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Tuesday, August 26, 2008

Class Action Against Amex for Gift Card Charges

Newsday reports that a class action has been filed against American Express, alleging breach of contract and unjust enrichment based on its gift card policy. Namely, Amex apparently charges $10 for a cardholder to obtain anything below a $5 balance on a gift card and, after a year, charges a $2 monthly service charge, which wipes out any balance on the gift card. (At least, that is my understanding of the allegations based on the newspaper's account of the lawsuit). The terms come with the gift card, sealed in the envelope given to the recipient. Newsday reports:

The suit accuses American Express of breach of contract over the face value of the card and "unjust enrichment" by charging fees that eventually zero out balances -- unspent money that would have gone to state coffers under state laws governing unclaimed money, such as those in nonactive bank accounts.

The suit is just the latest complaint in a multibillion-dollar and growing gift card industry that's been feeling the heat from consumers because of fees. Last year, American Express sold about $1 billion in gift cards in the United States.

American Express spokesman Robert Sherman said vendors are supposed to accept the cards but there's been confusion over how to do split transactions, which led to an educational campaign for retailers and consumers last year.

The company's gift card does mention the $2 monthly service charge on the envelope, and Sherman said it's been that way for years.

"We try to put the information that is most important on the outside of the packaging," Sherman said. "We really want our consumers to understand the product that they're buying and are looking for new ways to improve that process all the time."

In the past few years, as consumers complained about the fine print and undisclosed fees, many states have imposed limits on fees.

Surveys show the cards are very popular, making up a $100 billion-a-year industry, according to Consumers Union, publisher of Consumer Reports. Gift cards from retail stores tend to have fewer fees and problems because that may reflect badly on the businesses, consumer experts said.

"It's growing in leaps and bounds every year," said Tod Marks, an editor at Consumer Reports. "A lot of people don't use them because they forget about them or they run out of money by the time they realize they have them. It is quite annoying."

The suit has been filed right here in the EDNY in Central Islip, so we'll keep you apprised.

[Meredith R. Miller]

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