American Express to End Monthly Fees on Gift Cards

American Express announced on Wednesday that it would eliminate monthly fees on its popular gift cards, a move that is likely to pressure its competitors to do the same.

The company's decision, which takes effect immediately, goes further than legislation Congress enacted in the spring that would limit, but not eliminate, monthly fees on gift cards.

Alpesh Chokshi, president of American Express's Global Prepaid unit, said consumers loved the gift cards but often complained about the monthly fee that ate away at their balance. There were no monthly fees in the first year, but on the 13th month, American Express began charging $2 a month.

Mr. Chokshi said eliminating the monthly fee was now possible because the gift card business had enough scale to remain profitable without the fees. The company will continue to make money from the purchase charge, which ranges from $2.95 to $6.95, as well as from its share of transaction fees, up to 4 percent each time the card is swiped.

Gift cards began as a plastic replacement for paper gift certificates and were originally embraced by retailers like Blockbuster, Starbucks and Barnes & Noble. In those instances, the cards could be used only at a specific retailer.

The major credit card networks, like American Express and Visa, now offer gift cards that can be used at any retailer that accepts their credit and debit cards. Mr. Chokshi said American Express began selling gift cards five years ago, and it now sells more than $1 billion worth of cards a year.

The gift card legislation was tacked on to a much broader credit card bill that sought to limit the most onerous interest rates and fees on credit cards. As part of the bill, Congress prohibited inactivity fees or monthly service charges on gift cards, unless there had been no activity on the card for 12 months.

"Consumers no longer need to worry about their gift card losing value if they don't use it quickly," Mr. Chokshi said.

He declined to say how much American Express had made from charging monthly fees.