Fed proposes crackdown on excessive gift card fees

By Corbett B. Daly

WASHINGTON (Reuters) - The U.S. Federal Reserve stepped up its consumer protection efforts for the second time in less than a week on Monday, proposing to limit the ability of gift card issuers to impose excessive fees.

The Fed proposed banning any fees for the first year, and limiting gift card issuers to one fee per month if the card is not used for at least a year. It also requires clear disclosure to the consumer about possible penalties.

Last week the U.S. central bank banned overdraft fees on banks' automated-teller-machine and debit-card transactions unless consumers have actively selected an overdraft protection service.

"The rules would protect consumers from certain unexpected costs and would require that gift card terms and conditions be clearly stated," the Fed said in a statement.

The rules would also prohibit the cards from expiring before five years have passed from the date the card was issued or five years from the date additional funds were added to the card. The rules would be not be implemented until August 2010.

Gift cards are essentially an interest free loan to the issuer from the purchaser.

The Fed has come under fire in recent months for not taking a more active role in its duty to protect consumers.