With the holiday shopping season almost in full swing, the Federal Reserve is set to propose new regulations for gift cards, a $50 billion dollar industry. Many of the gift-card issuing companies have applied fees and imposed requirements that essentially cost the consumer additional money without making a single purchase. For instance, many companies still charge a $2 to $5 monthly fee for not using gift cards within a specific timetable (often called a ‘dormancy fee’). Additional cards set to expire within 6 months to a year without much clarification being presented to the buyer.

The fees and penalties may have become a standard part of the gift card industry, but many consumers were clueless about the extent of rules with gift cards. They assume that by buying a card at face value, nothing besides an actual purchase could take away the value amount. However, for many consumers who set cards aside after the holidays and found them during the next holiday season, there was dismay when the monthly charges and penalties were discovered without ever having used the card.

The new rules are coming into play as the Federal Reserve was increasingly criticized for not protecting consumers when it came to the unfair practices of gift cards. The new rules proposed include  limiting fees for not using the card and allowing gift cards to remain active and not expire for at least a 5 year period after purchase. These rules would also apply to gift certificates, retailer gift cards, and prepaid credit cards. Regulations would require that dormancy fees be clearly explained and applied only after at least one year from the date of purchase and only at the rate of one time per month.

The measure is based on the credit card legislation already approved by Congress and requires that the Federal Government make an approval on the gift cards by February 2010 with the rules becoming effective in mid-August 2010. Any gift card sold before the August date would not have to adhere to the new rules.

As consumers regularly purchase gift cards as gifts for others, it is important for both the giver and the receiver have an understanding of what, if any, fees would be part of a gift card purchase. As a buyer, double check with the card issuer to be that you understand the fee structure and any expiration dates associated with the card. In many cases, the cards or accompanying paperwork does not clarify these points. When you do exchange a gift card that has limits or fees, be sure the receiver has a full understanding of those issues as well. Encourage them to use the card as soon as possible to avoid losing monetary value due to charges and penalties.