The Credit Card Accountability, Responsibility and Disclosure Act or CARD Act, a bill slated to take effect on February 22, 2010 covers not just policies and regulations related to credit cards, but also to other instruments such as gift cards.
This bill also provides protection for retail store gift cards, prepaid cards, and gift certificates.
However, several types of gift cards are not covered by this law such as reloadable cards (like Visa or MasterCard prepaid cards), telephone cards, paper gift certificates, promotional cards, and loyalty cards.
With the law being passed, consumers can enjoy longer usage validity for gift cards. Duration of validity has now been increased to 12 months, so consumers have at least one year before stores can apply inactivity charges for unused gift certificates and cards. Companies are also mandated to disclose to customers in advance the rate, terms, and conditions of the charges. Stores and companies are also limited to applying just one inactivity penalty fee per month.
Some companies have already started to relax some of their policies on unused gift cards. American Express in September announced that they will stop charging gift card customers monthly inactivity fees. Prior to that decision, the company deducted $2 monthly off of the total value of unused gift cards that has been dormant for a year.
There are a few things this law has not addressed or accounted for, especially in terms of allowing companies to charge other fees. For example, this law does not have provisions prohibiting companies that issue general-use prepaid cards from charging customers sales or issuance fees. Companies can still continue to charge service fees such as charges for balance inquiries, replacement card requests, customer service calls, to name a few. An analyst for a financial research firm in fact identified over 50 fees that companies are still allowed to charge customers, even after the CARD law has taken into effect.
There are some drawbacks experts see with the passage of this CARD law. Certain provisions of the bill will make the cost of doing business for companies to go up, which would leave them no choice, but to pass additional burden off to consumers in the form of additional fees and charges.
One example would be the provision in the law on gift card expiry. Normally, gift cards expire after a year or two. However, when this law takes effect, expiry periods would be stretched to five years.
The period where cards are left unused will represent a significant opportunity cost for companies, which would then have to find ways to mitigate potential losses from this exercise.