Three leading consumer groups filed detailed comments objecting to a proposed Federal Trade Commission settlement with the retailer Kmart over its practice of deceptively selling gift cards with hidden fees that reduce their value by more than $50 in less than two years of inactivity. The Consumer Federation of America, Consumers Union and U.S. PIRG, longtime advocates for stronger state and federal laws to protect gift card holders, charged that the settlement unjustly enriches Kmart by allowing it to keep its ill-gotten gains.
“Attention, Kmart shoppers, this settlement is unfair to you,” said Ed Mierzwinski, U.S. PIRG Consumer Program Director, “It’s bad enough that you’ll need to jump through innumerable hoops to maybe get reimbursed for your incredibly shrinking gift card, but this sends exactly the wrong signal to other corporate criminals that the FTC is soft on crime.”
“Numerous states have taken action to prohibit gift card sellers from even including dormancy or other monthly fees on gift cards,” said Gail Hillebrand, senior attorney for Consumers Union. “At the very least, companies should not be allowed to deceive consumers into purchasing cards with hidden fees, and should be punished when they do.” [More from Consumers Union on gift cards.]
The proposed settlement was approved on a 5-0 vote, with two commissioners, Jon Leibowitz and Pamela Jones Harbour, dissenting in part over the failure to require Kmart to disgorge its ill-gotten profits. The FTC will now review comments and decide whether to make it final. In their comments, the groups noted that in another recent settlement, against Darden Restaurants, the owner of Red Lobster and Olive Garden, that the FTC ordered automatic reinstatement of card value.
This is the second settlement order in the last few months where Leibowitz has dissented due to a weak, non-disgorgement penalty (see the DirectRevenue decision of 16 February 2007), Mierzwinski noted.
The groups were represented pro bono in this matter by David Balto, a former senior FTC attorney.
“Consumers need greater rights in gift cards and indeed in all plastic cards ranging from other types of stored value cards to debit cards, where rights are vastly inferior to the protections offered credit cards,” concluded Jean Ann Fox, the Consumer Federation of America’s director of consumer protection. “Taking action against Kmart for deception is a first step, but it should have been a more meaningful step.”
