Let's face it - bills fail every day at the General Assembly and most just professionally take it in stride.
The failure of a gift card bill made the news this week. The sponsor wanted to do away with the dormancy fee charged by the cards in favor of a fee charged to every consumer who uses the card.
Good idea or not; the business model of these cards is to use the lost/unused cards to cover the operating overhead for transactions made with the active cards.
The legislator explained that he had been given a gift card and never used it - the dormancy fee angered him so he filed a bill - I totally validate his feelings.
The bill isn't about the restaurant and store gift cards that are limited to a single business. Those don't have dormancy fees. In their business model, the stores absorb the cards' operating expenses because they figure that by buying the card, they are guaranteed purchases at their store, and oftentimes purchases will total more than the value of the gift card.
The bill is about the gift cards that look like a bank credit card; the ones that can be used anywhere that accept charge cards. Under the business model for these credit card lookalikes, the operator recoups the operational overhead for transactions made with the card through fees charged to the lost/unused cards that will likely never be redeemed, and not from consumers' individual purchases made with the cards. These cards are already highly regulated under federal law, and per federal law, a card is considered lost/unused, if it is unused for a year. On the back of the card, it very clearly informs card purchasers and owners about the $2 fee.
Further, if you use the card after the dormancy fee begins to be charged, not only does the one-year clock reset and the fees stop but upon request, most banks will refund any dormancy fees charged within the current year. Obviously however, to avoid the fee, simply use the gift card.
These cards have unique features;
- They look like a credit card.
- They are a good option for anyone who doesn't have a credit card but needs to make purchases with a credit card.
- The cards have an option to be registered with the bank in your name so that if lost, the card can be canceled and you can get the remaining balance refunded to you.
- In that way too, you or anyone else can prove your payment or proof of purchase.
- However if unregistered, the transactions are untraceable to you...[insert mischief here :-(]
- The card can be "refilled" with funds so that more purchases can be made - helpful for college students away from home.
- The card can be used anywhere that takes credit cards and no per purchase fee is charged.
- Again, on the back of the card it states in large letters that if you do not use the card in a year (for some cards two years} the card will be charged a two dollar per month dormancy fee.
While these cards make a convenient gift, and help those without access to credit, they also have a nefarious side. Because unless you register the card, the transactions are untraceable which leads some to buy the card purely for the ability to make untraceable purchases that require a credit card.
Still others use the cards as a form of currency. They buy the card and trade with it, often for drugs. Police know that cards like this are traded again, and again, and again. I bet criminals don’t like to learn that a dormant card is now $2, $10 or $20 less than was presented to them when the “deal” was made to trade for the card.
However, as I stated, the business plan calls for the operational costs of the card to come out of the dormant funds of the lost/unused cards – not out of the cards that people use right away as most people do.
In economics we are taught that there is no free lunch. If you go to the jazzed-up movie theater with all of the whistles and bells, you will pay a higher price for tickets and popcorn. If you purchase a gift card and give it as a gift, your recipient can use it like cash at anyplace that takes a credit card with no additional charges to them. The cost of operations is taken out of the lost/unused cards, not from the people who used them as intended. It would be a different matter if the fee wasn't fully disclosed on the back of the card and packaging - that would be theft.
We have too many legislators today who try to use the strong arm of government to run the economy, legislate every product to their own personal liking, and rewrite business plans for movie theaters and everyone else.
In Tennessee, we have been about getting government out of the way not dictating how to price a product or to operate a business. We have made tremendous government policy changes in Tennessee to get government out of the way. We have lowered taxes by $800 million dollars and deleted regulations. Today, Tennesseans pay less in taxes than they did seven years ago.
When I go to the movies or buy a gift card, I simply try to make the best consumer choice for me; I generally buy the popcorn and give the store gift cards. Legislators should not use the power of government to dictate or do away with our own pet peeves just because we might be able to get away with it.
We regulate monopolistic utilities because consumers are captive customers. We ensure restaurants are clean because too often they proved an extreme danger and people have became sick and even died.
When we regulate business, it is always with a mind to prevent, deter or punish genuine fraud, or to prevent, deter or punish harm done to one's body or to one's life as a result of the product or offering.
Don't misunderstand, I am not defending this or any other product. I have simply articulated the business model for the product in question.
We won't like every business model - but it is the business' business model - it is not the state's business model - and we don't dictate business models. If a business is not a monopoly, not committing fraud, if a product is not harmful to life or safety, legislators do not have the right to use legislative force - our founding fathers called that tyranny.
Like it or not, as lawmakers, we may agree with the spirit of a bill - there are a lot of things I don't like but to prevent tyranny at every level we must acknowledge that we don't simply have the right to target every personal pet peeve we have. There must be proven fraud, or physical harm. Emotion cannot reign, we must have data and facts to prove a case for regulation.