The brewing battle over gift and stored-value cards heated up with New York Attorney General Eliot Spitzer launching a suit against Simon Property Group for violating the state's restrictions on gift card fees. New York joined Connecticut, New Hampshire and Massachusetts in suing Simon. But the backlash to the hidden late fees on some cards has spread beyond lawsuits. More than two-dozen states have enacted legislation banning the fees. And more legislation is on the way.

Legislation varies from state to state. Some states ban late fees and expiration dates altogether. Others simply call for the cards' limitations and conditions to be spelled out more clearly, such as having the expiration date printed on the front of the card.

Many retailers and mall owners have responded by saying that fees are necessary to maintain the cards. Dormancy fees help cover administration costs. Expiration dates are needed because otherwise retailers would be required to cover cards on their books indefinitely. Also, they say that if there is legislation, it should be done on a national level. If, for example, a company is incorporated in Delaware, but its card is sold in Maryland store, given to a person living in Illinois and spent in Wisconsin, whose law applies?

Simon Property Group has filed a suit in U.S. District Court against the attorneys general seeking a declaration that its gift card is regulated by federal rather than state laws. Simon also has said its card "is not a retailer gift card," but a stored-value card, and features terms and conditions based on similar products issued by banks. Simon argues that a federal agency that supervises national banks issued a ruling in January reiterating its position that national bank products are not subject to state laws.

Some retailers feel they are getting tarred unfairly in the hubbub surrounding the Simon suits. That's because there is a difference between the stored-value cards that mall companies are issuing and the gift cards that retailers sell, which generally don't charge fees during the first year. The stored-value cards are debit cards produced by the mall and financial services firms. They typically charge an upfront fee and maintenance fees and expirations start as little as six months after the cards are issued.

"Rather than being tied to a bank account, they are cards to which a fixed amount of money has been assigned. But these are financial service products issued by Mastercard or Visa with the intent to make money on card," says J. Craig Shearman, vice president of government affairs for the National Retail Federation.

For example, Simon charges a fee of $1.50 for each card if purchased at its malls or $5.95 for "shipping and handling" if purchased on the Internet. In addition, Simon charges a $2.50 monthly "administrative" fee commencing in the seventh month after purchase; a 50 cent fee for each telephone balance inquiry; a $5 fee to reissue a lost or stolen gift card; and a $7.50 fee to reissue an expired card.

Retailer gift cards, on the other hand, are more like traditional gift certificates. Most retailers also don't charge the same kinds of fees and expiration on the cards can be two or three years after the purchase date.

"Gift cards from retailer are IOUs from a store. It's not a moneymaking venture. It's intended for someone to come and spend in the store. It's not there to make money off the fees," says Shearman.

The National Retail Federation, though, says that states aren't necessarily acting in consumers' best interest and, in fact, are attempting to seize the unused value of the cards through "unclaimed property" laws.

"It is one thing to claim a bank account that has been untouched for 20 years," Shearman says. "But it is another thing to claim the value of a card that may be sitting on someone's dresser, waiting to be used. ... The consumer has a right to value of the card. If it's not used, retailers have a right to the value. But states have no legitimate claim to the money involved. It's strictly a matter of greed on the part of state treasurers."

-- David Bodamer