RED LOBSTER PINCHED OVER GIFT CARD FEES
Finally, somebody is doing something about those crazy gift card "dormancy" fees. That someone in particular is the Federal Trade Commission, which recently accused Red Lobster restaurants of misleading consumers in the way these fees are charged.
In case you?ve never received a gift card, or you?ve never turned one over and pulled out a magnifying glass, dormancy fees slowly drain the value of gift cards when they?re not used. In Red Lobster?s case, after 24 months, $1.50 is slowly ticked off the card for each month it?s not spent.
So here?s what can happen. A $25 Red Lobster gift card purchased on January 1, 2004 and never used was only worth $23.40 on Jan. 1 2006. And by Jan. 1, 2007, that card will only be worth $7. By spring, it's a worthless piece of plastic.
The FTC isn't actually accusing Red Lobster and its parent Darden Restaurants Ltd. of being crazy, or attacking dormancy fees directly. Instead, the FTC says Red Lobster customers weren't told clearly about the fees.
The FTC doesn?t disclose information about ongoing investigations, but Darden revealed the investigation in its recent annual report. Darden said FTC attorneys had found that the company engaged in "unfair and deceptive trade practices," and asked for $30 million in reparations. The company has until the end of August to consider the settlement offer.
Darden declined my request for an interview, but spokesman Jim DeSimone told the Orlando Sentinel last week that the company did adequately disclose gift card fees.
?In every case since we've had the gift-card program, we have notified consumers of the potential for maintenance fees at least once . . . and often multiple times," DeSimone told the newspaper.
I disagree. Today I went to Red Lobster's Web site to order a gift card and see how clear the dormancy fee disclosure is. The answer: Not at all.
Clicking on "gift card" from the site?s home page brings visitors to a page that allows consumers to pick the number of cards they want, and their value, and add them to a shopping cart. Nothing about dormancy fees there.
That?s not to say there isn?t small print on the order page. But these statements don't protect consumers, they protect the company. Like this: "Orders placed after 3:00 PM Mountain Time or on weekends usually ship the next business day."
Or this, clearly designed to prevent fraud: "There is a $500.00 maximum per order. You may not purchase more than $500.00 per credit card in a 30-day period. Orders over $200.00 must be shipped to the billing address."
But nowhere on that page is there notice of a $1.50 monthly fee. And it's easy to complete your purchase without ever receiving such notice. Only those consumers savvy (or curious) enough to scroll to the bottom of the page will find the link that hints at other, potentially damaging, details.
"Important: Gift Card Terms and Conditions" it says, in a lovely blue pastel color. It?s easy to miss, as it?s overshadowed by the words ?Your Shopping Cart is Currently Empty,? which are larger, and shine in bright red.
Still, an industrious visitor who clicks on ?Gift Cards and Conditions? brings up a page that's topped by one word in red: "Legalese." Nothing says "read me" like "Legalese."
Perhaps use of the word is self-effacing fun. After all, Wikipedia, the Internet's deciding vote in conventional wisdom, defines legalese as a pejorative term "for legal writing that is difficult for non-lawyers to understand."
But only in this legalese will you see mention of the $1.50 fee, in a part of the site the company practically tells you to skip because it?s going too be to hard understand.
"If you don't use your card for a 24-month period, a $1.50 monthly maintenance fee will be deducted from the balance until you use it again," it says. Actually, I think that?s pretty easy to understand. It?s just hard to find.
Gail Hillebrand, a staff attorney at Consumers Union, said it was encouraging that the FTC had taken notice of Red Lobster's fees, and its alleged inadequate disclosures. But fee disclosure is really only part of this story. Gift cards are a huge business now -- $35 billion in gift cards were sold last year, with the business expected to swell to $76 billion this year. And since the beginning, nickel-and-dime fees on the card have been a secret source of extra revenue for the companies--and an incredible irritant for consumers. Each year, the Montgomery County of Maryland?s Office of Consumer Protection performs an excellent survey of gift card fees. The survey is excellent reading.
In last year?s study, published in November, the agency concluded the Red Lobster was one of six major retailers that didn?t adequately disclose dormancy fees. The others were Blockbuster, KB Toys, Kmart, Macy?s, and Toys ?R? Us.
But while we're on the subject, retailer fees pale in comparison to fees assessed on bank-issued, general-purpose gift cards. Some of those start with a $10 fee, then layer in transaction fees, monthly fees, ATM withdrawal fees, and so on. It?s easy to concoct a scenario where a $25 present costs you $35 and the recipient only gets to spend $15.
As I?ve said before in this space, cash really is an acceptable gift! But if you must give plastic, support those companies that don?t reach out and take money from your gift recipient. And always ask a question like this:
?How much is my $25 gift card worth? And how much will it be worth in two years??
http://redtape.msnbc.com/2006/08/red_lobster_gif.html#posts
Finally, somebody is doing something about those crazy gift card "dormancy" fees. That someone in particular is the Federal Trade Commission, which recently accused Red Lobster restaurants of misleading consumers in the way these fees are charged.
In case you?ve never received a gift card, or you?ve never turned one over and pulled out a magnifying glass, dormancy fees slowly drain the value of gift cards when they?re not used. In Red Lobster?s case, after 24 months, $1.50 is slowly ticked off the card for each month it?s not spent.
So here?s what can happen. A $25 Red Lobster gift card purchased on January 1, 2004 and never used was only worth $23.40 on Jan. 1 2006. And by Jan. 1, 2007, that card will only be worth $7. By spring, it's a worthless piece of plastic.
The FTC isn't actually accusing Red Lobster and its parent Darden Restaurants Ltd. of being crazy, or attacking dormancy fees directly. Instead, the FTC says Red Lobster customers weren't told clearly about the fees.
The FTC doesn?t disclose information about ongoing investigations, but Darden revealed the investigation in its recent annual report. Darden said FTC attorneys had found that the company engaged in "unfair and deceptive trade practices," and asked for $30 million in reparations. The company has until the end of August to consider the settlement offer.
Darden declined my request for an interview, but spokesman Jim DeSimone told the Orlando Sentinel last week that the company did adequately disclose gift card fees.
?In every case since we've had the gift-card program, we have notified consumers of the potential for maintenance fees at least once . . . and often multiple times," DeSimone told the newspaper.
I disagree. Today I went to Red Lobster's Web site to order a gift card and see how clear the dormancy fee disclosure is. The answer: Not at all.
Clicking on "gift card" from the site?s home page brings visitors to a page that allows consumers to pick the number of cards they want, and their value, and add them to a shopping cart. Nothing about dormancy fees there.
That?s not to say there isn?t small print on the order page. But these statements don't protect consumers, they protect the company. Like this: "Orders placed after 3:00 PM Mountain Time or on weekends usually ship the next business day."
Or this, clearly designed to prevent fraud: "There is a $500.00 maximum per order. You may not purchase more than $500.00 per credit card in a 30-day period. Orders over $200.00 must be shipped to the billing address."
But nowhere on that page is there notice of a $1.50 monthly fee. And it's easy to complete your purchase without ever receiving such notice. Only those consumers savvy (or curious) enough to scroll to the bottom of the page will find the link that hints at other, potentially damaging, details.
"Important: Gift Card Terms and Conditions" it says, in a lovely blue pastel color. It?s easy to miss, as it?s overshadowed by the words ?Your Shopping Cart is Currently Empty,? which are larger, and shine in bright red.
Still, an industrious visitor who clicks on ?Gift Cards and Conditions? brings up a page that's topped by one word in red: "Legalese." Nothing says "read me" like "Legalese."
Perhaps use of the word is self-effacing fun. After all, Wikipedia, the Internet's deciding vote in conventional wisdom, defines legalese as a pejorative term "for legal writing that is difficult for non-lawyers to understand."
But only in this legalese will you see mention of the $1.50 fee, in a part of the site the company practically tells you to skip because it?s going too be to hard understand.
"If you don't use your card for a 24-month period, a $1.50 monthly maintenance fee will be deducted from the balance until you use it again," it says. Actually, I think that?s pretty easy to understand. It?s just hard to find.
Gail Hillebrand, a staff attorney at Consumers Union, said it was encouraging that the FTC had taken notice of Red Lobster's fees, and its alleged inadequate disclosures. But fee disclosure is really only part of this story. Gift cards are a huge business now -- $35 billion in gift cards were sold last year, with the business expected to swell to $76 billion this year. And since the beginning, nickel-and-dime fees on the card have been a secret source of extra revenue for the companies--and an incredible irritant for consumers. Each year, the Montgomery County of Maryland?s Office of Consumer Protection performs an excellent survey of gift card fees. The survey is excellent reading.
In last year?s study, published in November, the agency concluded the Red Lobster was one of six major retailers that didn?t adequately disclose dormancy fees. The others were Blockbuster, KB Toys, Kmart, Macy?s, and Toys ?R? Us.
But while we're on the subject, retailer fees pale in comparison to fees assessed on bank-issued, general-purpose gift cards. Some of those start with a $10 fee, then layer in transaction fees, monthly fees, ATM withdrawal fees, and so on. It?s easy to concoct a scenario where a $25 present costs you $35 and the recipient only gets to spend $15.
As I?ve said before in this space, cash really is an acceptable gift! But if you must give plastic, support those companies that don?t reach out and take money from your gift recipient. And always ask a question like this:
?How much is my $25 gift card worth? And how much will it be worth in two years??
http://redtape.msnbc.com/2006/08/red_lobster_gif.html#posts
If it had been a gift card for a resturant I probably would have just assumed it wasn't good any more and thrown it out.
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