We’ve all heard the phrase “use it or lose it,” and that is exactly what happened to Nancy Gaughan of Courtdale, who dragged her feet before spending two prepaid VISA gift cards.
Gaughan wrote to me after trying to use two $25 cards she received for her birthday in 2013 or 2014. She had stuck them in a drawer and forgotten about them until recently, when she came across them and tried to make a purchase. When the cards were declined, she called the Cross Valley Federal Credit Union, where they were purchased. She was told the cards had expired, despite having “Good Thru” dates in 2018 and 2019.
Gaughan contacted VISA and was shuffled back to the credit union, who this time informed her the card accounts were closed. That’s when she sent a letter to her consumer watchdog.
“I was hoping you could review this matter and hopefully get my $50 refunded,” she said.
I contacted Cross Valley Federal Credit Union and got an immediate response from V.P. of Marketing Jill Houseknecht, who explained that because Gaughan didn’t use her cards quickly enough, their value dropped faster than you can say “dormancy fees.”
“After 12 months of non-use, on the 13th month, $5 is deducted for every month of inactivity,” Houseknecht said. “If she had reached 12 months and got charged one $5 fee and then started using the card, that fee would stop.”
Yes, this is legal, even if it doesn’t seem fair.
The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 says the value of store-issued and bank-issued gift cards cannot expire until five years after purchase, or five years after the most recent date when money was added. But there’s a catch. Card issuers can charge inactivity fees, also known as dormancy fees, after the cards have not been used for 12 consecutive months. While some states have exceptions to the CARD Act protecting consumers against such fees, “Pennsylvania has no exceptions to this act, including as it applies to dormancy fees on prepaid cards,” explained Kristina Meixner, a compliance officer for CVFCU.
In other words, sticking two $25 prepaid VISA cards in a drawer for 17 months is like lighting a match to a $50 bill — except with the match, you might avoid getting burned.
The CARD Act also has disclosure requirements. The fees, along with their reason, amounts and frequency must be “clearly and conspicuously stated” on the card itself, which, in Gaughan’s case, they were, on the back of the cards, in letters tiny enough that Gaughan didn’t notice them.
So where exactly did Gaughan’s 50 bucks go? Back to the original card issuer, ICUL Service Corp., which provides products and services to credit unions, and which has maintenance costs to keep the cards active. The dormancy fees cover those costs, Housetrecht explained.
She said CVFCU makes no money on the cards, paying ICUL $1.50 per card and then charging the same to members who buy them.
“This is a service we offer our members,” Housetrecht said.
As a courtesy, she also sent Gaughan a new $25 card, which — I think we can all agree — was a very kind gesture.
“She’s one of our members, and we wanted to help her,” Housetrecht said. “We are here to help our members, and we want to make sure we do that.”