Bill targets hidden gift card charges

Many gift cards contain hidden fees that sap their value, and state lawmakers say consumers in North Carolina feel duped.

A bill passed the Senate on Monday, however, that requires the disclosure of maintenance fees associated with gift cards. It also allows consumers to delay using their gift cards for one year before a maintenance fee kicks in.

The bill says that a seller of a gift card "must conspicuously disclose any maintenance fee charges at the time of purchase." Generally, gift card sellers charge maintenance fees, which lower the card's value, if the card still has a balance after six months or a year. Some can charge as much as $2.50 each month for maintenance fees, according to consumer protection groups.

"It has been a problem in our state," said Sen. Bob Atwater, D-Chatham, the bill's sponsor. "There are no disclosures on these cards that say money is deducted. When consumers get to the store, they find out [the cards] don't have the face value because [the sellers] start netting it down."

North Carolina follows several states such as California, New Hampshire, Connecticut that have already passed consumer protection laws targeting gift card fees.

The N.C. Attorney General's Office does not track gift card complaints, but spokeswoman Noelle Talley said they are common.

"We do get complaints about gift cards every year," Talley said.

After consumer complaints about hidden fees in Kmart gift cards, the Federal Trade Commission filed a formal complaint against Kmart.

The commission said Kmart used deceptive practices in advertising and selling its gift cards. Kmart did not disclose a "dormancy fee" to consumers that would be deducted from a card's balance each month it wasn't used, a commission spokesman said.

The commission announced in March that Kmart settled the charge and agreed to disclose the fees on its card and its advertisements. As part of the settlement, Kmart had to reimburse affected consumers.

In another recent settlement, the owner of Olive Garden, Red Lobster, Smokey Bones and Bahama Breeze restaurants agreed to settle commission charges that it engaged in similar deceptive practices in advertising and selling its gift cards.

Darden Restaurants Inc., which owns the businesses, also settled with the commission. It now must disclose its fees and reimburse consumers who were penalized before.

Consumers spent about $27.8 billion on gift cards during the last holiday season, according to a survey published by the National Retail Federation. And many of them had spent less than half of the gift card's value by the second week in January, the survey said.

If the bill passes the House and is signed by the governor, the bill would take effect Dec. 1.

"This is a good consumer protection bill," Atwater said on the Senate floor Monday.