A dormancy fee is a charge that a card issuer, bank or other account provider deducts from a balance because the card or account has not been used for a set period. The charge is also called an inactivity fee. It has been applied to gift cards, general-purpose reloadable cards, bank accounts and some online wallets, and its stated purpose is to cover the cost of maintaining a balance that generates no transactions.
In the United States, dormancy fees on gift cards are tightly limited by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) and the Regulation E gift card rules. A dormancy fee is different from gift card breakage, which is value customers simply never spend, and from escheatment, where a state takes custody of an abandoned balance under unclaimed property law.
Dormancy fees in plain terms
Picture a self-storage unit that you rent and then forget about. The owner still has to keep the building lit and locked, so after a while it starts charging you rent for space you are not visiting. A dormancy fee works the same way for money: if a card or account sits untouched, the provider takes a small amount from the balance each month to pay for keeping it on its books.
The trouble is that a gift card has no monthly bill and no statement. People often put a card in a drawer meaning to use it later. Before the law changed, a card could quietly lose value month after month until little or nothing was left. Today, in the US, a provider has to wait a full year, can charge only once a month, and must print the fee on the card itself.
Background
Dormancy and maintenance fees spread in the 2000s as prepaid gift cards moved from paper certificates to plastic, particularly bank-issued open-loop cards carrying a network brand. Consumer groups documented cards that began losing several dollars a month after only a few months of non-use, sometimes on top of expiration dates as short as one year. Several states restricted the practice first, and Congress responded with gift card provisions in Title IV of the CARD Act, signed on 22 May 2009, which added section 915 to the Electronic Fund Transfer Act.
US rules for gift cards
The Federal Reserve implemented the law in a final rule published on 1 April 2010; the provision is now codified at 12 CFR 1005.20 and administered by the Consumer Financial Protection Bureau, which took over Regulation E under the Dodd-Frank Act. For gift certificates, store gift cards and general-use prepaid cards sold on or after 22 August 2010, a dormancy, inactivity or service fee is allowed only if:
- No activity in the past year. There has been no purchase, reload or other activity on the card for at least 12 months.
- One fee a month. No more than one such fee is charged in any calendar month.
- Clear disclosure. The fee amount, how often it can be charged and the fact that it applies to inactivity appear on the card, and are disclosed before purchase.
Under these limits, a card with a $3 monthly fee bought in January and never used could be charged nothing for twelve months, and then $3 a month afterwards. Many large retailers chose to drop such fees entirely for closed-loop store cards. Some states are stricter still; California, for example, generally prohibits service fees on gift cards, including dormancy fees, with only narrow exceptions written into its Civil Code.
Dormancy fees on bank and prepaid accounts
Ordinary deposit accounts are not covered by the gift card rule. US banks may charge inactivity fees on a savings account or a checking account if the fee is disclosed under the Truth in Savings Act and Regulation DD, though many banks no longer do so. State laws can limit fees once an account is presumed abandoned. Reloadable prepaid accounts that are not marketed as gift cards fall under the CFPB's Prepaid Accounts Rule, effective 1 April 2019, which requires any inactivity fee to be listed in the standard short-form disclosure.
Elsewhere, practice varies. Ontario in Canada has prohibited expiry dates on most gift cards since 2007 and restricts fees, while other jurisdictions rely on general consumer law. Balances that stay untouched for several years may also become reportable to a US state as abandoned property, at which point the holder must stop treating the money as its own.
Criticism and economics
Critics describe dormancy fees as a way to turn forgetfulness into revenue, since the cost of maintaining a dormant card is small compared with typical fees. Issuers argue that program costs, from card production to customer service and fraud monitoring, continue whether or not a card is used, and that fees on prepaid access products help fund those costs. The 2009 law narrowed the debate considerably, and dormancy fee income is now a small part of card program economics compared with breakage and the float earned on unspent balances, which sellers carry as deferred revenue.