Fed Opens Comment Period For Proposed Changes to Gift Card Rules

federal-reserve-boardOn November 16, 2009, the U.S. Federal Reserve Board announced their proposed rules on gift cards. The Fed imposed a shortened comment period for the rules (setting a 30 day response period instead of the typical 60 or 90 day period). The proposed gift card rules would change Reg E (the Electronic Fund Transfer Act).

The Fed made the following statement in proposing the rules:

Request for comment proposing to amend Regulation E, which implements the Electronic Fund Transfer Act, and the official staff commentary to the regulation, which interprets the requirements of Regulation E. The proposal restricts a person’s ability to impose dormancy, inactivity, or service fees for certain prepaid products, primarily gift cards. In addition, the proposal generally prohibits the sale or issuance of such products if they have an expiration date of less than five years. The proposed amendments implement statutory requirements set forth in the Credit Card Accountability Responsibility and Disclosure Act of 2009.

The full text of the proposed rules can be seen here, and comments can be submitted by December 17, 2009 here.

Here’s a brief summary of the primary features of the new gift card rules:

1. New Restrictions on dormancy, inactivity, or service fees
Under the proposed rule, no person may impose a dormancy, inactivity, or service fee with respect to a gift certificate, store gift card, or general-use prepaid card, unless three conditions are satisfied.

  1. The fees can be imposed only if there has been no activity with respect to the certificate or card within the one-year period prior to the imposition of the fee.
  2. Only one such fee may be assessed in a given calendar month.
  3. Disclosures regarding dormancy, inactivity, or service fees must be clearly and conspicuously stated on the certificate or card, and the issuer or vendor must provide these disclosures to the purchaser before the certificate or card is purchased.

2. Expiration date restrictions

The proposed rule would also provide that a gift certificate, store gift card, or general-use prepaid card may not be sold or issued unless the expiration date of the funds underlying the certificate or card is no less than five years after the date of issuance (in the case of a gift certificate) or five years after the date of last load of funds (in the case of a store gift card or general-use prepaid card). In addition, information regarding whether funds underlying a certificate or card may expire must be clearly and conspicuously stated on the certificate or card and disclosed prior to purchase.

The Fed set out two alternative ways to meet this requirement to avoid or reduce potential consumer confusion about expiration dates.

  1. A prohibition against the sale or issuance of a certificate or card that has a printed expiration date that is less than five years from the date of purchase, or
  2. The use of policies or procedures to ensure that a consumer has a reasonable opportunity to purchase a certificate or card that has an
    expiration date that is at least five years from the date of purchase.

3. Fee Disclosure Requirements

In addition to the statutory restrictions for dormancy, inactivity, or service fees, the proposed rule also requires the disclosure of all other fees imposed in connection with a gift certificate, store gift card, or general-use prepaid card. These disclosures would have to be provided on or with the certificate or card and disclosed prior to purchase. The proposed rule would also require the disclosure on the certificate or card of a toll-free telephone number and, if one is maintained, a Web site that a consumer may use to obtain fee information or replacement certificates or cards.

The proposed rules exclude certain kinds of prepaid debit cards from the definitions of gift certificate, store gift card, or general-use prepaid card. In particular, the following types of cards are not covered by the rules: cards, codes, or other devices that are issued in connection with a loyalty, award, or promotional program, or that are reloadable and not marketed or labeled as a gift card or gift certificate, would not be subject to the substantive restrictions on imposing dormancy, inactivity, or service fees, or on expiration dates.

However, under the proposal, disclosures of all fees, including any dormancy, inactivity, or service fees, and any expiration date that may apply, would be required for certificates or cards issued through a loyalty, award, or promotional program.

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