New Gift Card Rules Effective
By: Susan E. Wells
Effective August 22, 2010, the Federal Reserve System's rules
restricting the fees and expiration dates that apply to gift cards,
gift certificates and general-use prepaid cards (collectively,
"Gift Cards") became effective. Issuers of Gift Cards are
prohibited from imposing expiration dates or dormancy, inactivity
or service charges that do not comply with the new regulations:
- No Gift Card funds may expire less than five years after the
issuance date or the date that funds were last loaded (whichever is
later)
- Dormancy, inactivity and service fees may only be assessed if
there has been at least one year of inactivity
- Only one fee (dormancy, inactivity or service) may only be
charged each calendar month
- Before the Gift Card is purchased, the consumer must be given
clear and conspicuous notice on the Gift Card about (1) the
dormancy, inactivity and service fees to be charged, (2) all other
fees, such as initial issuance fees and cash-out fees, (3) the
expiration of Gift Card funds (if there is no expiration date, the
Gift Card must state that) and (4) a toll-free number (and, if
maintained, a website) for consumers to contact the issuer for fee
information and/or replacement Gift Cards
- No fee may be charged for replacing an expired Gift Card or
refunding any remaining Gift Card balance - note that, in lieu of
issuing a replacement Gift Card, the issuer may refund any
remaining Gift Card balance
- The issuer must establish policies and procedures to either (1)
provide consumers with a reasonable opportunity to purchase a Gift
Card that has an expiration date at least five years from the
purchase date or (2) prevent the sale of a Gift Card that has an
expiration date less than five years from the purchase date
- The Gift Card must disclose clearly and conspicuously, in close
proximity to the expiration date and with equal prominence, the
difference between the Gift Card expiration date and the Gift Card
funds expiration date, if any, and that the consumer may contact
the issuer for a replacement card - note that this requirement is
NOT applicable to non-reloadable Gift Cards that bear a stated
expiration date that is at least seven years from the date on which
the expiration date is printed on the Gift Card - also note that
Gift Cards produced before April 1, 2010 can be sold through
January 31, 2011 without complying with these on-card disclosures,
so that existing card stock need not be wasted
Types of Gift Cards Covered
The rules generally cover:
- Store gift cards (also known as "closed loop cards"), which can
be used to buy goods or services at a single merchant or an
affiliated group of merchants, such as a franchise system
- General use prepaid cards (also known as "open loop cards"),
which are typically issued by banks or credit card companies and
are redeemable at any merchant that accepts the card brand
- Gift certificates, which are typically issued by a single
merchant and cannot be increased or reloaded
The Gift Card need not be a card, but may be a code (such as a
bar code), an account number or another device. The Gift Card
must be issued or sold to consumers primarily for personal, family
or household purposes, not business purposes. Paper gift
certificates are not affected by the rules.
Other types of prepaid cards, such as cards that are (1)
reloadable AND not marketed or labeled as gift cards or gift
certificates and (2) cards that are received through loyalty, award
or promotional programs, are not subject to the substantive
requirements with respect to fees; however, they are subject to the
same disclosure requirements as the Gift Cards are. In
addition, cards that are received through loyalty, award and
promotional programs must state on the front of the card that it is
issued in connection with such a program and the expiration date of
the funds.
Types of Fees
Dormancy or inactivity fees are imposed in connection with the
non-use or inactivity of the Gift Card. Service fees are
imposed for holding or using Gift Card fees and would include,
among other things, monthly maintenance fees, balance inquiry fees,
reload fees, ATM fees and point-of-sale fees.
Relationship to State Law
The rules set the new minimum standard in all states, as they
will not preempt state laws that provide greater protection.
The rule's requirements will be the only requirements in
approximately ten states, which do not have gift card
requirements.
Arizona law is preempted in part by the rule. However,
paper gift certificates would still be subject to Arizona law,
including the requirement to provide clear and conspicuous
disclosure, before the paper gift certificate is purchased, of the
expiration date and any dormancy or inactivity fee on the front of
the paper gift certificate.
About the author: Susan E. Wells is business lawyer
and a partner at the Phoenix law firm of Jaburg Wilk where she
assists both business owners
and entrepreneurs. She has extensive
experience representing both franchisees and
franchisors.
3200 North Central Avenue
. Phoenix . Arizona