On March 23, 2010, the Federal Reserve published its final rules implementing the CARD Act gift card requirement. Learn more about the new gift card rules in this series of articles about the rules.
The Federal Reserve last week (on March 23, 2010) finally published its one-month overdue final rules implementing the CARD Act gift card requirement. It would be nice to think that the extra time was used to add final polish to the rules.
In fairness, the Federal Reserve was handed a pretty odd piece of legislation to work with, and much of its effort was exerted on trying to make sense of legislative distinctions perhaps owing more to lobbying than public policy concerns. However, the Federal Reserve added a few of its own twists that seem odd, and the rules are not that helpful in crucial areas.
The Card Act is not just a disclosure-based consumer protection law, but contains substantive limitations on expiration dates and frequency of fees. The Federal Reserve was also authorized to limit the amounts of fees, but opted not to address exercise that power, deferring consideration of fee restrictions until it receives proof of abuse, noting that the trend of fee amounts and frequency in the industry is downward. The Federal Reserve effectively left this area to state regulation since state limits on the absolute amount and type of permissible fees (as applied within the constraints of the new rules) would likely be deemed more protective of consumer rights and thus not preempted under the CARD Act.
The rules contain a disclosure regimen that is designed to make information available to consumers before they purchase the card and on or with the card itself. Industry commentators complained during the comments process that the number and type of disclosures required on cards are burdensome and perhaps unworkable at times. Perhaps so, but consider the poor lawyers who have to advise what disclosures will satisfy the rules and still fit on the card. Actually, don’t pity them; this is another lawyer employment stimulus program.
The general standard that the CARD Act imposed on all disclosures on or with gift cards was that disclosure be “clear and conspicuous”. The guidance from the Federal Reserve for application of that standard is that the disclosure must be “readily understandable” and that the location and type size must be “readily noticeable” to consumers. The Federal Reserve also provided some guidance regarding what disclosure language on the cards will suffice as readily understandable and readily noticeable.
For cards with embossed card expiration dates where the underlying funds do not expire, the comments to the rule suggest that the following language located next to the expiration date on the card will suffice: “Funds expire after card. Call for replacement card”. The toll free number or optional web site where the replacement card may be obtained must also be printed on the card. That is helpful guidance.
However, if the card has dormancy, inactivity or service fees associated with it, the card also must contain a disclosure of the “amount of the dormancy, inactivity, or service fee that may be charged, how often such fee may be assessed and that such fee may be assessed for inactivity.” The comments to the rules provide minimal guidance on this requirement, stating that “$2.50/mo. after 12 mos.” is clear and conspicuous. While that disclosure is nicely compact, it doesn’t really communicate the fact that it means 12 months of inactivity, much less define what inactivity is.
Note that the disclosure requirements described above also do not state whether the nature of the fee must be described. The comments to the rules list monthly maintenance, transaction, ATM, reload, foreign currency transaction, and balance inquiry fees as examples of types of service fees, and along with inactivity or dormancy fees the possible fees are many. What description of the type of fee, if any, is needed to make the disclosure “readily understandable”, particularly if there is more than one such fee on the card? Descriptions such as “foreign currency transaction fees” may be clear to readers here, but to the average consumer? Finally, must it also be disclosed that in fact only one of the one or more possible fees may be assessed in a single month?
The question seems to boil down to this: Does clear and conspicuous disclosure mean full disclosure, or only that whatever is disclosed be readily understandable?
Future installments of this series of articles on the Federal Reserve gift card rules will look at other anomalies or oddities in the CARD Act, or at least in the rules adopted by the Federal Reserve.
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