STATEMENT OF COMMISSIONERS PAMELA JONES HARBOUR

AND JON LEIBOWITZ

(CONCURRING IN PART AND DISSENTING IN PART)

In the Matter of Kmart Corporation, Kmart Services Corporation, 

and Kmart Promotions, LLC 

File No. 062-3088 

Today, the Commission approves for public comment a proposed consent agreement with 

Kmart Corporation and two of its subsidiaries (collectively, “Kmart”) to settle charges that 

Kmart misrepresented material aspects of its gift cards and failed to disclose that, after two years 

of non-use, Kmart would deduct a $50 fee from the gift card and a $2.10 monthly fee thereafter. 

We concur in the Commission’s decision to bring an action against Kmart, but dissent in part 

from the proposed consent agreement because we believe the remedy should include 

disgorgement of ill-gotten profits. Otherwise, Kmart will remain unjustly enriched by a 

substantial amount of buried “dormancy fees” while many consumers will have lost the chance 

for reimbursement because they long ago threw out their seemingly worthless gift cards in 

frustration. 

1 

Gift cards have become enormously popular with consumers and generated nearly 

$28 billion in sales during the 2006 holiday season.2 Gift card dormancy fees and expiration 

dates are material restrictions that affect the value of the cards. These restrictions must be clearly 

disclosed so that consumers can make informed decisions, whether they are purchasing the cards 

or receiving them as a gift. 

The proposed order settles the Commission’s allegations that Kmart deceptively 

advertised its gift cards by, among other things, misrepresenting the existence of any expiration 

dates or fees associated with the cards. Not only did Kmart claim that the gift cards could be 

used “like cash at all Kmart locations,” but its website also affirmatively misled consumers by 

stating that the Kmart gift cards “never expire.” We agree that Kmart’s alleged conduct justifies 

the order’s injunctive provisions. 

But we believe the order should go further. It should require Kmart to disgorge the 

profits of its unlawful behavior, provide more complete consumer redress, or a combination of 

1 Kmart applied a dormancy fee of $2.10 per month to the balance of every Kmart 

gift card that went unused for 24 months – both retroactively ($50.40) and prospectively. 

Consequently, cards worth $50 or less were rendered worthless if unused for two years. Imagine 

stashing a $10, $25 or $50 gift card in a drawer and then pulling it out two years later for a trek to 

shop at Kmart, only to learn at the check-out counter that the card had no value. Kmart recently 

discontinued charging this dormancy fee after learning about the FTC’s investigation, but only on 

a prospective basis. 

2 Press Release, Nat’l Retail Fed’n, Gift Card Spending Surpassed Expectations as 

Last-Minute Shoppers Looked for Quick, Easy Gifts; Most Consumers Have Spent Less Than 

Half of Card Values (Jan. 23, 2007). 
both.3

 More than three decades ago, in sponsoring the Magnuson-Moss Act extending the 

Commission’s authority under Section 19 to obtain monetary remedies, Senator Magnuson 

explained that the Commission cannot “rely merely upon a slap of the violator’s wrist to maintain 

fair play in the marketplace” and that “[a] mere cease-and-desist order has frequently let a 

wrongdoer keep his ill-gotten gains.”4

 The same rationale holds true today. 

In this case, Kmart deducted dormancy fees from consumers’ gift cards. It failed to give 

adequate notice. In many instances, Kmart’s actions rendered unused or partially used cards 

valueless, at significant monetary benefit to Kmart but considerable monetary detriment to 

consumers. The proposed consent order, in our opinion, stops the deceptive practices but does 

not completely cure the consumer injury or fully excise Kmart’s ill-gotten gains. Pursuant to the 

order, Kmart may not assess additional dormancy fees on previously activated gift cards and 

must reimburse previously assessed dormancy fees if consumers complain and can provide the 

gift card number. Many consumers no doubt already have thrown out their gift cards and will 

have no remedy under this settlement. Moreover, the order does not require Kmart automatically 

to restore previously deducted dormancy fees (absent consumer inquiries) or disgorge the 

windfall profits it made from these fees. Although Kmart’s reimbursement practices have been 

improved by the Commission’s efforts, in our opinion the refund policy, without additional 

monetary relief, is still too little, too late. 

We commend staff for pursuing Kmart’s failure to disclose its gift card dormancy fees 

and for challenging Kmart’s affirmative misrepresentations that its gift cards do not expire. For 

the foregoing reasons, however, we respectfully dissent in part from the proposed order. 

3 Commission consent orders have required advertisers to pay redress, offer 

refunds, or disgorge profits, and it is appropriate to do so here. See, e.g., Hi-Health Supermart 

Corp., FTC Dkt. No. C-4136 (May 12, 2005) (requiring $450,000 in redress); ValueVision Int’l, 

Inc., FTC Dkt. No. C-4022 (Aug. 24, 2001) (requiring company to offer refunds to all purchasers 

of the challenged products); Weider Nutrition Int’l, Inc., FTC Dkt. No. C-3983 (Nov. 17, 2000) 

(requiring $400,000 in redress); Dura Lube, Inc., FTC Dkt. No. D-9292 (May 5, 2000) (requiring 

$2 million in redress); Apple Computer, Inc., FTC Dkt. No. C-3890 (Aug. 6, 1999) (requiring 

company to honor representation that customers would receive free support for as long as they 

own the product); Azrak-Hamway Int’l, Inc., 121 F.T.C. 507 (1996) (requiring toymaker to offer 

refunds); L & S Research Corp., 118 F.T.C. 896 (1994) (requiring $1.45 million in 

disgorgement). 

4 119 CONG. REC. 29480 (1973). 

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