Fees on some mall gift cards may violate new state law

Fees on some mall gift cards may violate new state law
The Boston Globe, Globe South Thursday
July 10, 2003
Written by Judith Formann

The gift card sold at South Shore Plaza in Braintree looks like a credit card. But unlike a traditional Visa or MasterCard, it comes with a $1.50 handling fee and begins to lose value after six months. It also may violate a new state law.

State officials are reviewing whether such cards are illegal under a state gift certificate law that took effect June 1. The law expands the definition of gift certificates to include electronic gift cards, and lengthens their validity period from two to seven years. The law also mandates that certificates without expiration or issuance dates always be considered valid, and that when 90 percent of a gift certificate´s value is redeemed, customers can receive the balance in cash.

The state´s office of Consumer Affairs and Business Regulation recently surveyed 40 companies and stores to examine their gift card policies. Many, including South Shore Plaza owner Simon Property Group, Barnes & Noble, Blockbuster, and Starbucks, charge inactivity fees if the gift card is not redeemed after a number of months (from six to 24).

"The results were discouraging from a consumer standpoint," said Beth Lindstrom, the state director of consumer affairs and business regulation, in a June 2 statement. "We want Massachusetts retailers to be on notice that this type of dormancy fee or inactivity fee is now illegal in the Commonwealth. A gift certificate or a gift card will now be good for the full dollar amount for seven years regardless of usage."

Simon begins deducting a "monthly maintenance" fee of $2.50 seven months after a card is issued. Customers also pay a $1.50 fee when they buy the card, which can be used outside of the mall like a pre-paid debit card.

Corey Welford, a spokesman for Attorney General Thomas Reilly, said it is not clear whether the new law applies to pre-paid cards. A court will have to make that decision, he said.

According to a statement from Simon, the company is "confident the Simon Visa Gift Card complies with all applicable state and federal law, and the terms and conditions applicable to the cards are fully and properly disclosed."

Earlier this year, a Boston lawyer representing Simon told the Globe, its cards are governed by federal law , which pre-empt state law, because they are technically issued by Bank of America, a federally chartered bank. The lawyer also said customers are told they are not buying a traditional gift certificate.

Two years ago, Simon introduced Visa gift cards in Austin, Texas, and Seattle, said Michele Sullender, vice president of product development for Simon Brand ventures. By mid-March of this year, the card was available in all 240 Simon malls. Area Simon-owned malls include Boston´s Copley Place, Emerald Square Mall in North Attleborough, Cape Cod Mall in Hyannis, Burlington Mall and the Atrium Mall in Chestnut Hill.

Sullender, who is based in Indianapolis, said the card has several advantages over traditional gift certificates: it can be shut off and reissued if it is lost or stolen, it is sold in any denomination from $20 to $500, and it comes with the Visa brand, which is widely accepted.

"Simon likes to be innovative in terms of offering new products to our customers", she said "The paper product was becoming somewhat passé."

As for the fees, Sullender said, the majority of shoppers use their gift cards with in the first six months.

South of Boston, some mall officials said Simon gift cards are boosting sales of fee-free gift certificates.

"Who wants to pay extra money for a gift?" said Carrie Trongone, marketing director at Westgate Mall in Brockton. "What we´re finding is a lot of people who are suing the gift cards are having a problem because there are so many stipulations and so many obstacles they have to overcome."

Westgate, which is not owned by Simon, plans to keep offering traditional gift certificates, she said.

"We just don´t want to make things complicated for the customers," Trongone said. "It should be an easy transaction."

By the end of the month, Walpole Mall plans to introduce new gift certificates, which will be more colorful and offer better protection in the event of loss or theft. But they won´t come with fees, said mall marketing director Kristie Harvey.

"Even it it´s a dollar, people complain." Harvey said.

Kingston´s Independence Mall sells traditional gift certificates, but may switch to gift cards, said David DesRochers, director of marketing.