Gift Cards Get a Makeover

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With new laws on gift cards targeting expiration dates and under-the-radar fees, gift cards have a fresh new look. It’s a look that consumers should like.

Here is the scoop. Woven into the Credit Card Reform Bill, which for now, kicks in Feb. 1 (although the gift card provisions don’t trigger until August 2010), the new gift card regulations take dead aim at perceived abuses by retailers. Included in the credit card legislation are the following consumer-friendly changes:

Longer expiration dates. Gift cards cannot expire until five years after they’re issued. Up to now, short-term expiration dates on gift cards were a big money-making wrinkle for retailers – one year was a common timeframe – after which the card was canceled. Consumers will soon have a much bigger window to use their gift cards.

Tighter fee restrictions. Under the new rules, card issuers can only impose monthly fees if the gift card goes unused for longer than one year.

Greater transparency. Retailers will have to be more open about fee conditions. The new regulations mandate that fee information must be listed either on the card itself or its package.

Cash back from old cards. The new rules make it easier for individual states to force companies to return money to recipients who never got around to using the gift card. Card owners may have recourse through their state’s unclaimed property agency once the card has expired.

Retailers who don’t abide by the new rules face a pretty stiff penalty – a violation of the Electronic Fund Transfer Act (enforced by the U.S. Federal Trade Commission), which can carry penalties of up to $1,000 per violation.

According to the National Association of Convenience Stores, the new rules apply to store gift cards, pre-paid general use cards and gift certificates. All of the terms fall under the generic description of “reloadable electronic gift cards,” the NACS says.

But phone cards, rewards cards and gift cards used at specific events and functions (like a rock concert) aren’t covered by the new rules.

Major gift card issuers are taking notice of the new rules, with some adding their own wrinkles. American Express (Stock Quote: AXP), for example, announced earlier in October that it would no longer charge monthly fees on its gift cards. The Amex gift card “upfront” fee of up to $6.95 will remain active.

It’s a new era for gift cards, one that favors consumers - and holds card issuers accountable.

—For a comprehensive credit report, visit the BankingMyWay.com Credit Center.

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