New Law Targets Abusive Practices In The Pre-Paid Gift Card Business
A little-noticed provision of the credit card reform bill passed by Congress and signed by President Obama on May 22, 2009, targets abusive practices in the pre-paid gift card business.
Congress, the White House, consumer groups, and industry lobbyists have mainly focused on the new protections that the law provides consumers who hold revolving-debt credit cards. Among other things, the act prohibits banks and credit card companies from raising the interest rate on existing debt; rate increases can only apply to new charges. The law also prohibits banks and card companies from charging interest on late fees and over-limit fees, and limits the availability of credit cards to college students, who have been aggressively solicited and have run up substantial debt in recent years. As one news account explained, the “overwhelming” support for the bill in Congress “reflected the public anger over the practices of banks and credit card companies, with lawmakers pointing to sudden and unexplained interest rate increases and indecipherable terms as major complaints.”
But the law also targets at least two abusive practices in the gift card business that have provoked numerous consumer complaints and lawsuits in recent years.
First, the law provides that no gift card can be sold with an expiration date of less than five years. Second, the law generally prohibits so-called “dormancy” and “inactivity” fees. The goal is to prevent the value of these gift cards from evaporating, giving a windfall to merchants and card companies while leaving consumers empty-handed.
The gift card abuses are especially unfair because the expiration dates and fees are often hidden from consumers. In a series of lawsuits, including a class action brought by our Firm, the New York appellate courts have held that consumers can sue gift card companies for inadequately disclosing the cards’ expiration dates and dormancy fees. (The same court discussed the issue in more detail in another recent case). The new federal law should put a stop to these abuses in the future. Summaries of the Credit CARD Act of 2009 are available from the White House, the Congressional Research Service, and the law’s sponsor, Sen. Chris Dodd (D-Conn.)
If you've purchased a pre-paid gift card with dormancy fees and/or an expiration date, please contact us to discuss your legal options.