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July 19, 2005
Dear Friends:
Recently, the Governor signed into law consumer
protection legislation approved by the 2005 General
Assembly, which deals with the issuance of gift
certificates or gift cards. The new law prohibits anyone
from selling a gift certificate that has an expiration
date or a fee or charge of any kind within four years
after the issue date. Any term or condition of
expiration or a fee or charge that takes effect four
years or more after issuance must be disclosed clearly
on the card or a sticker affixed to the card or on the
envelope containing the card.
It should be noted that the new law, which takes effect
July 1, 2006, does not apply to bank cards. In 2002,
banks began promoting gift cards with the MasterCard and
Visa logos. Bank issued gift cards, unlike store cards,
are financial instruments. As with all financial
products, the issuer makes money on fees. Industry
insiders say those fees are the only source of revenue
for the bank, whereas retailers make money form cards
simply when you spend at their stores. The new law does
make banks disclose conditions and terms on their cards.
The National Retail Federation estimates that $55
billion worth of gift cards were sold in 2004. Gift
cards will be an $85 million business in 2007, according
to TowerGroup. Nearly 64% of consumers received a gift
card as a holiday present in 2004. Roughly, 10% of gift
cards go unredeemed. Another 20% are devalued due to
fees. This translates to nearly $4 billion in 2004
alone. Unused balances and fees become free money to the
card issuers.
Retailers like gift cards because, unlike paper gift
certificates, they can simply deduct the value of the
purchase from the card without having to return a cash
balance or create a new certificate for the leftover
amount. In addition, plastic cards can boost sales.
Studies show that gift card users often exceed the value
of their cards when they do redeem them.
In passing SB 8, Maryland has become the 17th state to
put fee and expiration restriction on gift cards and
certificates.
Please so not hesitate to contact me on this or any
other legislative issue of concern to you. As always, I
encourage and welcome your input.
Sincerely,
Ann Marie Doory
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