American Express eliminates dormancy fee on gift cards

With an increasing amount of consumers looking for debt consolidation loans and other ways to manage their finances in preparation for the upcoming holiday shopping season, gift cards can be a way for consumers to ensure that they are only spending a set amount, or can be an easy gift option for friends and loved ones.

Yet many gift cards have dormancy penalties, which charge cardholders a fee for inactive cards, making the bill consolidation advantages of gift cards a little less appealing.

American Express, responding to criticism from consumers and anticipating a future law prohibiting dormancy fees on gift cards, announced Wednesday that it has eliminated the $2 fee placed on its gift cards for each month of inactivity.

Although the company will continue to charge an upfront purchase fee, the dormancy fee – which goes into effect after 12 months of inactivity – was eliminated. This change is effective immediately, and is applicable to cards that have already been purchased.

Gift cards and other prepaid cards have become an even more popular payment option thanks to the recession, as consumers look to control their spending and consolidate debt – a recent report from Mercator Advisory Group found that the total load volume of prepaid and gift cards increased by $27.4 billion between 2007 and 2008.