2 Mar 2015

A penalty charged by a credit card issuer to a cardholder’s account for not using the card for a certain period of time. Dormancy fees, also called inactivity fees, are no longer allowed in the United States because of the Credit CARD Act of 2009. Credit card issuers may not charge consumers for not using their credit cards.

When dormancy fees were in effect, cardholders had to make sure to use their cards periodically to avoid incurring these fees. Different issuers had different timeframes for considering an account inactive and assessing the fee. The obvious way to avoid a dormancy fee was to close the unused credit card, but this strategy was a problem for consumers who wanted to have a credit card for emergency purposes but didn’t want to use it on a regular basis. It was also a problem for consumers who didn’t want to close a zero-balance account because lowering their total available credit would increase their credit utilization ratio and possibly result in a lower credit score.

Dormancy fees or inactivity charges still apply to some unused or inactive electronic gift certificates, gift cards and general-purpose prepaid cards. The Credit CARD Act largely made these fees illegal as well, but they are still allowed if there has been no account activity for 12 months. The issuer must disclose the existence, frequency and amount of these fees conspicuously before the card is issued and must not charge them more than once per month. The best way for consumers to avoid dormancy fees on electronic gift certificates, gift cards and prepaid cards is to not purchase cards that charge these fees in the first place. If you receive any type of gift card, using it within 12 months of receipt should avoid any dormancy fees, but keep in mind that the gift giver might have purchased the card well before giving it to you, meaning you’ll have less than 12 months to use it before a dormancy fee could be charged. Check any packaging that comes with your gift card to see if it mentions a dormancy or inactivity fee. You can also call the issuer’s customer service phone number to see if and when a dormancy fee could be assessed on your card balance.

Another fee that issuers are allowed to charge on electronic gift certificates, gift cards and general-purpose prepaid cards is a one-time initial issuance fee, but they cannot charge a periodic service fee for the privilege of holding such a card.

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