Gift card fees get AmEx in hot water

Class-action suit accuses company of breach of contract, says rules are rigged to zero out balances

MELVILLE, N.Y. -- To Jemi Goodman, who wanted to do something nice for her daughter-in-law, buying a $100 American Express gift card turned out to be such an "injustice" that she filed a $5 million, class-action lawsuit against the financial giant.

When the card balance was $2.75, merchants refused to accept it even in split transactions, according to the suit filed in federal court in Central Islip, N.Y., last week by Goodman, a business manager who bought the card in September 2006. The credit card company charges $10 to get the balance in a check to customers, Goodman said, but after a year the balance was wiped out by a $2 monthly service charge. Those terms were inside a sealed envelope with a warning that the card couldn't be sold if it were opened.

"When you give a gift to someone, you're hoping to give them something that they can enjoy without aggravation and without incident," she said. "I felt ripped off."

The suit accuses American Express of breach of contract over the face value of the card and "unjust enrichment" by charging fees that eventually zero out balance. That unspent money would have gone to state coffers under state laws governing unclaimed money, such as those in nonactive bank accounts, it claims.

The lawsuit is the latest complaint in the multibillion-dollar gift card industry, which has been feeling the heat from consumers because of fees. Last year, American Express sold about $1 billion in gift cards in the U.S.

American Express spokesman Robert Sherman said vendors are supposed to accept the cards but there's been confusion over how to do split transactions, which led to an educational campaign for retailers and consumers last year.

The company's gift card mentions the $2 monthly service charge on the envelope. Sherman said it has been that way for years.

"We try to put the information that is most important on the outside of the packaging," Sherman said. "We really want our consumers to understand the product that they're buying and are looking for new ways to improve that process all the time."