LifeLock Smackdown Part 2

LifeLock –

Last month I wrote about credit and identity theft related services and how some of them either don’t really deliver what they promise. Apparently the Federal Trade Commission and the attorney generals from 35 different states agreed with me because on March 10th 2010 (or some time soon before) LifeLock agreed to a $12 million settlement. This is a very significant settlement especially for a deceptive advertising case. LifeLock probably didn’t want to spend the time or money to defend the lawsuit so a settlement was their way of protecting against downside financial risk.

Many consumers, however, find LifeLock’s advertising perfectly clear and think the value they receive for their $10 per month charge is well worth it. According to Aaron Freeman, a LifeLock subscriber since 2005, “As recently as 2010, a man in Brooklyn tried to withdraw money from my bank account using a driver's license with my information and his picture. LifeLock has been there for me for each incident. LifeLock agents are proactive and take immediate action while I'm busy at work. I consider the $10 monthly fee to be credit insurance and I'm grateful for their services.” The comments above read suspiciously like they were professionally written as a press release so take them with a grain of sale. I’ve never heard anyone speak so highly of any subscription service regardless of how much they enjoyed it.

Gift Card Protections Coming Soon –

When was the last time you tried to use an old gift card and found out, at the register, that the card had expired or the value was much less than when you originally received it? It’s really no different than trying to use a credit card that is either maxed out or has been declined by the issuer. In either case the end result is the same; you’re unable to make your purchase and you’re embarrassed. But with the case of the gift card, there is no happy ending because you can’t get back the value.

This will be changing thanks to the CARD Act. On August 22, 2010 a provision of the CARD Act takes affect that will provide more aggressive consumer protection rules regarding the issuance of gift cards. Starting in August gift cards will have a 5-year life before they will fully expire. This is good news and bad news. Good news in that if you are given a gift card after August 22nd and then forget about it for months or even years you’ll still be able to use it as long as it hasn’t been a full 5 years. The bad news is that now you really don’t have any sense of urgency to use the card, which means it’s much more likely that you’ll toss it aside and not use it any time soon.

This CARD Act provision does allow for fees to be charged for inactivity or prolonged non-use of a gift card. And, the issuer must notify or otherwise disclose that they intend to charge a fee for inactivity. Now, clearly they aren’t going to send you a bill in the mail for not using your gift card. First off, most gift cards are given to other people so he who bought it is unlikely to actually have it. Second, the gift card issuer will simply reduce the value of the card an equivalent amount to whatever fee they want to charge.

The definition of inactivity in this particular discussion is 12 months. So, if you toss your gift card in a drawer and forget about it then you’ll get charged the fee on some day during the 13th month after you received it. Frankly, you should use the card immediately anyway rather than let it sit and collect dust.

There are exceptions to the gift card provisions of the CARD Act. If the card is being used as a promotional award or isn’t the type of card that is marketed to the masses or is available for sale to anyone then there is no protection from expiration or accelerated reduction in value. For example, some cell service providers will offer a rebate, say $100, in exchange for you buying a certain type of cell phone. In some cases these rebates are in the form of a gift card rather than a check. Those are awards used in a rebate promotion so there is no protection provided in the CARD Act.

The award card previously described is also not for sale or marketed to the general public. So, again, there is no protection afforded in the CARD Act. The bottom line in this case is to use the card as quickly as possible so you don’t have to worry about fees or expiration dates.

There are some people who really don’t care for this provision of the CARD Act for a variety of reasons. First, according to the White House the CARD Act was meant to protect consumers from abusive card issuers. Have any of you honestly felt abused by the company whom you purchased your gift card from? It’s not like they can close an account, jack up an interest rate or tack on a $120 annual fee. They also can’t report your activity to the credit bureaus.

Additionally, this makes it more difficult for public companies to claim the revenue from sales of gift cards. They can sell you the card but they can’t claim the revenue publicly until the card has been used or has expired. If it were up to them they’d really like to be able to claim the revenue immediately but the boys from Enron ruined that for everyone.

And lastly, do any of your remember what cash for clunkers did for car sales in 2009? The auto manufactures killed it the second half of 2009 because of the financial incentive for us to go out and trade in our old cars for new cars. This meant more inventory moving off lots, more sales people actually earning an income, more money being thrown back into the local economy, more cars rolling off the lines in Detroit and elsewhere and more loans being placed with local and national auto lenders.

The CARD Act could have been a “cash for clunkers” equivalent if they would have taken the exact opposite approach. If they would have made it illegal for any gift card to not expire after 6 months then practically all gift cards would be used almost immediately because it was like cash that had been set on fire…use it or lose it!! Nice job boys.