Will Other Card Issuers Follow Amex To End Gift Card Fee?

Friday, October 2, 2009, 9:57 AM | Leave Comment

American Express said Wednesday, September 30, it would eliminate monthly fees on its popular gift cards. Will other major card issuers follow? The move certainly puts pressure on them. The company’s decision, which takes effect immediately, goes further than legislation Congress enacted in the spring that would limit, but not eliminate, monthly fees on gift cards.

Gift cards began as a plastic replacement for paper gift certificates and were originally embraced by retailers like Blockbuster, Starbucks and Barnes & Noble. In those instances, the cards could be used only at a specific retailer.

The major credit card networks, like American Express and Visa, now offer gift cards that can be used at any retailer that accepts their credit and debit cards. “American Express began selling gift cards five years ago, and it now sells more than $1 billion worth of cards a year,” said Alpesh Chokshi, president of American Express’s Global Prepaid unit.

The company will continue to make money from the purchase charge, which ranges from $2.95 to $6.95, as well as from its share of transaction fees each time the card is swiped.

Moral of the story
Congress required changes to gift card fees in the credit card reform bill, which sought to limit the most onerous interest rates and fees on credit cards. As part of the measure, Congress prohibited inactivity fees or monthly service charges on gift cards for the first year after purchase.

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