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.

$4.8 Million Gift Card Controversy Sent Back to State Court

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

Because the amount in controversy in a lawsuit on behalf of New Jersey purchasers of Landry's Restaurants gift cards was at most $4.8 million, the federal district court in Trenton sent the case back to New Jersey state court, where it had been filed.

Landry's had removed the case to the federal court, asserting that the amount in controversy met the $5 million threshold for federal jurisdiction under the Class Action Fairness Act (CAFA).

Dormancy Fees for Nonuse

The purchaser of a $25 card alleged that Landry’s gift cards purchased by New Jersey residents between April 2006 and March 2009 imposed a “dormancy fee” after 12 months of nonuse. The purchaser sought to represent other New Jersey residents who purchased the cards.

The gift cards allegedly violated the New Jersey Gift Certificate Law (Sec. 56:8-110 of the Consumer Fraud Act), which prohibited imposition of dormancy fees on gift certificates and cards within 24 months after the date of sale.

The purchaser also alleged that the gift cards violated the New Jersey Truth-in-Consumer Contract, Warranty and Notice Act, a law prohibiting a consumer contract or notice stating that any of its provisions are void or unenforceable without specifying the provisions that are void or unenforceable in New Jersey.

Based on the documents produced in discovery, the maximum number of unlawful gift cards sold was 9,269. Given undisputed maximum damages of $520 per potential class member, the amount in controversy was at most $4,819,880. Therefore, it appeared to a legal certainty that CAFA’s requisite jurisdictional amount in controversy of $5 million was not met.

The opinion in Delaney v. Landry’s Restaurants, Inc. will be reported at CCH Advertising Law Guide ¶63,655.

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

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.