Tuesday, November 17, 2009

Gift Card and Certificate Fees, Expiration Dates Would Be Limited by Proposed Rules

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

The Federal Reserve Board has announced proposed rules that would restrict the application of fees and expiration dates to store gift cards, gift certificates, and general-use prepaid cards.

The proposal would implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure 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 (CCH Advertising Law Guide ¶11,900)—becomes effective August 22, 2010.

(Further information on the Credit Card Accountability Responsibility and Disclosure Act of 2009 appears in a May 27, 2009 posting on Trade Regulation Talk.)

Covered products include retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand.

Consistent with the statute, the proposed rule would not apply to other types of prepaid cards, including reloadable prepaid cards that are not marketed or labeled as a gift card or gift certificate, and prepaid cards received through a loyalty, award, or promotional program, according to the Board.

Dormancy, Inactivity, or Service Fees

The proposed rules would limit imposition a dormancy, inactivity, or service fee. Dormancy, inactivity, and service fees may be assessed only for a certificate or card if: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees.

Fees subject to the proposed restrictions would include monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, such as reload fees and point-of-sale fees.

Expiration Dates

The proposed rules would prohibit the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date of issuance or the date funds are last loaded.

The expiration date restrictions would apply to a consumer’s funds, and not to the certificate or card itself. The proposal includes provisions intended to help ensure consumers have at least five years to use a certificate or card from the date of purchase. The proposed rule would prohibit the imposition of any fees for replacement of an expired card or certificate if the underlying funds remain valid

State Laws, Preemption

The Board would determine—upon its own motion or upon the request of a state, financial institution, or other interested party—whether the Act and rules preempt state law relating to electronic fund transfers, to dormancy, inactivity, or service fees, or to expiration dates of gift certificates, store gift cards, or general-use prepaid cards.

A state law that is inconsistent may be preempted even if the Board has not issued a determination. However, a financial institution would not be shielded by immunity for violations of state law if the institution chooses not to make state disclosures and the Board later determines that the state law is not preempted.


Comments on the proposal must be submitted within 30 days after publication in the Federal Register, which is expected shortly.

Subscribers to the CCH Advertising Law Guide on the Internet have access to more detailed coverage gift certificate and gift card laws in more than 35 states. A Smart Chart™ gives users quick access to the types of certificates and cards that are subject to—and exempt from—the laws. Coverage of fee restrictions, expiration date restrictions, and disclosure requirements is provided, along with links to the law texts.

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