Gift Card Fees, Expiration Dates Limited by Federal Reserve Rules

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

The Federal Reserve Board has announced final rules that restrict the application of fees and expiration dates to store gift cards, gift certificates, and general-use prepaid cards. The rules become effective August 22, 2010. The rules become effective August 22, 2010.

The Board developed the rules as required by Title IV of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CCH Advertising Law Guide ¶11,900)

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.

Exclusions, Marketing Compliance

The rules do not apply to 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. The exclusion will not apply if a reloadable prepaid card is advertised or offered by suggesting the potential use of the card as a gift, according to the Official Staff Interpretations accompanying the rules.

For example, if a card issuer selling a variety of cards sets up at a retailer a promotional display topped by a sign prominently stating “Gift Cards,” the exclusion might not apply to general-purpose reloadable cards.

Similarly, if a banner ad for “Gift Cards” is prominently displayed on the home page of a website, general-purpose reloadable cards sold on the site might not be excluded from the rules’ restrictions on fees and expiration.

Fees

The rules prohibit imposition of dormancy, inactivity, or service fees unless: (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 restrictions include monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, such as reload fees, ATM fees, and point-of-sale fees.

Expiration

The rules 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 a certificate or card is issued or the date funds are last loaded.

The expiration date restrictions apply to a consumer’s funds, and not to the certificate or card itself. The rule includes provisions intended to give consumers a reasonable opportunity to purchase a certificate or card with at least five years before the certificate or card expiration date. The rules prohibit any fees for replacing an expired certificate or card, or for refunding the remaining balance, if the underlying funds remain valid.

State Laws, Limited Preemption

The rules prescribe standards for determining whether state laws that govern dormancy, inactivity, or service fees, or expiration dates, are preempted. A state law is not preempted due to inconsistency with federal law if the state law is more protective of consumers.

A state law that is inconsistent may be preempted even if the Board has not issued a determination. However, a financial institution might not be immune from violations of state law if the institution chooses not to comply with the state law and the Board later determines that the state law is not preempted.

Access to State Laws, Smart Chart

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.