Darden Restaurants settles FTC charges for deceptive gift card sales

Darden Restaurants Inc., the world’s largest casual dining restaurant company, has agreed to settle Federal Trade Commission charges that it engaged in deceptive practices in advertising and selling its gift cards.

As part of the settlement, Orlando, FL-based Darden, owner of restaurant chains Olive Garden, Red Lobster, Smokey Bones and Bahama Breeze, will restore fees that were deducted from consumers’ gift cards. It will also disclose fees or expiration dates in future gift card sales. This is the agency’s second law enforcement action involving allegedly deceptive gift card sales.

“The FTC works to make sure consumers have the facts they need to make smart decisions, no matter what they’re buying,” said Lydia Parnes, director of the FTC’s Bureau of Consumer Protection, 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 that affect the use of their gift cards.”

According to the FTC’s complaint, Darden advertised its gift cards on television and radio and in its restaurants and Web sites. Darden represented that consumers could redeem the cards to buy goods or services at its restaurants equal to the card’s monetary value. But Darden did not disclose adequately the dormancy fees that would be deducted after a certain period of time. For cards sold before February 2004, after 15 months of non-use, a $1.50 dormancy fee was deducted from the card’s balance for each month of inactivity. For cards sold after February 2004, the monthly fee was deducted after 24 months of non-use.

In many instances, the FTC alleges, consumers did not learn of the fee until they attempted to use their gift cards and learned that they had little or no remaining value.

The FTC’s complaint alleges that Darden and co-respondents GMRI Inc. and Darden GC Corp. inadequately disclosed the fee by noting it in fine print on the back of the card, obscured by miscellaneous other information; marketing a transparent Red Lobster Gift Card with a lobster on the front that further obscures the disclosure; and marketing cards in restaurants and on Web sites without notifying consumers of the fee. As of October 2006, Darden stopped charging a dormancy fee on all of its gift cards.

The proposed settlement requires Darden to disclose any automatic fee or expiration date clearly and prominently in future advertising, at point of sale and on the card. It also prohibits the company from collecting any fee on cards activated before the order is approved by the FTC. A date for FTC approval has not been announced yet.

The settlement also requires Darden to restore to each card any dormancy fees that were assessed and publicize the restoration program on its Web sites for two years. Darden has already completed the process of restoring all fees on cards. Consumers may simply present their card at any Darden restaurant to receive the card’s value with the dormancy fees restored.

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