The holidays are approaching, and once again gift card season is upon us. Gift cards bring the joy of freedom for those who like to choose their own presents, but, for some financial institutions, these cards may bring legal troubles under unfair and deceptive practices laws. Last week, two United States District Court cases within the Third Circuit, Mwantembe v. TD Bank, and Mann v. TD Bank held that plaintiffs could pursue their state claims against banks that the sale of gift cards containing dormancy fees were deceptive and misleading practices. Plaintiffs in both cases were unable to successfully claim that the existence of gift card dormancy fees were illegal, but their claims that the banks’ marketing of these fees is deceptive survived.
Dormancy fees are charges against the value of a gift card, that accrue if a card is not used within a certain period of time. The court in Mwantembe analogized the payment of a dormancy fee to a shopper entering a store, paying for a product, and then exiting the store without the product. Plaintiffs in both cases were represented by the same counsel, and made very similar allegations with regard to the disclosure of dormancy fees. They believe that the following characteristics of gift cards related to advertising, term disclosure, fee conditions, and card design were all deceptive:
Advertising: Representing gift cards containing dormancy fees as “free” or having “no fees” in marketing materials and advertisements.
Term Disclosure: Packaging the terms of the gift cards related to dormancy fees in such a manner that a consumer will not be aware of the terms before purchasing the card, and an ultimate recipient of the gift card would not be aware of the terms either.
Fee Conditions: Conditioning dormancy fees on a length of time following the issue date of the card, but not disclosing the issue date on the gift card.
Card Design: Displaying a “Good Thru” date on the front of the gift card, while the dormancy fees could potentially diminish nearly all of the card’s value before the “Good Thru” date.
Although these gift card cases still remain in litigation, financial institutions should be very cautious about marketing gift cards with the above listed characteristics. Courts, as well as regulatory agencies, are trending towards closer scrutiny and enforcement of laws related to gift cards and unfair and deceptive practices. Banks should review their gift card terms and conditions for compliance not just with the disclosure laws, but also to make sure that the disclosures are clear and not deceptive. A stocking full of coal will be the least of a bank’s holiday worries if the marketing of its gift cards are ruled unfair and deceptive.
- Beth DeSimone and Brian Larkin
