Federal Reserve proposes new rules on gift cards

WASHINGTON — The Federal Reserve is proposing new rules for the $50 billion gift-card industry, including limits on fees for not using the card and requiring that gift cards expire no earlier than five years after purchase. Many gift-card issuers currently charge fees to recipients of gift cards that haven't been used for an extended period of time by deducting funds from the cards.

"The rules would protect consumers from certain unexpected costs and would require that gift-card terms and conditions be clearly stated," the Fed said Monday.

The proposed rules come after the Federal Reserve came under fire for not doing more to protect consumers during the credit bubble. Responding to a series of actions by a dozen states, including Washington, national retailers have already moved to limit fees and expiration dates for gift cards that haven't been used quickly.

But large credit-card companies are in many cases still charging a $2 to $5 monthly so-called dormancy fee starting sometimes as quickly as six months after cards were issued, said Consumers Union' senior attorney Gail Hillebrand. She said most of these so-called service fees begin a year after the card has been issued to a consumer.

The proposed rule would prohibit a gift-card issuer from imposing a service fee for gift certificates, store gift cards or prepaid cards in certain situations such as when there has been a year of inactivity on the certificate or card. Any dormancy fees that are charged would have to be disclosed properly to consumers and it could only be a monthly fee, rather than more frequent charges.

The proposal is based on broad credit-card legislation approved by Congress earlier this year that requires the Fed to approve rules on gift cards by Feb. 22, 2010. Interested consumers and companies can comment on the proposal for 30 days.

The new rules would not take effect until Aug. 22, 2010. Gift cards sold before that date would not be subject to the new rules.