The Gift Card Scam

Here’s the latest good-news-bad-news on the financial regulation front:

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

….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.

The good news is obvious: at least the Fed is finally doing something.  But the bad news is equally obvious: Why did it take so long?  These things are plainly marketed as replacements for cash, after all.  And why, even now, are the rules so lame?  California flatly prevents both expiration dates and fees, and guess what?  Gift card business is booming.

On a more analytical level, I’ll say this: I can understand why gift cards might eventually expire, both for accounting reasons and for common sense reasons.  But inactivity fees?  Come on.  There’s no reason to make a card inactive in the first place, and there’s no cost to re-activating if you do.  This is just plain and simple robbery.  The fact that the Fed caved in to industry pressure to allow this is exactly why we need a Consumer Finance Protection Agency.  A CFPA would never allow scams like this.

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