30
Jul

Are the New Rules for Gift Cards Helpful?

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There has been so much talk about the Credit Card Act over the past year and what that legislation means in terms of consumer protections and the behavior on the part of the credit card companies who issue cards. There has been little discussion or media coverage on the changes that have been implemented specific to gift card use. The credit card regulations fully intended to implement rules relating to gift cards.  In March 2010 the Federal Reserve published a new set of rules regarding gift card use and consumer disclosure.

The Frequently Purchased Gift
Americans use gift cards for weddings birthdays anniversaries, and baby shower gifts; just to name a few. Gift cards have quickly become the perfect gift for just about anything. Some gift cards even come with cute little envelopes or matching greeting cards.  The selections and options for gift cards are endless. They are without a doubt a great gift and an excellent cash equivalent for that hard to buy gift.  Consumers beware: these little packages come with baggage.

Gift cards are easy, but they come with expiration dates, fees and pages of information relating to use and stipulations relating to the purchase and the use of the card.  Consumers typically purchase gift cards because they are easy and quick and appear to come without strings attached. The truth is; there are strings attached. Not being aware of what is in that consumer disclosure statement can result in money loss, excessive fees, or just plan frustration.
On March 23rd 2010 the Federal Reserve published the final set of rules that will oversee the gift card industry. This CARD act is essentially a consumer protection law that seeks to provide consumer disclosure about information and use of the card. It also provides some guidance for the gift card industry on limitations and parameters on gift card expiration dates and fees associated with use.

The new law expects the following will be available for consumers:
• Information and limitations on expiration dates.
• Information and limitations on the frequencies of fees.
• Consumer disclosures that clearly inform consumers of the information about the stipulations of the gift card before purchase and with purchase to allow informed decisions about the purchase.
• Regulations that guide the wording in disclosure statements to ensure that the information be clear and understandable and noticeable for the consumer.
• Information on the card about replacement and offer a toll free number printed on the card to allow consumers to access information about the gift card easily.

What the Law Fails to Address
With any legislation come the debates. This new gift card legislation is no stranger to criticism. Although the law looked to set perimeters, some argue that it may have missed the boat where the consumer is concerned. The Federal Reserve waived its’ power to authorized certain laws pertaining to the use of gift cards. Rather than exercising its authority to take full advantage of the implementation of new laws that would change the gift card industry and protect consumers, they opted to leave certain things to the powers of the state.

The fee restrictions, fee amounts and frequency of fees relating to the use of gift cards was not included in the new set of rules that came out in 2010, rather this set of regulation was passed down to the hands of the states. Each individual state will have the authority and responsibility to set limits on gift card fees as they deem appropriate. This of course will have to be done within the confines of the new rules.

The consumer disclosure statement appears to offer general guidance to the industry without definition for the consumer. For example; the law does not require that the type of fees imposed be described in the statement, rather it just expects that the fee be disclosed and fall into line with the general CARD act stipulations.

The average consumer may not understand or be able to understand the disclosure statement or follow the process to resolve conflicts. Efforts by the Federal Reserve to make the law concise, legal and understandable may have done quite the opposite.  The law fails to be clear enough for the average consumer because of the terminology used to describe the countless rules and regulations. The card industries may understand the generalized meanings of certain terms but the average consumer may struggle.

The Debate
The Federal Reserve defined many of the rules in very general terms such as clear, conspicuous and noticeable do not clearly define for the consumer or the industry. These terms were meant to provide flexibility, however this flexibility leaves many of the definitions of these terms up to the industry to make sense of. Leaving crucial details for individual states to interpret may be counterproductive.

Concerns have been raised by lobbying groups and consumer based groups that argue that despite the new legislation that seeks to protect consumers the legislation is not very helpful.  The Federal Reserve is criticized for not addressing rules in some of the most critical areas of gift card purchase, information, fees and usage.

It seems the consensus is that this particular piece of legislation was difficult to decipher, even for the Federal Reserve. Making sense of how gift cards fall into play in the grand scheme of the overall CARD act was not an easy task. Overall, it appears that the new rules were intended to be helpful and offer protection, have made certain things more confusing for consumers as well as the gift card industry.

The question becomes; did the Federal Reserve make a law regarding gift card use because according to the CARD act they were charged with that responsibility, or did they make a law that was really designed to inform and protect the consumer? This question remains to be unanswered given what we know at this state of the game.

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