N Things, Circuit City and KB Toys, and in each case, some gift card holders were left with worthless gift cards because they missed the small window provided by the retailers for gift cards to be redeemed during the liquidation sale.

While everyone is advised not to buy or hold gift cards from issuers or retailers having problems financially, there’s the belief that until a new law is passed to provide bankruptcy protection, people will never feel fully confident holding gift cards.

Some Cards Still Don’t Carry Full Disclosures

One of the provisions of the new CARD Act is that issuers of gift cards and prepaid cards must disclose information including fees, expiration dates, contact phone number and/or websites on the back of their cards. While the new provisions went into effect in August, the provision allows for a grace period on disclosures up until January 31st, 2011, for gift cards produced before April 1. The grace period comes in a bid to prevent gift card and prepaid card issuers from having to destroy up to 100 million gift cards that have been produced prior to the CARD Act.

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It is important, therefore, that people buying gift cards and those who plan on using them take the non-disclosures and fees into consideration, to ensure that they’re getting the most out of their gift card.

Kwame Kuadey is the CEO and Founder of GiftCardRescue.com, a site for selling unwanted gift cards for cash. Kwame is also editor of Gift Card Blogger, a blog about discounted gift card deals and more.

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