We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Monday, March 3rd, 2014

Thanks to J.B. Wogan over at Governing magazine, we’ve heard about a new product: a municipal gift card. According to Mr. Wogan’s story,  New Haven, Connecticut, is launching the “New Haven Shop-Dine-Park” gift card. Gift cards are different from the city-backed prepaid cards we’ve written about here. With the exception of gift cards for time at a municipal golf course, this is, as far as we know,  the first time a city has been in the gift card business. For that reason, we’re taking a closer look:

The Shop-Dine-Park card is a new product, but not a totally new idea.

New Haven says its Shop-Dine-Park gift card is the first of its kind. (We aren’t aware of any others; if you are, let us know in the comments.) The city says the Shop-Dine-Park card was created as a part of a larger effort to support New Haven businesses. It can only be used in New Haven, and there are more than 250 stores and restaurants where you can use it to shop and dine.  That’s a lot of shops, but the idea of some sort of local spending tool is not new. Some towns have tried a local token system to invigorate the local economy, and others have created local currencies, such as BerkShares, a “local currency for the Berkshire region of Massachusetts.”

Its fees and features are like other gift cards.

It costs $3.95 to buy the Shop-Dine-Park gift card, and then money is loaded onto it – up to $999 – at no additional fee. From what we can tell, the New Haven gift card cannot be reloaded. In both the size of its fee – a few bucks – and the fact that it can’t be reloaded, the Shop-Dine-Park card is a lot like gift cards such as Vanilla Visa. Consumers are advised to remember that gift cards – unlike debit and credit cards – do not come with protections limiting losses in the event of loss, theft or fraud.

For some consumers, the Shop-Dine-Park card may have other benefits.

Some may get a kick out of carrying a New Haven-branded gift card and supporting the local community. That reason alone may be enough to motivate folks to participate in the program. Some may also want the Shop-Dine-Park card for the special offers or coupons that users get if they link it to a mobile device. (This makes it a lot like Starbucks’ gift cards, which if registered can lead to rewards.) Some consumers may not wish to be marketed to this way, and as with any payment card, read the privacy policy and be sure that you agree with it before you enroll.

New Haven may have plans for a municipal prepaid card.

According to Mr. Wogan’s report, New Haven may someday offer a city-backed prepaid card. If prepaid card features – such as the ability to withdraw cash at an ATM – are added to the Shop-Dine-Park card,  it will no longer be a gift card.  (While gift cards are a form of prepaid product – you fork over money before you spend it – they aren’t prepaid cards in the sense that that term is commonly used. Gift cards, unlike prepaid cards, can’t be used as bank account substitutes, and unlike prepaid cards, gift cards’ fees and expiry dates are limited by federal law.) It may be that New Haven is planning a completely separate prepaid product.  Regardless, if New Haven moves into the prepaid card market, we hope that they will adhere to the municipal prepaid card principles we’ve laid out here.

We’ll continue to watch what happens with city-backed financial products, and we hope that if you have an experience with them, you will share it in the comments section here.

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