Federal Gift Card Regulations
President Obama recently passed the Credit Card Act of 2009 that, among other things, amends the Electronic Funds Transfer Act by implementing federal regulation of general-use pre-paid cards, gift certificates and store gift cards. The law addresses three key areas: (i) dormancy fees, inactivity charges and service fees; (ii) expiration dates; and (iii) the relation to state laws.
The law prohibits the imposition of a dormancy fee, inactivity charge or service fee, unless there has been no activity for 12 months, and provided that no more than one fee is charged per month, and that certain disclosure requirements are met and made prior to purchase. Excluded from the prohibition are gift certificates issued pursuant to an award, loyalty, or promotional program with respect to which no money or other value was exchanged. Expiration dates of less than five years are also prohibited under the new law, and any such expiration date must be clearly and conspicuously disclosed. As for the relation to state laws, the law does not pre-empt state laws that provide greater consumer protection. The law will go into effect Aug. 21, 2010.
In addition to the areas mentioned above, two other items are important to note:
First, certain types of cards and devices are excluded from the definitions of general-use pre-paid cards, gift certificates and store gift cards. These include, among others, an electronic promise, plastic card, or payment code device that is: (i) used solely for telephone services; (ii) reloadable and not marketed or labeled as a gift card or gift certificate; (iii) a loyalty award or other promotional gift card (as defined by the Board); (iv) not marketed to the general public; and (v) issued in paper form only (including for tickets and events).
Second, the law also authorizes the Board of Governors, in consultation with the Federal Trade Commission, to: (i) develop requirements relating to the amount of dormancy fees, inactivity charge fees or service fees that may be assessed and (ii) determine the extent to which the individual definitions and provisions of the Electronic Fund Transfer Act or Regulation E apply to general-use pre-paid cards, gift certificates and store gift cards.
Why this matters: Currently, gift certificates and gift cards are regulated primarily under myriad state laws, some of which are already in line with the new federal law. While the Credit Card Act of 2009 sets a minimum threshold for fees and expiration dates, it does not seem to prevent state laws from being more restrictive. Therefore, issuers of gift certificates or gift cards will have to continue to be knowledgeable of and comply with state laws.
Question on (iii) a loyalty award or other promotional gift card (as defined by the Board)
Where are the definitions by the Board - does this include gift cards redeemed through a loyalty program?
The Board has not yet promulgated regulations defining loyalty, award or other promotional gift cards, however it is most likely that the Board will do so before the new law goes into effect in August 2010. However, if for some reason they don't and a case comes before a Federal Court and that provision needs to be interpreted, then the court would look to state law for guidance on the interpretation. Many states currently include an exemption for loyalty, award or other promotional gift cards -- which typically means the consumer has not paid money or other consideration for the card.