Expiration dates and nonuse fees for gift cards would be banned under new legislation recently introduced by Sen. Richard Blumenthal (D-Ct.). The proposed bill covers gift certificates, store gift cards (including loyalty, promotion, and award cards), and general use prepaid cards.

Current law – the 2009 Credit Card Accountability, Responsibility and Disclosure Act – allows gift card issuers to charge dormancy fees 12 months after purchase and expire the cards after five years. The Gift Card Consumer Protection Act would do away with both practices.

The proposed bill would also prohibit the sale or issuance of a store gift card if the issuer has filed for Chapter 11 bankruptcy protection. The Act amends the U.S. Bankruptcy Code to lift the automatic stay for the presentation or redemption of a gift certificate or store gift card at full value and authorizes bankruptcy trustees to honor cards and certificates at full value, the same as cash, for businesses that continue to operate while in bankruptcy.

Sen. Blumenthal – who helped enact a similar law while Attorney General of Connecticut – said the legislation would end “draconian deadlines and abusive fees.” “Gift card companies fatten their profits and shrink consumer wallets with exploitative expiration dates and petty, underhanded junk fees. Gift cards should not be the gift that keeps on taking.”

Sen. Blumenthal has the support of the Consumer Protection Financial Bureau. Director Richard Cordray said earlier this year the agency is considering “how best to extend protections” to cardholders. “If you do not know the card’s fee structure, it is easy to rack up charges unknowingly,” he said.

To read the Gift Card Consumer Protection Act, click here.

Why it matters: Even with the additional requirements imposed by the 2009 law, gift cards remain big business. Were Sen. Blumenthal’s bill to be enacted, issuers would face even more limitations on their profitability, particularly since it includes store loyalty, promotion, and award cards.