Dormancy fees on mall gift cards legal, but not ethical, says Ottawa man,
Mall cards subject to monthly charges after 15 months
An Ottawa man was surprised to find that, although gift cards cannot legally expire in the province, account maintenance fees cut the cash value of his $100 gift card in half and emptied another partially used card.
Ontario in 2007 passed legislation regulating the use of gift cards that outlawed any expiration of the prepurchased values and banned additional fees by individual retailers, but malls may still charge dormancy and other service fees that debit the account of prepaid funds.
Pat Dunbar thinks the new rules just mean that malls can’t legally impose expiry dates but are essentially fixing a self-destruct date for the value of the card.
“You don’t use it? You lose it,” Dunbar said.
Dunbar purchased two $100 gift cards to Bayshore Shopping Centre for his wife the day before Christmas Eve in 2009.
Dunbar’s wife used one gift card twice early in 2010 — once at Zellers, spending $31.48, and once at Northern Reflection, spending $56.48, a summary of the account shows. The remaining $12.04 went toward what is billed as “Account Maintenance Fee” debits that began in April of 2011, 16 months after the card’s initial activation. The second, unused gift card also had monthly fees deducted beginning at the same time. When Dunbar’s wife went to use it just a few weeks ago, she found the card had been deactivated. The mall issued her a new card. She couldn’t believe it was for half the original value. Fifty dollars of the original $100 had gone toward dormancy fees.
The front of the card advertises the ease of Bayshore Shopping Centre gift cards with the tag line “It’s that simple,” but in smaller print on the bottom recipients are warned: “Fees may apply. See back.”
The back of the card clearly states in large print “A $2.50 fee (plus applicable taxes) will be deducted each month from your Card starting 16 months after Activation Date.”
Mall representatives told Dunbar that a third party administers and maintains the cards and any associated accounts.
That third party is Store Financial, a U.S. company that handles the processing of all Bayshore gift cards. According to the company’s website, the business was created to help shopping malls and retail centres offer a multi-store gift card that could only be used at separate retailers within their walls.
Provincial legislation surrounding gift cards varies across the country, with some provinces banning all maintenance fees.
In Ontario, a gift card for a mall or shopping centre that still has a balance 16 months after its activation date may be subject to monthly debits of an account maintenance fee. By law, the maximum debit cannot exceed $2.50 per month, and all conditions must be printed on the gift card.
The money taken from these card accounts can go to either the mall or to the gift-card processor, says Jeff Grottick, Store Financial Canadian sales executive.
“It all depends on the activation fee up front,” Grottick said.
The fees are where card processors make their profit — they can either reduce the value of the card immediately and profit from the activation fee or wait a minimum of 15 months and debit the balance monthly until the card zeros out.
If a mall and processor agreed on the monthly fees but a customer were to spend the entire value of the card before month 16, the processor wouldn’t get paid, Grottick said.
Store Financial, as a company, understands the model is controversial and is pushing all new clients to move toward a fee-free mode.
In that model, all the money spent by customers purchasing one type of gift card would be pooled. Analysts would eventually deem a certain portion of that money as likely to never be used and pay the processor with it. The funds on cards would always be available to consumers.
As the laws surrounding gift cards are changing, so too are the payment models, Grottick said.
Dunbar thinks the cards might have ended up in one of his wife’s rarely used purses, explaining why they weren’t used sooner. That’s no reason for some company to pocket a portion of a gift he intended for his wife, Dunbar said.
“You’re pre-paying for a service you end up never getting. Cards get misplaced. Various things happen to cards. These people are making a fortune. Should the regulation be changed? I would say yes.
“It’s not very ethical, but unfortunately it is legal.”
Representatives of Bayshore Shopping Centre could not be reached for comment Wednesday.