The new Credit Card law that was signed into law by President Obama on Friday, May 22, 2009 (called the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 or the “CARD Act”), contains several new restrictions on merchant gift cards, gift certificates and general use prepaid cards, issued by banks, that are marketed like gift cards (“gift card”.).
First, dormancy fees, inactivity charges or service fees may not be charged on these gift cards, unless
- There has been no activity on the card in the 12-month period ending on the date on which the charge or fee is imposed;
- No more than one fee may be charged in any given month; and
- The card clearly and conspicuously discloses the following items:(i) that a dormancy fee, inactivity charge or fee, or service fee may be charged; (ii) the amount of the fee or charge; (iii) how often that fee or charge will be assessed; and (iv) that this fee or charge may be assessed for inactivity. The issuer or vendor of the certificate or card also must inform the purchaser of the card of the charge or fee before the certificate or card is purchased, regardless of whether the certificate or card is purchased in person, over the Internet, or by telephone.
Second, the new law prohibits gift cards from having an expiration date earlier than 5 years after the date on which card funds were last loaded to the general-use prepaid card. State laws that have more restrictive rules are not preempted.
These restrictions, which go into effect in August 2010, will not apply to general prepaid cards, issued by banks, that are reloadable and are not marketed or labeled as a gift card or gift certificate. They also will not apply to cards used solely for telephone services, loyalty, award or promotional gift cards, gift certificates issued in paper form only, gift cards or certificates only redeemable for concerts or events, and cards not marketed to the general public.
There will be some interesting interpretive questions arising from these provisions, including the type of prepaid cards that are covered, and how a retailer will be able to advise the purchaser of the fees that will be imposed without being subject to some kind of liability. It will be up to the Federal Reserve, which is required to issue regulations under these provisions, to provide this and other guidance.
