A little about holiday gift cards and the CARD Act

It’s after Halloween, so you know what the means don’t you? Of course, it’s time for winter holiday shopping. When you put away that “sexy cop” costume, just reach one box over and grab the house decorations.

So this year’s shopping season should say a lot about the state of our economy. Will it signal an actual comeback, fall short of “analysts’ expectations” or signal that 2011 is going to be another rough one?

Well, if we know one thing from recent shopping metrics, it’s that, at least to some extent, we will be able to attribute a decline in consumer good purchases on that ever-popular present and glaring indication of just how little thought we really put into gift giving ... the gift card. That’s right, nothing says “I thought of you at the last second” like a plastic card assigned a specific dollar amount and burdened with a host of new usage regulations. Oh? You didn’t know that gift cards come with restrictions that could limit their use and actually cost you money? Allow us to explain.

Let’s go back to 2009, when the CARD Act (Credit Card Accountability, Responsibility and Disclosure Act) was enacted. The bill included restrictions on the gift card industry too, primarily related to expiration dates and the requirement that any usage rules be spelled out cleanly to consumers. Some of those rules kicked-in this past August, stating that any amount on a gift card needs to remain available for five years and upon notification to the issuing-company, a new card must be issued if the amount is not used by that deadline. That deadline is also to be printed on the card itself, a requirement that was pushed back until January 2011 because of the volume of blank gift cards already printed without dates.

Bankrate.com, a terrific consumer advice and banking information Web site, conducted a study of gift cards to determine where the industry is headed. They looked into the policies of 54 cards, which consisted of 46 major brand cards (closed-loop) to be used only at those locations and eight network-branded cards (open-loop), which can be used like a Visa and Mastercard.

The study showed that for the most part, the closed-loop cards, like those used for a dinner at Applebee’s or underwear at Target, have no expiration dates or added fees, with only a few small exceptions. The other card type though, was found to charge additional fees with every example.

Six of the eight total open-loop cards had clear expiration dates on their cards while the remaining two, American Express and Discover, published “valid-thru” dates on theirs. After said date, the consumer can request a replacement card for whatever amount has not been spent on the original.

The CARD Act isn’t all-powerful, however. Gift cards—primarily the open loop types—can still zap you with an inactivity fee if the card has not been used withing 12 months. According to Bankrate’s survey, five of the cards charged inactivity fees. Going deeper into the study, it was revealed that close to 95 percent of gift card holders use the entire amount within that year-long window, information gleaned from the Network Branded Prepaid Card Association. (Is there an association for everything?)

Look, it’s a down time for a lot of people right now, so if the money isn’t there for holiday shopping, don’t worry too much about it, they'll understand. In most cases, a well-baked pie or a homemade craft, as hokey as that sounds, will go further in winning hearts than $25 at Best Buy. Who buys CDs anymore, anyway?