WASHINGTON, DC-U.S. Senator Charles E. Schumer today announced that the Senate has approved an agreement that will dramatically improve protections for New York shoppers who buy gift cards but then find that those cards come with sky high fees and balances that can draw down to zero if the cards aren't used quickly. Schumer said that this package of reforms was approved with bipartisan support and passed the full Senate as part of the major credit card reform legislation. President Obama has said he wants to sign this piece of legislation before Memorial Day and Schumer said he will fight to make that happen.
"The days of stores being able to take significant sums of money off your gift cards from under your nose until it's down to nothing are over. This landmark legislation will help ensure that gift cards serve their purpose: to allow recipients to spend the full value at the store whenever it is convenient for them."
Under the agreement, issuers will be prohibited from drawing down the balance of the card until there are twelve months of inactivity on the card, and will be required to issue cards with the expiration date as a minimum of five years.
Schumer said that Consumers Union, National Consumer Law Center and Consumer Federation of America all support this agreement.
Gift card sales have been brisk in recent years, and although sales are expected to decline this year, they will still account for a staggering $88.4 billion in sales. Yet despite gift cards' popularity, a report by the TowerGroup indicates that $6.4 billion of the $88.4 billion spent on gift cards this year will never be redeemed.
These unused cards equal free money for banks and retailers, who often take service and dormancy fees from inactive gift cards and charge monthly maintenance fees.
Even those cards that are eventually redeemed may not be at full retail value by the time a consumer uses the card due to dormancy or monthly fees. According to a study published in Consumer Reports in 2007, up to 27% of gift cards purchased in 2006 had yet to be used a year later, up from 19% at this time in 2005. Of those surveyed, over half said they didn't have the time to use their card, onethird hadn't used the card because they hadn't found anything they wanted and another third forgot about their gift cards.
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