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Fed Cracks Down on Gift Card Abuses

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Proposal gives at least five years to use one.

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The Federal Reserve on Monday proposed new rules to protect consumers from unexpected costs or restrictions on gift cards.

More than 95% of Americans have received or purchased gift cards, the Fed said.

Under the proposed rule, consumers must have at least five years to use the gift cards before they expire. The Fed also said service or inactivity fees can be imposed only under certain conditions.

Such fees can be charged if the consumer hasn't used the card for at least a year, if the consumer is given clear disclosures about them, and no more than one fee is charged a month, the Fed said.

The Fed was directed to take the action under a law Congress passed in May.

"Consumers who do not use the value of the card within a short period of time may be surprised to find that the card has expired or that dormancy or service fees have reduced the value of the card," the Fed explained. "Even where fees or terms are disclosed on or with the card, the disclosures may not be clear and conspicuous."

The public, industry groups, and other interested parties can comment on the Fed's proposal, which could be revised before a final rule is adopted.


The Fed said the new provisions are slated to take effect on Aug. 22.

"These rules are the right step, but it would be far better for them to take effect in time for this holiday shopping season," said Sen. Charles Schumer, D-N.Y., who championed the gift card crackdown in Congress. "We will continue to push the Fed to speed up the effective data so that we end abuses by gift card issuers as soon as possible."

At Wells Fargo (WFC), gift cards typically expire four years after the card is purchased. You can request a check for the remaining balance if you don't use up the card before then, but that will cost you $15. So if the balance on your card is less than that, you're out of luck.

The card's value could disappear even before the expiration date as a result of dormancy fees. Chase (JPM) and Wells Fargo both start deducting $2.50 a month from cards after a year. So if left unused, a monthly fee could eventually deplete a card's value. Some cards start charging monthly fees as early as six months after purchase, according to the Consumer Federation of America, which is based in Washington, DC. (See also Hidden Fees of Gift Cards)

Copyright 2009 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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