By Eileen AJ Connelly
AP Personal Finance Writer
NEW YORK (AP) — Gift cards are making a comeback after falling out of favor the last few years, according to TowerGroup. That’s thanks to new laws that cut down on the fees, restrictions and money lost when the cards are unused for long periods.
Use of preloaded gift cards is set to rebound after falling more than 9 percent from 2007 to 2009, according to figures recently released by the financial services consultant.
Analyst Brian Riley predicts U.S. consumers will spend about $92 billion using gift cards in 2010. That compares with $88 billion last year, which was down from a peak of $97 billion in 2007.
By the end of next year, Riley projects gift card spending will jump to $96 billion. And by 2012, the business will be back above the earlier top, at about $99 billion.
Also by 2012, the analyst predicts an additional $3 billion will be spent on a new type of gift card — the electronic kind. Since the initial use of e-gift cards will be for small dollar items like sending a scoop of ice cream to a friend on Facebook, the initial amount spent will be small in comparison to the more universal plastic cards, Riley said in an interview. Nevertheless, he sees social media-driven purchases rising in future years.
One of the main reasons shoppers are returning to gift cards is that in August, parts of the new credit card law kicked in that protect gift card users from high fees and card expirations.
Gift cards issued after Aug. 22 must have expiration dates that are at least five years from their date of purchase. And card issuers can only charge inactivity and service fees if the card hasn’t been used for at least one year. After that, only one fee can be charged each month.
The law will save consumers about $5 billion lost to fees and nonuse in 2007, Riley estimated.
Within the industry, two segments will be the clear winners, Riley maintains: cards with major credit card logos that can be used almost anywhere, and major retailer cards.
Consumers are likely to be slower to return to buying restaurant gift cards. “As things start getting better in the economy, you see it in retail before you see it in restaurants,” he observed.
Gift cards from local merchants that can only be used at individual stores are also likely to lag a broader rebound.
Meanwhile, after dropping by almost 9 percent since 2007, to $31 billion in 2009, spending on gift cards with logos from MasterCard, Visa, Discover and American Express is likely to regain momentum to reach $33 billion by the end of 2010, Riley said. This largest segment of the gift card market will likely continue to climb to $38 billion by 2012, he said.
And retail gift cards, which have continued to grow during the recession, will keep up that steady pace, likely reaching $31 billion this year, from $27 billion in 2007.
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