Darden settles gift-card dispute with FTC

WASHINGTON Federal regulators and Darden Restaurants Inc. of Orlando, Fla., reached agreement Tuesday on restoring inactivity fees deducted from unused gift cards for the company’s Olive Garden, Red Lobster, Bahama Breeze and Smokey Bones restaurant concepts.

Darden said it stopped charging the “dormancy fees” in October 2006 and has voluntarily restored all dormancy fees ever charged to gift cards sold through its program.  

The Federal Trade Commission said Darden did not adequately disclose that it would deduct a monthly fee of $1.50 after 15 months of inactivity on cards sold before February 2004 and after 24 months for those sold after that. The consent agreement between the FTC and Darden is subject to public comment for 30 days. After that period, the FTC’s five commissioners will vote on whether to make it final.

“We never intended for these fees to be applied to cards that weren’t actually abandoned,” said Bob McAdam, Darden’s senior vice president of corporate affairs. “And as our experience with administering a gift card program has grown, we found the fees were no longer necessary.”

As part of the settlement, the FTC said the Darden is required to “clearly and prominently” disclose any fees or expiration dates for its cards in the future. Darden has indicated it doesn't plan to impose such fees.

“Gift card sales in the United States have grown from zero just 13 years ago to a multi-billion dollar business, accelerating the need for more direct and simpler gift card administration practices,” McAdam said. “As gift card issuers have gained more experience in managing these programs, we no longer need dormancy fees.”

The FTC reached a similar gift-card settlement in March with Kmart, a subsidiary of Sears Holding Corp., over that company's use of dormancy fees.

Lydia Parnes, director of the FTC's Bureau of Consumer Protection, said in a statement: “When it comes to gift cards, issuers can’t gloss over key information. They must clearly and prominently disclose fees and restrictions.”

Darden last month said it was supporting legislation in Florida’s legislature that would ban gift-card dormancy fees and expiration dates. McAdam said, “We strongly support the pending legislation in the Florida House and Senate that will directly and positively impact consumers by banning gift card dormancy fees and expiration dates.”

Mike Bernstein, spokesman for Darden, added: “We stopped charging the fees last October, and now as part of this FTC consent order we are restoring all dormancy fees ever charged. That process is complete.” He said the company would not disclose the amount that was restored. “We considered all financial information related to our gift-card program as proprietary,” Bernstein said. “But we don’t expect this to have a significant financial impact on the company.”

Noting that the FTC agreement is about dormancy fee disclosure, not whether the fees are necessary, McAdam added, “We are pleased to assist the FTC in establishing clear guidelines for the industry on how to disclose these fees. But we believe the best solution for consumers is to eliminate the fees altogether.

“When we did have these fees we fully disclosed them on the backs of our cards and other places and followed all federal and state disclosure guidelines available at the time,” he said.