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Consumer Protection Laws for Gift Cards

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gift cardsNow that the holiday season is over, you have a chance to look through your spoils. Chances are that you probably received a gift card or two. I received a few gift cards, and gave gift cards as well.

You do have to be careful with gift cards, though. Even though there are some consumer protections in place for those who use gift cards, you might still be subject to fees and other penalties when you use a gift card.

The CARD Act and Gift Cards

Back in 2009, Congress passed the Credit CARD Act, and in it, lawmakers included some helpful protections for consumers when it comes to gift cards. Gift cards can’t expire within five years of the activation date. Additionally, issuers can’t start charging inactivity or dormancy fees until after a year.

While these protections are helpful, they don’t keep you from being charged to activate the gift cards. Many general purpose cards, like those offered by Visa and American Express, cost between $2.95 and $6.95 when you purchase the card. This activation fee is usually paid by the buyer/giver. On top of that, if you purchase a gift card online, you might end up paying shipping charges of between $3.95 and more than $20. Some issuers only offer a two-day option that can be costly when you arrange to have the gift card physically shipped to the recipient.

State Laws and Gift Cards

Federal law provides a bottom for regulation, and states can build on those regulations. Some states, like Connecticut and Minnesota, ban any expiration date for gift cards. Additionally, other states, like Colorado and Montana, don’t allow inactivity fees. Depending on the state the card is sold in, you might have more protections than you think.

It’s possible to see what statutes apply to gift cards when you visit NCSL.org. This site offers a helpful and comprehensive chart laying out the laws related to gift cards so that you can see what your protections include.

Avoid Fees and Costs Related to Gift Cards

The best way to avoid fees and other costs related to gift cards is to purchase cards for specific retailers. The gift cards that most often come with activation fees are general purpose cards. If you buy a card for a specific store or restaurant, though, you are more likely to avoid fees. Many individual retailer cards don’t charge dormancy fees, either. If you want to avoid shipping costs, check to see if there is an option to send the gift card electronically.

It’s also important that you not mix up a prepaid debit card with a general use gift card. With AmEx and Visa and other issuers offering prepaid debit cards, you might grab one of those instead of a gift card. Many prepaid gift cards come with more fees than gift cards — and they don’t have the same consumer protections that you see with gift cards. Make sure you are careful about what you pick up at the store.

Gift cards can make great gifts. Just be sure that you understand what you are getting, and you know the costs that can reduce the value of the card.

(Photo: Damian Gadal)

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7 Responses to “Consumer Protection Laws for Gift Cards”

  1. Christian L. says:

    Miranda,
    Will the inactivity fee be charged once the consumer uses the card? Or does the card issuer simply reduce the balance of the gift card when charging an inactivity fee?

    -Christian L. @ Smart Military Money

  2. When we give gift cards we give them to a specific retailer/restaurant as a general practice. The prepaid debit cards can be a nice gift, but their fees make them not worth it in the end.

  3. I tend to avoid the prepaid visa/mastercard because of the fee’s its really wasted money. The transaction fee the retailer pays to the bank is almost like a double dip for the card company.

  4. Frank says:

    The prepaid debit cards also have many rules and restrictions on where you can use them. What I usually do with those is go onto Amazon and just buy a gift card there for whatever amount is on the card and then apply that to my account which will never expire. It is useful to do this with all the manufacture rebates that come on prepaid credit cards as well. You can go to whatever store you usually shop at and just buy a gift card to the store using your prepaid debit card.
    That way you have all the protections of a regular gift card without the hassle and fees of a debit card.

  5. Julie says:

    I just used the last of a gift card I got about 4 years ago for “Staples”. The cashier laughed at how old the design was actually calling it “ancient” but hey I was super happy that I was able to get a new ink cartridge for my printer to print off my DYI wedding invites… the wedding costs keep mounting and that card was a nice surprise!

  6. Kimberly says:

    While there may be certain laws in your state that the retailers have to abide by, it may be a different state that controls the majority of the rules surrounding the gift card. The fine print on the back of the card will give you more information – “This card is governed by the laws of the State of Virginia.” – or something to that effect.


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