This is the second in a series of articles about the new gift card rules published by the Federal Reserve on March 23, 2010. In the first part of the series, the author reviewed the extensive disclosure requirements of the gift card rules. In today’s article, the author discusses how the new gift card rules will affect mobile payments.
It is clear that the new gift card rules apply to all devices (other than paper certificates) that function like a gift card. The Federal Reserve recognized that a physical card is not always issued by permitting electronic gift “cards” to comply with the “on the card” disclosure requirements by placing them on a subsequent written confirmation or printable electronic confirmation provided to the consumer.
However, the Federal Reserve seemed to miss the boat on the developing mobile payments area, with rules that seem unworkable if the mobile phone is truly going to substitute for plastic cards and the full possibilities of mobile commerce are to be realized.
Commentators to the rules published for comment in November pointed out that if the mobile phone is considered a gift card requiring the printed disclosures applicable to cards, compliance would be cumbersome if not unworkable. The Federal Reserve in response added a provision allowing no disclosure on the phone itself if the consumer is also issued a fully complying physical gift card. Does the Federal Reserve really believe that is a satisfactory solution, from the point of view of the consumer or the mobile payments industry?
If the on-card disclosure requirements are intended to ensure that the consumer always has access to the information, then putting them on a separate card the consumer may put in the drawer and forget about seems to miss the point. The rules could have permitted disclosures to be made on the screen of the mobile phone (which the consumer would necessarily have possession of at the point of transaction), although that would also have required modifying the requirement that electronic disclosures be printable so that the consumer can keep them.
The rules specify that the separate card will be a gift card, so perhaps the Federal Reserve thought that the consumer will carry it because it has utility. Mobile payments operators, however, might find the solution unattractive. Aside from the extra expense, issuing a plastic card that competes with the mobile payments functionality that is the core of the business model seems counterproductive and may effectively prevent availability of gift card functionality on mobile phones anytime soon. The Federal Reserve seems to claim in the Notice of the final rule that its hands are tied under the Card Act and there is no other solution, but this seems more a failure of imagination than the law.
Read The Rest of this Series on the New Gift Card Rules
Part I: New Gift Card Rules: Disclosure for Disclosure’s Sake?
Part II: New Gift Card Rules: Did Mobile Payments Receive the Short End?
Part III: New Gift Card Rules: Exclusions, Exclusions
Copyright Broox Peterson 2010. The author is a payments legal specialist with over 25 years in the industry providing legal consulting and transactional support services. www.bwplawyer.com and http://blog.bwplawyer.com