Recently, this blog reported on federal district court cases that signaled the dangers of issuing potentially deceptive gift cards.
The Federal Reserve Board also has weighed in on gift cards with proposed rules that would restrict gift card fees and expiration dates, and require clear and conspicuous disclosures. The proposed rules implement section 401 of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act), which was enacted in May 2009. The Credit Card Act, amended the Electronic Funds Transfer Act (EFTA), by adding gift card restrictions and requiring the Federal Reserve Board to prescribe rules implementing the EFTA amendments. (See a related blog post, here)
The proposed rules prohibit gift card fees related to dormancy, inactivity, maintenance, card reloads, or balance inquiries unless the following three conditions are met:
- There has been at least one year of inactivity on the card;
- No more than one such fee is charged per month; and
- The consumer is given clear and conspicuous disclosures about the fees
The proposed rules also prohibit gift card expiration dates that are less than five years after the date that the card is issued, or the date that funds were last loaded onto the card. The terms and conditions of any fees or expiration dates must be disclosed both prior to the purchase of the gift card, and on the surface of the actual gift card. Thus, if a gift card is sold within covered packaging, the disclosures must be noticeably written on the outside of the packaging. Gift card issuers are also required to provide a toll-free telephone number for consumers to obtain information on fees, card replacement, and underlying funds that may still be available on a gift card that has expired.
The proposed rules would only apply to gift certificates, store gift cards, and general-use prepaid cards that are marketed as gift cards. Several types of fund transfer devices are specifically excluded from the rules, including:
- Calling cards;
- Reloadable cards not marketed as gift cards;
- Cards not marketed to the general public (like a returned-item store credit, or a tax refund card from a tax preparation company); and
- Cards that solely grant admission to an event or venue.
Gift cards that are given to a consumer as part of a loyalty or awards program are also excluded from the proposed rules, but these cards are still required to provide disclosures related to fees, an expiration date, and a toll-free telephone service number.
The Federal Reserve Board is seeking comments on several aspects of the proposed rules until December 20, 2009, so there are opportunities for the rules to evolve before their final enactment. Yet it is clear that this holiday season will be the last for gift cards lacking disclosures.
UPDATE: A more extensive write-up on the proposed rules can be found here.
- Beth DeSimone and Brian Larkin
