U.S. PIRG Consumer Blog: FTC rejects consumer group request for KMart disgorgement of ill-gotten gift card gains

This week the FTC finalized a consent order against KMart for deceptive gift card dormancy fee practices. Consumers who can jump through the government's hoops may be able to obtain refunds. But, in a letter to our pro bono attorney David Balto, the FTC rejected arguments made (previous blog1 and blog2) by U.S. PIRG, Consumers Union and Consumer Federation of America to improve the order in several ways, including our request that KMart disgorge its ill-gotten gains collected from bewildered consumers whose gift cards shrunk in value due to the deceptive fees.

Two of five FTC commissioners, Pamela Jones Harbour and Jon Leibowitz, agreed with us on disgorgement. Without disgorgement, what incentive is there to deter future corporate criminals? What message does our lead consumer protection agency send when it issues wrist-slaps for ripping off consumers? We doubt very many consumers will collect refunds under this scheme:

Under the order, consumers may contact Kmart to determine if they are eligible for a refund, and must provide to Kmart: 1) a Kmart gift card identification number, 2) a mailing address, and 3) a phone number. If it is determined that a consumer’s Kmart gift card had a dormancy fee imposed against it, Kmart will mail the consumer a new gift card with a balance equal to the amount deducted in fees.

As more and more transactions are made with stored value and other new types of debit cards, there is a growing need to improve consumer protections. Your rights with a credit card are strong. Your rights under law with an ATM/debit card are less strong (and it is your own money at risk). Following recent regulator actions, your rights with a payroll debit card are better than before. But with other stored value and prepaid cards, your rights are "not so good" or "it depends." Why shouldn't all plastic have equal, strong consumer rights under law?