FTC Cites Restaurant Operators for Devaluing Gift Cards Without Notice
The Federal Trade Commission has entered into a consent decree with three restaurant companies that gradually reduced the value of unused gift cards they had sold. Under the terms of the agreement, the restaurant operators will disclose expiration dates and replacement fees that apply to gift cards.
The FTC brought its action against Darden Restaurants Inc., GMRI Inc., and Darden GC Corp., all of which operate out of the same building in Orlando. According to the Commission, Darden Restaurants owns and operates several restaurant franchises, including Olive Garden, Red Lobster, Smokey Bones and Bahama Breeze.
In its initial complaint, the FTC alleged that the operators applied fees that devalued the value of stored-value cards. According to the complaint, for gift cards sold before February 2004, after 15 months of use the restaurant operators deducted monthly fees of $1.50 until consumers used the cards. For cards sold after February 2004, the fees were deducted after 24 months of inactivity. On occasion, the cards’ values were reduced to zero without benefit of purchase.
The FTC found that disclosures of these fees were inadequate. On the cards themselves, the fees were printed in five-point type on the backs, and were often obscured by other information. The FTC further claimed that on the restaurants’ Web sites, the fees were not disclosed until after purchase, and that in other instances — such as on in-restaurant promotional material — the fees were never disclosed.
Under the terms of the agreement, the operators are required to prominently disclose any fees or penalties that may devalue the worth of restaurant gift cards, aside from a purchase. The operators further agreed not to collect any fees for cards issued before the date of the FTC order.
