Wall Street Journal
The Federal Reserve on Monday proposed new regulations aimed at limiting fees and expiration dates associated with retail gift cards.
The rules would prohibit retailers and banks issuing network-branded cards, such as those bearing the MasterCard or Visa logos, from levying fees on recipients who have used their cards during the previous year.
The rules won't go into effect in time to affect cards purchased this year. The initiative is part of an overhaul of credit-card restrictions passed by Congress earlier this year and scheduled to take effect in August 2010.
Americans spent $88.4 billion on gift cards in 2008, but left $6.4 billion unused, according to TowerGroup, a consulting firm. That was less than in 2007, when $97 billion in gift cards were purchased and $8 billion was left unused.
Some issuers currently penalize consumers for not using their gift cards for extended periods, by deducting fees from their available funds. The proposed Fed rules would limit card issuers to charging no more than one inactivity, dormancy or service fee a month, and require funds linked to cards be usable for at least five years after a card is issued or last funded.
The National Retail Federation expects the changes will hit banks harder than retailers, which already have pulled back from expiration dates and various fees. "It really won't have a big impact on the retail industry," spokesman Scott Krugman said. "It's the bank-issued cards that tend to charge fees, and at this point, you'd be pretty hard pressed to find a retail store-issued gift card that has an expiration date."
The rules could thwart some states that collect the value of unused gift-card credit from issuers after a period of two to five years. Many state governments consider unused cards to be abandoned property, similar to dormant bank accounts and safety-deposit boxes that aren't accessed.
The Fed regulations wouldn't apply to prepaid cards not marketed or labeled specifically as gift cards or gift certificates, or to cards earned through reward programs.
The central bank opened its proposal to public comment, so it may be altered before final approval. Some lawmakers want the provisions in place sooner than next August.
"These rules are the right step, but it would be far better for them to take effect in time for this holiday shopping season," said Sen. Charles Schumer (D., N.Y.). He said he would continue pushing the Fed to implement the gift-card regulations more quickly.
The rules would prohibit retailers and banks issuing network-branded cards, such as those bearing the MasterCard or Visa logos, from levying fees on recipients who have used their cards during the previous year.
The rules won't go into effect in time to affect cards purchased this year. The initiative is part of an overhaul of credit-card restrictions passed by Congress earlier this year and scheduled to take effect in August 2010.
Americans spent $88.4 billion on gift cards in 2008, but left $6.4 billion unused, according to TowerGroup, a consulting firm. That was less than in 2007, when $97 billion in gift cards were purchased and $8 billion was left unused.
Some issuers currently penalize consumers for not using their gift cards for extended periods, by deducting fees from their available funds. The proposed Fed rules would limit card issuers to charging no more than one inactivity, dormancy or service fee a month, and require funds linked to cards be usable for at least five years after a card is issued or last funded.
The National Retail Federation expects the changes will hit banks harder than retailers, which already have pulled back from expiration dates and various fees. "It really won't have a big impact on the retail industry," spokesman Scott Krugman said. "It's the bank-issued cards that tend to charge fees, and at this point, you'd be pretty hard pressed to find a retail store-issued gift card that has an expiration date."
The rules could thwart some states that collect the value of unused gift-card credit from issuers after a period of two to five years. Many state governments consider unused cards to be abandoned property, similar to dormant bank accounts and safety-deposit boxes that aren't accessed.
The Fed regulations wouldn't apply to prepaid cards not marketed or labeled specifically as gift cards or gift certificates, or to cards earned through reward programs.
The central bank opened its proposal to public comment, so it may be altered before final approval. Some lawmakers want the provisions in place sooner than next August.
"These rules are the right step, but it would be far better for them to take effect in time for this holiday shopping season," said Sen. Charles Schumer (D., N.Y.). He said he would continue pushing the Fed to implement the gift-card regulations more quickly.
