Credit card reforms don't cover rebate cards
Sunday, January 17, 2010
The landmark credit card reforms finalized last week cover a broad swath of the payments industry, regulating everything from how interest rates are calculated to how long gift cards last. But one type of card was excluded from the new rules: the rebate card.
Product manufacturers and retailers often offer shoppers money back for specific purchases, with one estimate putting the annual size of such promotions at about $4 billion and growing. And increasingly, companies are returning the money to shoppers on cards that often come with monthly fees and a short shelf life -- and that are not covered by the Credit Card Act.
"We heard a lot of complaints from consumers," said Michelle Jun, staff attorney for the nonprofit Consumers Union, which last week raised concerns about rebate cards. "It's up to the consumer to look for the tiny print."
Many shoppers are awaiting rebates from purchases made during the holiday season, the group said. Frequently, the terms of the rebate are not disclosed until the card arrives in the mail, and shoppers may be surprised at the restrictions.
The Credit Card Act, which was passed last spring, established new standards not only for credit cards but also for gift cards and prepaid cards. Beginning in August, the law requires that any expiration date on those cards be at least five years out. It also bans penalty fees for not using a card within the first year, among other restrictions.
But the legislation makes an exception for gift and prepaid cards offered as part of a promotional program, such as rebates. Expiration dates on those cards typically range from two weeks to three months, said Brian Riley, an analyst with the research firm Tower Group. In addition, the programs are often designed to discourage consumers from redeeming the offer, he said. Riley estimated about 20 percent of $4 billion in annual rebate offers are left on the table.
"You're given such hard hurdles on these that sometimes it's hard to cash it," he said.
Companies typically offer two types of rebate cards: closed and open loop. Closed-loop cards are often issued by retailers and can be used only at their stores. Open-loop cards function like prepaid cards and are issued by big names such as Visa and MasterCard. They can be used anywhere those names are accepted.
A decade ago, manufacturers and retailers distributed rebates primarily in the form of checks. Though they often carried expiration dates of 90 days, they did not have dormancy or maintenance fees. Consumer groups also say checks gave customers the option of depositing the money rather than spending it.
But with consumers increasingly using plastic for purchases, companies have begun to issue rebate cards. And even though these cards look and function like gift or prepaid cards, payment experts say there is one fundamental difference: The money on gift and prepaid cards belongs to consumers, while the rebates could belong to the companies.
"They're kicking a portion of their profit back to you," said Brent Watters, an analyst with Mercator Advisory Group, which studies payment systems.
Duncan Douglass, a lawyer in Alston & Bird's financial services practice, said that the law around rebates can be murky but that the credit card reform act seems to favor corporations. Douglass said his best advice for consumers with a rebate in hand is to spend it immediately to ensure they get their money's worth.
"Don't save 'em," he said. "They don't accrue in value."