• FTC, Congress Share Concerns over Gift Card Practices
  • March 3, 2006
  • Law Firm: Reed Smith LLP - Pittsburgh Office
  • Following a letter from the Chairman of the Federal Trade Commission (FTC) regarding gift card practices, U.S. Representative Charles Bass (R-N.H.) has vowed to begin holding hearings on evaluating the gift card market and examine establishing uniform guidelines for all gift card issuers.

    In a Dec. 20, 2005 letter to the FTC, Rep. Bass asked the agency to investigate the marketing, sale and usage of consumer gift cards.

    In a Feb. 14 response to Rep. Bass's letter, FTC Chairman Deborah Platt Majoras stated that "a company's failure to clearly and conspicuously disclose all the material terms relating to their gift cards, including expiration dates and any potential fees, may constitute a deceptive act or practice under...the FTC Act."

    In her letter, Chairman Majoras cited a recent report by the Montgomery County, Maryland, Division of Consumer Affairs, which found that nine of out 30 retail gift cards reviewed impose either an expiration date or potential fee. Six of the nine companies that impose such fees "'fail to disclose these restrictions prepurchase in either their stores or web sites or both,'" she wrote, quoting the study.

    The Montgomery County division also surveyed eight bank gift cards and found that many of these cards impose expiration dates and fees.

    "While I recognize that there may be valid reasons for attaching an expiration date or fee onto a gift card, consumers are entitled to know all material terms relating to these cards," Chairman Majoras wrote. "The existence of an expiration date or potential fee on a gift card is likely to be material information because such conditions would likely affect a consumer's decision whether to buy or use a particular card.

    "Because a reasonable consumer purchasing a gift card would not necessarily assume that the gift card is burdened with any hidden fees or conditions, the failure to disclose adequately the existence of such conditions would be likely to mislead consumers," Chairman Majoras concluded.

    "I have asked our staff to review your concerns on how gift cards are marketed, sold and used, and to report back to me," she told Congressman Bass.

    Congressman Bass, a member of the House Committee on Energy and Commerce, has stated that he will request a hearing to look into creating uniform rules regarding the issuance of gift cards.

    The FTC's authority over gift cards is limited because the agency does not regulate banks, which issue a growing share of the cards under the VISA, MasterCard, American Express and Discover credit card brands. Credit card companies are regulated by banking authorities and must adhere to Federal Reserve Board rules regarding electronic funds transfer rules.

    However, The Washington Post recently reported that some federal officials have opined that the federal rules may not cover bank-issued gift cards.

    Why This Matters: Gift cards are a rapidly growing business. Merchants should be careful to provide disclosure of material terms such as expiration dates and fees. Indeed, the extent of interest at the federal and state levels is far too high to ignore or view as a passing phenomenon. It's virtually certain some forms of legislation are unavoidable. The more responsible gift card promoters are, the less intrusive the legislation will be.