National Restaurant Company Settles FTC Charges for Deceptive Gift Card Sales

Darden Restaurants Inc., which owns restaurant chains Olive Garden, Red Lobster, Smokey Bones, and Bahama Breeze, 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, Darden will restore fees that were deducted from consumers’ gift cards and 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. “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 Commission 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 Commission’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 red lobster on the front that further obscures the disclosure; marketing cards in restaurants
without notifying consumers of the fee; and marketing cards on Web sites without disclosing the fee. As of October 2006, Darden stopped charging a dormancy fee on all Darden 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, and prohibits the company from collecting any fee on cards activated before the order is approved by the Commission. 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.

The FTC acknowledges the invaluable assistance of the Montgomery County, Maryland, Division of Consumer Affairs. Its 2006 annual report on gift cards is available at http://www.montgomerycountymd.gov/content/ocp/giftcardreportfinal2006.pdf.

The Commission vote to accept the administrative complaint and consent order for public comment was 5-0.

The FTC will publish an announcement regarding the agreement in the Federal Register shortly. The agreement will be subject to public comment for 30 days, beginning today and continuing through May 2, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC requests that any comment filed in paper form near the end of the public comment period be sent by courier or overnight service, if possible, because U.S. postal mail in the Washington area and at the Commission is subject to delay due to heightened security precautions.

NOTE: Consent agreements are for settlement purposes only and do not constitute an admission by the defendant of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.

Copies of the complaint, proposed consent agreement, and an analysis of the agreement to
aid in public comment are available from the FTC’s Web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a
secure, online database available to thousands of civil and criminal law enforcement agencies in the U.S. and abroad.

(FTC File No. 062-3112)