KASNAS CITY — Starting next year, Kansas will join a growing number of states where consumer complaints have prompted new regulations on merchants who sell gift cards.
A new law approved this year and taking effect Jan. 1 will require merchants to honor gift cards for at least five years. It will prohibit them from charging "inactivity" fees - imposed when a recipient doesn't use the card - for at least a year after a card is purchased.
More than half the states have enacted such restrictions in the past three years following a rise in the popularity of gift cards. Retailers expect such cards to account for nearly $62 billion in sales nationally this year.
Similar legislation was introduced this year in the Missouri General Assembly but died without a committee hearing.
Jack Gillis, director of public affairs for the Consumer Federation of America, said many consumers are shocked to find out that a gift card is not worth its original value because of inactivity fees.
"They've been screaming bloody murder to their legislators," he told The Kansas City Star.
One upset consumer was Ed Wise, of Overland Park, Kan. Five years ago, he purchased a $100 gift certificate for his wife at a Johnson County health club. Thirteen months later, she called the club to arrange for a massage and was told the certificate had expired after 12 months - and was worth nothing.
"That just ticked me off," Wise said. He contacted Rep. David Huff, R-Lenexa, who began a three-year effort to enact restrictions.
Joseph Lewczak, a New York lawyer who advises companies on laws pertaining to gift cards, said the Kansas law is less restrictive than those of some states, but more restrictive than those that require only a printed notification on the card of any expiration date and inactivity fee.
"Kansas is probably in the middle of the pack," he said.
A look at Kansas' new gift card law
Under a Kansas law taking effect Jan. 1, 2007: - Merchants will be required to honor the gift cards they sell for at least five years. - Businesses issuing gift cards will not be able to charge "inactivity" fees for at least a year after the card is issued. - Merchants still won't be required to redeem cards for cash. - Cards or certificates can expire sooner than five years, if they're given to consumers free or purchased at a cost below their face value, so long as the expiration date is printed on front. Source: The Associated Press
Kansas law doesn't apply to cards or certificates given free to consumers or if the consumer buys a card at below its face value, so long as an expiration date appears on the front. Also, no merchant can be required to redeem a card for cash.
In Missouri, Sen. Maida Coleman, D-St. Louis, wants to go even further than the Kansas law. Under her unsuccessful bill, retailers would have been required to pay the value of the card in cash once the consumer has used at least half the card's value to buy merchandise.
Gillis said gift-card sellers count on people losing or not using their cards or on them spending a different amount at the store.
"They know that with that $50 card you're going to buy maybe $55 worth of merchandise, or you buy a $45 item and you never use the remaining $5," Gillis said. "Either way, they win."
Retailers support some regulation efforts, said Kurt Helwig, president of the Network Branded Prepaid Card Assn.
But the industry opposes bans on expiration dates because retailers and banks have to track and eventually account for the cards they sell, he said.
Helwig said many in the industry were looking for some standardization and general rules that promoted more self-regulation.
"Some of this legislation is actually good and industry-driven," he said. "It's a relatively new environment. It's raising people's attention."
Meanwhile, Gillis urged shoppers to examine the terms of a card before buying one. He said most consumers don't realize that many cards have expiration dates or that nonuse fees can be charged.