Simon Wins Court Challenge to Gift Card Fees

Banks that issue Simon Property Group’s gift cards can keep charging dormancy fees on the cards, following a court ruling earlier this month.

A federal judge ruled that New Hampshire could not impose state laws restricting gift-card fees on Simon’s gift cards, because the bank-issued cards are governed by federal banking laws that supercede state laws. Simon’s Gift Card is issued by U.S. Bank National Association, MetaBank and Bank of America, which collect and keep the fees.

The ruling wraps up a dispute that began in 2004 when New Hampshire Attorney General Kelly Ayotte tried to impose the state’s then-new law prohibiting expiration dates and administrative fees on gift cards and certificates. Simon filed suit against the state, arguing in federal court that its gift cards are governed by federal banking laws.

Simon’s gift card is essentially a pre-paid Visa debit card, with the dollar amount set by the purchaser. But it functions in some ways like a credit card: transactions are processed like credit purchases, and cards with a balance can be replaced (for $5) if lost or stolen.

Purchasers pay $5.95 shipping and handling for a standard gift card, $6.95 for a customized card. The cards are sold in Simon’s 170 malls and online. Simon also offers “Giftaccounts,” a pre-paid virtual Visa account for online and mail-order shopping, with similar dormancy fees.

Two gift-card fees were at the center of the court ruling: A monthly administration fee of $2.50 kicks in after the first year (or after six months, for cards purchased before Sept. 2005); and a $15 replacement fee for expired cards.

The Aug. 1 ruling by Federal District Court Judge Stephen McAuliffe allows Simon’s partner banks to continue collecting dormancy and reactivation fees on cards sold after September 2005. A separate case, now pending in New Hampshire Superior Court, seeks restitution from fees and civil penalties for Simon gift cards sold before September 2005.

Simon settled with New York state last year, pushing back its dormancy fee schedule to begin 13 months after a card was issued, not six months. Simon has since revised the program to standardize the schedule at 13 months. Similar cases in Connecticut and Massachusetts are still pending.

Meanwhile, New Hampshire AG Ayotte also will ask New Hampshire’s national senators and U.S. representatives to pass federal legislation authorizing states to enforce their own consumer-protection laws.

“There is a disturbing trend in federal law where [state consumer protection] laws are repeatedly being overwritten. … Unfortunately, the Simon gift card ruling is yet another disappointing example of this trend,” Ayotte said in a statement. “In my view, state regulators are closer and more accountable to the people of [their own state].”