Fed proposes new rules to protect gift card users from fees

The Federal Reserve today proposed new rules that would protect gift card users from fees and other unexpected restrictions.

Gift cards have been the most-requested holiday item for the last several years, but many shoppers complain about the fine print, which can include hefty charges and quick expiration dates. According to the Fed, more than 95% of Americans have received or bought gift cards.

Under the proposed rules, gift cards would not expire until at least five years from the purchase date. Service and inactivity fees could only be charged once a month and only after a card had been inactive for at least a year.

“Concerns have been raised regarding the amount of fees associated with gift cards, the expiration dates of gift cards and the adequacy of disclosures,” the Fed said.

“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. Even where fees or terms are disclosed on or with the card, the disclosures may not be clear and conspicuous.”

The Fed said the new provisions would be slated to take effect Aug. 22.

The proposal includes retail gift cards that can be used at a single merchant or affiliated group of merchants, and “network-branded” gift cards that can be redeemed at any store that accepts the card brand.

-- Andrea Chang

American Express eliminates monthly gift card fees

American Express announced today that it is eliminating monthly fees on all of its gift cards, so shoppers don’t have to worry about their cards losing value if they don’t use them quickly.

The change, effective immediately, applies to gift cards now in stores, those headed to the market for the holidays and those already purchased by consumers.

"Customers told us that monthly fees undermine the value of gift cards, plain and simple," Alpesh Chokshi, president of American Express’ Global Prepaid unit, said in a statement. "We believe this sets a new gold standard among gift cards and provides a win for consumers and our business. With today's announcement, recipients now have a gift card that's 100% gift, 0% fees."

The company said it was now the only major issuer of universal, or "general purpose," gift cards to eliminate all fees after purchase. Shoppers will still have to pay an upfront purchase charge of $2.95 to $6.95.

American Express gift cards are available at more than 70,000 outlets including supermarkets, drugstores, malls and banks.

-- Andrea Chang

Sears, Kmart offer Christmas Club card to help shoppers budget

Sears and Kmart are encouraging shoppers to start saving for the holidays early with a Christmas Club card program.

Here's how it works: Pick up a card at any Sears or Kmart store (or online at www.sears.com/christmasclub or www.kmart.com/christmasclub) and add money to it just like a gift card. You'll receive a 3% reward, up to a $100 value, based on the balance on your card on Nov. 14.   

The card is free and must be activated by Oct. 31 to be eligible for the 3% reward. You'll need a minimum balance of $5 to use your card.

Executives at Sears Holdings, parent to Sears and Kmart, are hoping the program will give the company a leg up on its competitors during the holiday season, which is expected to be weak again as consumers scrimp on presents for family and friends. It could also help shoppers who don’t want to rely on credit cards to finance their gifts.

Shoppers “want more ways to provide the very best holiday they can, and they want to do that in a responsible way,” Susan Ehrlich, the company’s president of financial services, said in a statement. “When they save ahead with the Christmas Club card from Sears and Kmart, our customers can really enjoy the holidays without the worry of having to deal with an expensive bill later.”

The card is reminiscent of old-fashioned Christmas club accounts, which were once a banking fixture.

“It’s a very common-sense, smart idea that we’ve been able to bring into the 21st century with some technology and customer insight,” said Tom Aiello, a spokesman for the Hoffman Estates, Ill., company.

The Christmas Club program is the latest move the retailer has taken during the economic downturn to help consumers budget. Last year, Sears stores brought back layaway after not offering the program for years.

-- Andrea Chang

Photo: Shoppers hunt for Black Friday bargains last year at the Sears store in Costa Mesa's South Coast Plaza. Credit: Mark Boster / Los Angeles Times

Shoppers can exchange KB Toys gift cards for discounts at Toys R Us

When bankrupt retailer KB Toys Inc. announced recently that it would no longer accept gift cards at its stores, rival Toys R Us Inc. sensed opportunity.

The toy giant said today that it was rolling out a "gift card exchange program" that would allow customers with KB Toys gift cards to exchange them for coupons valid for 15% off any toy item at Toys R Us through the end of the month.

Beyond helping customers who are left holding the gift cards, the company hopes "to familiarize KB Toys customers with the advantages of shopping at Toys R Us," said Greg Ahearn, a senior vice president.

KB Toys filed for Chapter 11 bankruptcy protection last month and quickly began liquidating its roughly 460 retail stores, including outlet locations.

However, if you purchased a gift card directly from KBtoys.com, you're not out of luck yet. According to KB Toys, you can fill out an online form here and the company will send you an electronic gift certificate that you can use to place an order on the retailer's website.

-- Andrea Chang

Photo: KB Toys customers can redeem their gift cards for 15% discount coupons at rival Toys R Us. Credit: Gina Ferazzi / Los Angeles Times

How to turn $40 into $50

At first glance, those Coinstar machines in supermarkets and other venues don’t look like such a great deal. It's great to count and convert spare change into cash, but the 8.9% service charge is a big price for the convenience.

It turns out that not every Coinstar machine is created equal. Depending on where you are, some of those green machines offer a great way to convert your change into e-certificates and gift cards to popular businesses at no charge. And if you cash in $40 or more of loose change through Dec. 7, you can get an extra bonus in the form of an additional $10 gift card or certificate.

Here’s how it works...

Gift cards for guns in Compton

The mean streets of L.A. might get a bit kinder under a police program that offers a little holiday spending spree for residents who turn in guns.

The Los Angeles County sheriff's station in Compton, in conjunction with the city of Compton, and other local organizations are hosting a firearm surrender program called "Gifts for Guns."

The unique program provides an opportunity for local families to surrender firearms anonymously at the sheriff's station in exchange for a $100 holiday gift card to Ralph's, Target or Best Buy. For assault weapons, $200 gift cards are being offered.

No questions are asked of those who participate. 

Over the Thanksgiving holiday weekend when the program was launched, 590 guns and two hand grenades were turned in to the sheriff's station. More than $55,000 in gift cards were handed out in exchange.

The next exchange will be at 10 a.m. Saturday and Sunday in the Ralph's parking lot at 280 E. Compton Blvd.

--Lori Kozlowski

Find out the gift card rules

The bankruptcy of big retailers, including Sharper Image and Bombay Co., have consumers rightly worried about whether it makes sense to give gift cards this holiday season and to ask what would happen if a store folds.

Manhattan Advertising & Media Law, a Manhattan Beach law firm, has put together a nifty online gift card map that provides a state-by-state summary of the nation’s gift card statutes. Users can click on any state to read a brief summary of that state’s gift card statutes, including any provisions for bankruptcy filings, abandonment terms and fees.

According to the firm’s principal, D. John Hendrickson, “We wanted to create a gift card map that’s easy to use, so people can quickly learn about the gift card laws in any state.”

If you click on California, you will find out that retailers are not allowed to put expiration dates on gift cards and gift certificates. Hendrickson said that only five states, California, Montana, New York, Oklahoma and Washington, have specific statutes dealing with a gift card’s value in the event of a bankruptcy filing, closeout or liquidation sale.

But questions remain about whether consumers would be able to make that stick. State laws, including the one in California, have proved ineffective in protecting gift card holders in bankruptcies, said Anthony Giorgianni, associate editor of Consumer Reports.

That's why a coalition of consumer organizations has asked the Federal Trade Commission to protect shoppers from losing money on gift cards when retailers file for bankruptcy protection. They want the federal government to require stores to place money from gift card sales in a trust account that would be used to honor the cards if the merchants continue operations under the protection of the bankruptcy court.

Hendrickson cautioned that his firm's map "is strictly for educational purposes and does not constitute legal advice." He also noted that cards issued by financial institutions are generally governed by federal laws and regulations and are not included in the map.

-- Jerry Hirsch

Photo: A variety of retail gift cards are seen on a kiosk at a store in Santa Clara, Calif. Credit: Associated Press

Gift cards: More tips on using plastic

Thinking of giving gift cards for Christmas? Keep in mind that some of them come with expiration dates or fees that can significantly reduce their value. There are basically two categories of gift cards: those that can be used at multiple, unaffiliated businesses and those for use only at a single business.

Multiple-business gift cards can come with purchase fees, monthly fees, inactivity fees, transaction fees, balance-inquiry fees and replacement fees. They can also have an expiration date. All fees and restrictions must be disclosed, according to the California Department of Consumer Affairs, so look at the fine print when considering these cards. California requires that any expiration date be printed on the card itself.

Single-business gift cards, on the other hand, come with important consumer protections in California. They cannot have an expiration date and, in most cases, you cannot be charged a service fee. The business can only assess a “dormancy fee” for non-use if the value on the card is less the $5 and the card has not been used in two years. Gift cards or gift certificates for food items can have an expiration date, as long as it is printed in 10-point type on the card or certificate.

Another plus for the single-business gift cards: Under a state law that went into effect this year, if the value of the card is less than $10, the business must allow you to exchange it for cash.

Given the current economic climate, here’s a warning: If a business declares bankruptcy, its gift cards are pretty much worthless, unless the holder wishes to file a claim against the bankruptcy estate.

For more information on gift-card rules or if you have a complaint, contact the Department of Consumer Affairs at (800) 952-5210.

-- Scott J. Wilson

Photo credit: Anne Cusack/Los Angeles Times

Will bargains drive down gift-card sales?

Gift cards are once again the most-requested holiday present, but sales of holiday gift cards are expected to fall 5.3% to $24.9 billion this year, the National Retail Federation said today.

The trade group also said that fewer people plan to purchase gift cards (53.5% this year compared with 56.6% last year) and will spend less money on them ($147.33 this year compared with $156.24 last year).

So what's going on?

With the economy continuing to falter, cash-strapped shoppers are taking advantage of the hefty discounts that many retailers -- from luxury chains to discounters -- are offering on merchandise.

"Since gift cards never go on sale, some price-conscious shoppers will be passing up gift cards in favor of holiday bargains," said Tracy Mullin, chief executive of the National Retail Federation. In other words, instead of that $25 JCPenney gift card that Aunt Nancy was going to get you, she's buying you the sweater that's on sale for $15.

Just for fun, here's a look back at some NRF figures from last year's holiday season:

Giving a gift card on Facebook

Popular members of the social networking site Facebook are often showered with free virtual gifts from friends. An image of a fuzzy duck or birthday cake or frosty beer mug will pop up on their profiles, showing that someone thought of them for the few seconds it took to click a mouse and send a gift. How sweet.

When that warm and happy feeling disappears, though, they realize that since the gifts are virtual, they don’t have an actual birthday cake, fuzzy duck or frosty beer mug to wrap their arms or face around. How sad.

But starting Monday, a San Diego company called Socialwise (a fully owned subsidiary of ideaEDGE), wants to help social networkers get real, live gifts from Facebook and other social networking sites. Better yet, they figured out a way that they can get all of their friends to pay for them.

The company is launching “Gimme,” an application that lets friends buy each other gift cards on Facebook and invite other friends to contribute to the gift card. Say you want to give your friend an $100 gift certificate for Amazon.com so he can finally buy that book about commercial chicken meat and egg production he's been wanting. You start up a gift card and invite other friends to contribute by credit card. When you decide the gift card has accrued enough money, you can send it to your friend, by e-mail or snail mail, depending on the retailer.

“Right now, social networks are all about social interaction,” said Jim Collas, chief executive of ideaEDGE. “All day, they poke themselves or give virtual hugs or karate chop each other. We’re monetizing that. Instead of spending 3, 4, 5 dollars sending something not real, you put 3, 4, 5 dollars on a gift card."

Socialwise will also be launching an application called Bill My Parents that lets kids put money on Facebook gift cards with their parents' approval. It will also allow members of the already popular RockYou Birthday Card, which Facebook members use to send one another birthday wishes, to add a gift card to the birthday card.

There are still a few kinks to be worked out ...