Senators Target Expiration Dates on Promotions

By Shawn Zeller, CQ Staff

Holiday shoppers are picking up lots of promotional gift cards this month. The deals have become ubiquitous. The outdoor retailer REI, for instance, is offering a $20 card for every $100 a customer spends. L.L. Bean will give you a $10 card for spending $50.

Such promotional cards usually come with expiration dates, some as short as 30 days, in order to drive customers back to the malls in January.

But retailers say those deals might not be around next Christmas if Congress were to pass a Senate bill sponsored by Connecticut Democrat Richard Blumenthal . Announced on Black Friday to coincide with the traditional start of the holiday shopping season, the measure would ban companies from allowing their promotional cards to ever expire. The bill builds on the major credit card overhaul Congress enacted in 2009, which included a provision by Sen. Charles E. Schumer , a New York Democrat, requiring that gift cards bought by customers, but not promotional cards, remain valid for at least five years after they are purchased and that retailers not charge gift card owners fees until a year has elapsed. The Blumenthal measure would put an end to such dormancy fees entirely.

Retailers say they don’t mind the restrictions on fees associated with the cards their customers purchase, but they say extending the ban to promotional cards goes too far. If Congress were to pass it, retailers “would stop doing the promotional gift cards because they can’t invest all the money to manage the balances on the cards,” warns Rebekka Rea, executive director of the Retail Gift Card Association, which represents major retailers such as Wal-Mart and Target. “By protecting consumers, it will harm consumers.”

Blumenthal, on the other hand, sees his effort as all about consumer protection. “Gift card companies fatten their profits and shrink consumer wallets with exploitative expiration dates and petty, underhanded junk fees,” he says. As Connecticut’s attorney general before his election to the Senate in 2010, Blumenthal railed against high fees on gift cards. States are allowed to adopt stronger laws than the floor Congress set in 2009, and Connecticut bars expiration dates and dormancy fees entirely. Blumenthal says he decided to include loyalty cards given to frequent shoppers in his proposal because the rules associated with them confuse many customers.

The bill also would bar most of the fees charged on Visa and American Express gift cards, which can be used to buy goods anywhere that accepts debit cards. Terrence P. Maher, general counsel of the Network Branded Prepaid Card Association, which represents banks that issue those cards, expects that his member banks would have to raise upfront prices for the cards to make up for lost dormancy fees. “Banks don’t make anything when the card is redeemed. Service fees are the only thing covering the cost of the program,” he says.

Still, consumer advocacy groups are pushing the bill hard. Earlier this month, five of them — Consumers Union, the National Consumer Law Center, the Consumer Federation of America, U.S. PIRG and Consumer Action — wrote to Blumenthal to endorse it.

Advocates are particularly enthused about a provision that would protect gift card buyers if a retailer were to declare bankruptcy by requiring the issuer to continue to honor cards that it has already sold while barring it from selling new ones. In 2008, many customers were left with worthless gift cards after electronics retailers Circuit City and Sharper Image went bankrupt, along with the household goods retailer Linens ’n Things.

“We firmly believe that consumers should get what they pay for,” says Pamela Banks, senior policy counsel at Consumers Union. “If you pay for a $25 gift card, you should get $25.”

Gift cards remain a popular option. The magazine Consumer Reports says nearly half of holiday shoppers will buy one this year, even as almost one in seven still has at least one unused card sitting around from last year.

Rea says shoppers can rest easy about their gift card purchases, since most major retailers already have eliminated dormancy fees and expiration dates on the cards their customers buy. And she says that retailers are eager to see customers use those cards, as well as any promotional cards they might pick up this month. To that end, they are, in fact, sponsoring a “Gift Card Weekend” Jan. 4 to 6, during which participating retailers, including the outdoor retailer Cabela’s and Applebee’s restaurant chain, may offer additional discounts to gift card users.