It's in the cards

The hot present this holiday season is plastic: gift cards from popular online and brick-and-mortar retailers. But this year’s cards come wrapped in important new protections for people who buy and use them.

As part of Credit Card Accountability Responsibility and Disclosure Act, the Federal Reserve Board issued a new gift card rule that went into effect in August 2010. What kind of cards are covered? According to the Fed, the rule applies to gift certificates, store gift cards, and general-use prepaid cards, as the Credit CARD Act defines those terms. That includes retail gift cards, which people can use at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand. The rule doesn't cover some other types of prepaid cards, like reloadable prepaid cards that aren’t marketed or labeled as gift cards or gift certificates, or prepaid cards issued as part of a loyalty, award, or promotional program.

If your company’s gift cards are covered, the new rule restricts the use of dormancy, inactivity, or service fees. You may assess those kinds of fees only if: 1) there’s been at least one year of inactivity on the gift card or certificate; 2) no more than one fee is charged per month; and 3) you’ve disclosed the fees clearly and conspicuously. Examples of charges you need to disclose are monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, like reload fees, ATM fees, and point-of-sale fees.

The rule also nixes the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date it’s issued or the date funds are last loaded. The expiration date restrictions apply to the consumer’s funds, and not to the certificate or card itself. In addition, the rule says businesses can’t charge fees for replacing an expired gift card or certificate, or for refunding the remaining balance, if the underlying funds remain valid.

One note about the effective date: The Fed has specified that some cards produced before April 1, 2010 that list a short expiration time or inactivity fees in the first year can be sold through January 31, 2011. But no matter what the card says, consumers still are protected by the new rule.

Rules aside, playing "gotcha" with gift card buyers or recipients is just bad business. Savvy marketers know that gracious gift card policies can turn a one-time holiday shopper into a loyal customer year-round.

Giving gift cards to family, friends, or colleagues this year? Tuck a copy of Buying, Giving, and Using Gift Cards into the envelope. Practical consumer tips are always a perfect fit.

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