More states are jumping on the bandwagon. Indiana has a bill (1529) before the State House that would ban fees and expiration dates. Like all other states, they specifically exclude open-loop gift cards. (article) For once I’d like to see a legislator state WHY they are excluding open-loop cards.
Today’s news is chock full of a few nice anecdotes about gift card laws.
Maryland is considering a law that would allow the state to claim 70% of unused gift card balances. Hmmm, would that make them more or less likely to pass gift card laws that would benefit the consumer? One thing I found particular humorous was the comment made by lobbyist (for retailers) Bruce Bereano “The money belongs to the person. It doesn’t belong to the state.” This is the first I’ve heard that retailers are so fiercely defending a consumers right to get the full value out of their gift card. But we really know that the retailers just want to keep all that unspent free money all to themselves. Also shocking in this article is the fact that 32 states have a law like this (I didn’t know that).
Illnois is considering a law like California’s whereby consumers could cash out gift card balances less than $10. What is interesting though is that they are considering including open-loop cards (or as they call them, reloadable cards).
Not sure why I never thought to do this before. The results for the search term “gift card” in Google are very telling. Six of the top 10 results are for open-loop gift cards, you know, the kind that come with all the fees, are hard to spend all the way to zero, and are exempt from almost every gift card law passed to date. At this point there are probably more open-loop gift cards sold than closed-loop. I suspect when we see the full numbers for 2008 sales, this will be confirmed.
At some point, the issuers of these cards are going to have to pay the piper. They’ve gotten a free ride on the sleazy profit bandwagon for too long.
I predict that the public stink around these gift cards will come from seemingly nowhere and all of a sudden every legislator will want to get their hands on some new legislation banning fees and expiration dates and all the bad stuff they do. With the way the economy is going and how sick people are of getting ripped off, I’d say this has a good chance of happening in the next year or two.
Westfield malls is HUGE, with 55 malls in the US and more outside of the US. They sell a lot of gift cards. Their gift cards happen to be American Express branded cards and can be used anywhere Amex cards can be used. As Amex/open-loop cards, they come with all the downsides that everyone complains about, such as high dormancy fees and difficulty using up the small remaining balance.
But since it is a Westfield branded card, you would think you wouldn’t have a problem using it up fully at a store in a Westfield mall. Not so according to this story, about a woman who is making a stink about Westfield retailers not accepting cards with less than ten bucks on them. Worse, the retailers tell her the cards had nothing on them, when they in fact did have money left on them.
Westfiled turned to the fine print and said all the terms and conditions were in there, such as the fact that Westfield retailers could choose to accept or not accept the Westfield gift card. Here is the funny part, when she asked them where she could use the card, they named three retailers out of the perhaps hundred in the mall. Three.
It is also interesting to note that according to American Express merchant guidelines and agreements, retailers can not specify a minimum amount for credit or debit card charges.
The jury is in, open-loop (Visa, MasterCard, Amex) gift cards are simply a raw deal. Stay away from them.
I pay attention to stories related to gift cards and this story is the second case of open-loop gift card fraud I have ever seen. In this case, as in the previous case, it was an inside job. You should feel pretty safe buying an open-loop gift card (rip-off fee considerations notwithstanding) as long as the packaging appears intact.
Here is a fairly straight forward analysis and explanation what happens with gift cards during the bankruptcy process
For a while I thought I was the only one talking about the fact that multi-store, aka open-loop or bank issued gift cards are exempt from most laws that limit expiration and fees on gift cards. Finally at least some articles are beginning to mention them.
As this article points out, merchant agreements with credit card processors specifically prohibit merchants to have minimum purchase amount requirements for credit card use. This applies to gift cards as well. If they say you need to meet the minimum purchase amount, tell them it is against their merchant agreement. If they still refuse, report them to MasterCard, Visa, or American Express.
Of course, it’s not really the merchants fault. They have minimum purchase amounts because for small purchases their fees end up being a much larger percentage of the overall price and they may lose money on the purchase. However, if enough consumers complain about merchants, perhaps enough merchants will complain about the credit card fees, which are what really need to change.
Gift card issuing banks have gone and pissed off Conn. State Senator Tom Colapietro and he’s on the warpath. I wasn’t aware of this but Connecticut acutally passed a state gift card law with some teeth. The 2005 law prohibits dormancy or inactivity charges on ANY gift cards, including open-loop ones. What is happening now is that Federally chartered banks are issuing open-loop Visa and Mastercard gift cards in Connecticut and claiming the law doesn’t apply to them because they are not state chartered.
So he’s enrolling the states Senators and Congress people to support federal legilation to make federally chartered banks obey state laws on gift cards. It isn’t exactly a full federal ban on these type of fees, but it is a start. (article)
The Tower Group holiday gift card sales preliminary stats are in (article): $61 billion in gift card sales for the fourth quarter 08 as compared with $70 billion last year. That is going to be a little more than the 5% drop they had earlier predicted for full year 2008. The most intesting tidbit from their report is that open-loop gift cards are expected to be almost half of those sales, at $28 billion. This as compared with open-loop gift cards making up about 35% of gift card sales last year.
This information is very important when you consider that almost no state or federal laws that apply to gift cards apply to open-loop ones.
There have been more and more instances of employees getting caught putting value on their own gift cards instead of customers gift cards when they purchase them, like this story from Wal-Mart. This is in addition to the scams where people scan gift cards still on the shelves and then clone them when they are activated. If you purchase a gift card or receive one, it behooves you to check the value the minute you get it home.
According to a recent report from TowerGroup, 27 percent of gift cards bought this year will not be used and $6.4 billion of the expected $88.4 billion in gift cards sold this year wil not be redeemed (about 7%). That is lower than the usual figure of ten percent thrown around for breakage. With 27 percent of gift cards not used (and a bunch more not fully used), clearly, gift cards with little value on them offer little motivation to be redeemed.
Because of a deal reached today between New York AG Cuomo and KB Toys, you have until Jan 11 2009 to redeem your KB Toys gift card. But only in New York, and not online. After that, you are probably SOL. (article)
What is really interesting from the article though, is this statement:
“KB Toys sold as much as $2 million in gift cards this year alone, and currently holds a total of $12 million in unredeemed gift cards. ”
What? Either people saw the writing on the all about KB Toys and avoided buying their gift cards, or KB Toys shows six years worth of gift card sales as unredeemed on its books. Could the size of gift card “breakage” be way larger than anyone thinks?”
Sen. Charles Schumer announced today details on what he calls the “Fair Gift Card Act” that he hopes will be passed next year. Those details include gift cards being free of fees for two years, and thereafter a maximum of $1 in fees per months. Sounds like a solid improvement. Incidentally, from this letter I found from Consumers Union, it sounds like Sen. Schumer has been trying to get such a law passed since 2004.
If you care, I urge you to contact Sen. Schumer and asking him to include open-loop gift cards in his bill.
Sen. Charles Schumer will be introducing Federal Legislation that makes gift cards good for at least 5 years and makes the fees that whittle down gift card balances illegal. While it would be nice to have a single consistent Federal Law rather than the mich-mash of state laws we have now, there is still no talk about including open-loop gift cards in the legislation. Open-loop gift cards are among the worst offenders in the not-well-disclosed and very unreasonable fees game.
Manhattan Advertising & Media Law (a law firm) has put together this handy state-by-state map for looking up the gift card laws.
My first thought at hearing that a group of retailers was forming a group to protect consumer interests for gift cards, was something about a fox guarding a hen house. But this actually sounds like it might be a good thing if they truly stick with the principles they are initially suggesting that members be held to.
Does anyone really need an iPhone app made specifically for purchasing gift cards? GiftCertificates.com launched just such an app recently. (story)
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