Online content merchants like Spotify, Netflix and iTunes are facing much tougher federal regulations in Australia as the government attempts to stamp out consumer gouging using digital gift cards and vouchers.

Reforms to the Australian Consumer Law aimed at stamping out virtual rorts put forward by federal Treasury will require all gift cards vouchers - including digital and virtual products - redeemed against online content including music, games and movies to be valid for a minimum of three years under the reforms, if passed.

The changes would put regulation of gift cards and vouchers for online content under the control of the Australian Competition and Consumer Commission in the same way that bricks-and-mortar retailers have been required to comply with minimum validity rules.

It’s no small change either, with Treasury estimating the losses from gift card expiry are around $70 million annually.

“Gift cards for digital goods such as online games or music (generally obtained using data through a telecommunications service) would not be exempt,” a consultation paper on the reforms released by Treasury said.

The federal government has been targeting the rules and conditions surrounding gift cards amid ongoing controversy over validity conditions and variations that in some cases have resulted in holders losing the value of their cards and vouchers.

Historically, the windfall from unredeemed or expired gift cards – whether digital, electronic or just on paper – can be as high as 30 to 40 percent of the value booked up, creating a perverse incentive for merchants to push the products to the detriment of unwitting consumers.

Many businesses also charge so-called “post supply fees” to whittle down the value of cards and increase the take. Those will be banned under the new laws.

Importantly, telcos and utilities that run prepaid product lines have been exempted from the wider consumer reforms as they are covered by industry specific regulations.

“Regulations would provide an exemption for cards or vouchers that are only redeemable for electricity, gas and telecommunications. Such cards are typically in the form of pre-paid cards and vouchers used by an individual who purchases it to pay for their use of utilities,” the reform proposals say.

Stakeholders have until 9th August 2018 to respond to the exposure draft of the new laws.