Federal Law Regulates Gift Certificates and Cards

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A new federal law regulates gift certificates, store gift cards, and general-use prepaid cards by putting limits on fees and expiration and imposing disclosure requirements. The measure is included in the Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act of 2009), Public Law 111-24, signed by President Obama May 22, 2009.

Title IV of the Act—relating to gift certificates, gift cards, and prepaid cards—becomes effective August 22, 2010.

Fees, Disclosures

Dormancy fees, inactivity fees, and service fees are prohibited unless (1) there has been no activity with respect to a certificate or card for the preceding 12 months, (2) disclosure requirements are met, (3) not more than one fee per month is charged, and (4) any additional requirements imposed by Federal Reserve Board regulations are met.

The law requires the Board to issue final regulations by February 22, 2010, after consulting with the Federal Trade Commission. The prohibition of fees does not apply to any gift certificate distributed pursuant to an award, loyalty, or promotional program, as defined by the Board, and for which no money or other value is exchanged.

Issuers or vendors of certificates or cards must inform purchasers of fees before purchase. Certificates and cards must clearly and conspicuously state (a) that a dormancy, inactivity, or service fee may be charged, (b) the amount, (c) how often the fee may be assessed, and (d) that the fee may be assessed for inactivity.

Expiration

The law prohibits sale of certificates or cards subject to an expiration date earlier than five years after the date a gift certificate was issued or the date on which card funds were last loaded to a store gift card or general-use prepaid card. Expiration dates must be clearly and conspicuously stated.

Effect on State Laws

State laws regulating gift certificates and cards are not affected if they afford consumers greater protections than those afforded by the new federal law.

Further details will appear in CCH Advertising Law Guide.