Consumer Payment Card News

Gift Card Dispute

Three consumer groups are objecting to a recently proposed FTC settlement with Kmart over its gift card practices. The Consumer Federation of America, Consumers Union and U.S. PIRG, charged that the settlement unjustly enriches Kmart by allowing it to keep its ill-gotten gains. The groups say the Kmart card had hidden fees that reduced its value by more than $50 in less than two years of inactivity. Last month, Kmart agreed to settle FTC charges by implementing a refund program. According to the FTC’s complaint, Kmart promoted the card as equivalent to cash but failed to disclose that fees are assessed after two years of non-use and misrepresented that the card would never expire. Kmart has agreed to disclose the fees prominently in future advertising and on the front of the gift card. As of May 1, 2006, Kmart stopped charging a dormancy fee on all Kmart gift cards. This was the FTC’s first law enforcement action involving gift cards. Earlier this month, Darden, which owns restaurant chains Olive Garden, Red Lobster, Smokey Bones, and Bahama Breeze, agreed to restore fees that were deducted from consumers’ gift cards and disclose fees or expiration dates in future gift card sales after FTC action.

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