A $2 PER MONTH IMPROVEMENT

Every time someone writes something about prepaid gift credit cards, they always include a caveat along with their rave review of the idea–watch out for the hidden fees.

One of the most common ways card companies have chipped away at their gift cards has been with the so-called “dormancy fee”.  If you don’t use the card, it’s balance mysteriously dips by a few bucks every month that it lies waiting in your wallet.  If you wait long enough, the card company could conceivably silent recover the entire balance.

American Express has decided to get rid of that hidden fee for its gift cards.  They’ve killed the dormancy fee outright.  They even grandfathered the change to apply to already-issued cards.  If you have an Amex gift card and don’t plan on using it this month, they won’t take that $2 away from you this time.

Admittedly, it’s a small gesture on the part of a credit card giant.  Nonetheless, it is a step in the right direction.

Consumers have griped to Amex about the secret $2 value dock and they’ve received the message loud and clear.  Now there’s one less hidden fee about which to warn people.

GETTING INTO THE HOLIDAY SPIRIT

As much as we might like to believe that the folks at Amex were just doing the right thing and listening to their customer base, there are a few other motives underlying the death of the gift card dormancy fee.  Both of them have more to do with the credit card company’s bottom line than a desire to be a good corporate citizen.

First, American Express was destined to make some changes later even if they didn’t do it now.  That’s because the Credit CARD Act will be kicking into gear as of February and it forces a variety of changes to the wonderful world of prepaid credit cards.  While it doesn’t forbid dormancy fees outright, it restricts them until cards have been sitting around for at least 12 months.  So, while Amex is going above and beyond the law, they’re not making that big of a  stretch.

Second, there’s little thing coming up in a few months known as the holiday shopping season.  That’s a big buying season for those prepaid gift cards.  Suppose you were selling gift cards.  Wouldn’t it be nice to have a selling point the other guys don’t have?  Wouldn’t it be nice to move into the buying season on a wave of good press talking about how you made the “groundbreaking move” of destroying a hated hidden fee?  I think you can see where this is going.  American Express undoubtedly thinks that the modest change in terms of dormancy fee will result in enough of a holiday sales boost in their cards to cover the difference.  At the very least, it will close the gap enough to make responsiveness to their customer base worthwhile.  Besides, they’ve already announced that they don’t need the dormancy fees to turn a profit.

TREND OR FLUKE?

Will American Express’ decision set off a chain reaction throughout the credit card industry with respect to the handling of gift cards and those nasty fees?  There’s a difference of opinions on that possibility.

Linda Sherry of Consumer Action told a reporter that Visa-branded cards are accepted in more places than the Amex alternative.  As a result, she doesn’t think anyone will be copycatting Amex.

Lita Epstein at Daily Finance takes a different perspective.  She thinks that the others will follow suit, arguing that the Credit CARD Act is going to force them to bite an approximation of the same bullet in a few months anyway and that they will suck up a loss in dormancy fees before they’ll give Amex and upper hand in holiday marketing material.

My guess?  It depends on how successfully American Express can turn their policy shift into something that actually appears likely to result in more holiday sales.  If it looks like their change “has legs” and gets a great deal of positive attention–the kind that translates into retail success–other issuers will follow along.  Otherwise, they’ll hang onto those fees as long as they can.