Ontario nixes 'use it or lose it' gift cards

On Oct. 1, 2007, Ontario became the first Canadian province to outlaw expiration dates on gift cards. The law was passed in May but was not initiated until this month. Now, a gift card purchased at an Ontario store does not include an arbitrary date by which time the card must be used.

U.S. residents living in certain areas of the country may say, "What took you so long?" According to the Consumers Union, a nonprofit publisher of consumer reports, many states already have laws that forbid expiration dates on most types of gift cards, including California, Connecticut, Florida, Maine and Rhode Island.

Other states, however, still allow expiration dates ranging from one to seven years: Kentucky, one year; Hawaii, two years; New Mexico, five years; and Massachusetts, seven years.

But the laws forbidding expiration dates do not apply to gift cards from the major card issuers such as Visa Inc. and MasterCard Worldwide, whose practices fall under federal law, not state law. So, in the states where expiration dates have been banned, the law only pertains to gift cards issued by local retailers, not national ones.

A bigger waistband

The trend of banning or extending expiration dates on gift cards ties into the broader move toward giving consumers more flexibility with their card purchases and greater transparency into the practices of card issuers.

For instance, the Ontario law also restricts merchants from charging certain fees, such as charges for customizing or replacing those that are lost or stolen. Furthermore, the law mandates that conditions, restrictions or fees on cards must be clearly presented to the consumer before the gift cards are purchased.

In August 2006, the U.S. Comptroller of the Currency, the administrator of the national banking system, issued guidelines for the banks to follow concerning disclosure of important information pertinent to the consumer.

These guidelines pertain to expiration dates, fees and how consumers could obtain information about their gift cards through toll-free phone numbers and online.

More recently, the Merchants Payments Coalition has gone to Capitol Hill in an attempt to persuade legislators to enforce the federal Truth in Lending Act (Regulation Z), which requires credit card companies, among others, to disclose the terms and costs of cards to consumers.

This approach, advocated by the federal government and organizations like the MPC to better the relationship between gift cards and consumers, has been spurred on by the explosive growth of the prepaid gift card industry.

A new report released by the Mercator Advisory Group, a leading research and advisory resource for the payments industry, states that network-branded prepaid gift cards (Visa, MasterCard, Discover Financial Services LLC) grew a colossal 121% in 2006, and now represent a $3 billion a year market.

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