Fed Allows Continued Sale of Mislabeled Gift Cards


Note: Consumer Reports has no relationship with the advertisers on this site.

If you find a gift card tucked in your stocking this year, don’t assume that the information printed on the back of it is correct. In fact, there’s a reasonable chance that the expiration date and fee rules are wrong.

This latest snafu is the result of a little-noticed change to the gift-card rules of the Credit CARD Act of 2009. The act requires that gift card funds remain valid for at least five years and limits when and how often card issuers can charge certain fees. For the details, see the summary posted on Defend Your Dollars, a Consumers Union advocacy website.

The new rules are good for consumers, but only if they know about them. So the CARD Act also requires that the new expiration dates and fee rules be printed on the cards, along with a toll-free number for cardholders who have any questions. And that’s where things got tripped up.

The CARD Act’s gift card provisions took effect Aug. 22. But less than a month before that, Congress passed an amendment giving card issuers more time—until Jan. 31, 2011—to get noncompliant gift cards off the shelves. All the new gift card rules contained in the CARD Act still hold, but information printed on the cards doesn’t have to be correct until after the holidays.

Suzanne Martindale, an attorney at Consumers Union, the nonprofit publisher of Consumer Reports, says that financial institutions were behind the amendment because they had the most at stake. “These are the issuers that sell multiple-use cards with a major network logo like American Express, Discover, or Visa. Those types of cards are more likely to come with fees and expiration dates printed on the cards that are now obsolete under the new law,” she says. “Single-retailer gift cards usually don’t expire and are less likely to deduct fees, so the disclosure requirements are less likely to affect them.”

A press release issued July 14 by the Network Branded Prepaid Card Association praised the amendment for preventing “the needless destruction of over 100 million plastic cards” manufactured before the new rules took effect. Extending the deadline also made sure plenty of gift cards would be available to shoppers during the holiday season, when 90 percent of all gift cards are purchased, according to the trade group.

The amendment includes a provision that’s supposed to help consumers avoid confusion about the mislabeled cards. Notice of the new rules must be prominently displayed on store signs or advertisements where gift cards are sold. Compliance was spotty when we did an informal check in late October at a dozen stores in California, Missouri, and New York. Three of the stores had large signs on or near the card displays, as required. But three other stores had only small, hard-to-read notices of the new rules affixed to the card kiosks, and six stores had no signs at all.

Yet even if every store selling gift cards continuously announced the new rules over the intercom, that would only help inform card buyers. It’s card recipients who need the information so they can make sure they use the cards before their value is whittled away by fees or they expire.

Complicating things further, many states have stronger laws for single-retailer gift cards that provide protections in addition to the federal rules. For example, in Connecticut, single-retailer gift cards cannot have any fees or expirations dates, period. To see if your state has a gift card law, check the fact sheet on state gift-card protections posted on Defend Your Dollars.

Martindale says consumer confusion will peak this holiday season, while cards with the wrong information are still being sold. But that won’t end the problem. “If this year is like any other, a sizeable number of people who get gift cards will let them sit in their wallets for months or years before they decide to redeem them,” she says. “That means it could be some time before all the mislabeled cards are out of circulation.”

To avoid this confusion altogether, Martindale recommends that you consider giving cash or a check to your loved ones this holiday season. But if you still plan to buy gift cards, include a note warning your recipient that the card could contain incorrect information. The recipient can also request a new card with the correct information printed on it. As always, we encourage anyone who receives gift cards to spend them right away to dodge their many other gotchas.

—Subscribe to ConsumerReports.org or check out Consumer Reports’ Money advice.

Show Comments

Back to Top