AG sues mall firm over its gift cards
Reilly says terms violate Mass. law; state DSS bought $250,000 worth
Attorney General Thomas F. Reilly yesterday accused a major mall operator in a suit of illegally selling a gift card with numerous fees and a one-year expiration date, but the terms haven't deterred the Massachusetts Department of Social Services from purchasing $250,000 worth of the cards this year for its clients.
The disclosure that DSS buys the gift cards came to light as Reilly and his counterparts in New Hampshire and Connecticut either filed suit or prepared to file suit against Simon Property Group, an Indianapolis mall operator that sells a popular Visa gift card issued by Bank of America.
Simon sued all three states on Friday, asserting that because its card is issued by a federally chartered bank it is exempt from state gift-card laws and regulated exclusively by federal laws and regulators.
The dueling lawsuits -- Simon filed in federal courts and the states filed in state courts -- set the stage for a legal showdown over whether state laws apply to federally chartered institutions.
The Simon Visa Giftcard is popular because it offers the cardholder flexibility. The card can be used anywhere Visa is accepted and can be replaced if lost. Simon, which operates 14 malls in Massachusetts, including Copley Place and the South Shore Plaza, says it sells more than $10 million worth of the cards in Massachusetts during the month of December alone.
But the card's one-year expiration date, its $1.50 initial handling fee, and the $2.50-a-month dormancy fee that kicks in after six months all violate provisions in the Massachusetts gift-card law.
The Massachusetts gift-card law requires cards to last seven years, and Reilly interprets the law to mean that fees that reduce the value of the card cannot be assessed during that period.
"These gift cards are riddled with additional charges that Massachusetts consumers should not have to pay," Reilly said. "Despite the name, these gift cards are not what they seem."
Nancy Wilsker, an attorney representing Simon Property Group, said the gift card issued by the mall operator is subject to federal regulation exclusively because it is issued by the Bank of America.
She said the US Office of the Comptroller of the Currency, which regulates national banks like Bank of America, requires the fees and terms associated with stored-value cards to be disclosed clearly to consumers. She said fees are required to cover the costs of issuing, tracking, and replacing lost cards.
Simon says most of its customers use the entire balance on the card within the first six months, thereby avoiding the dormancy fees.
"They're not hard to avoid," Wilsker said of the fees.
Denise Monteiro, a spokeswoman for the Massachusetts Department of Social Services, said Simon waived the initial handling fee as part of its sales deal with the state. She also said most of the cards are issued on an emergency basis so the dormancy fees and the expiration dates rarely kick in.
The agency gives the cards to foster parents and children to buy necessities such as clothing and food.
"We've taken all the precautions we can," Monteiro said. "Would we love a card that didn't expire? Absolutely, that way we wouldn't have to worry about it."
Bruce Mohl can be reached at email@example.com.