Federal Reserve Issues Proposed Gift Card Rule – Comment Period Starts Soon

November 16, 2009 at 4:51 pm Leave a comment

On November 16, 2009, the Federal Reserve released a proposed rule (the “Proposal“) to amend Regulation E to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act“).  If adopted in its current form, the Proposal would place several new restrictions on the use and issuance of prepaid products, primarily gift cards.

  • Products covered.  The Proposal covers gift certificates, store gift cards and general use prepaid cards, as those terms are defined in the Credit CARD Act.
    • The Proposal covers both retail gift cards and network-branded gift cards.  Retail gift cards can be used to buy goods or services at a single merchant or affiliated group of merchants; network-branded gift cards are redeemable at any merchant that accepts the card brand. 
    • The Proposal 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.
  • Fee Restrictions.  The Proposal would not allow merchants or issuers to impose dormancy, inactivity or service fees unless three conditions are satisfied.  These three conditions are present when:
    • there has been at least one year of inactivity on the certificate or card;
    • no more than one such fee is charged per month; and
    • the consumer is given clear and conspicuous disclosures about the fees.
  • The Proposal would also restrict monthly maintenance or service fees, balance inquiry fees and transaction-based fees (e.g., reload fees and point-of-sale fees).
  • Expiration Date Restrictions. The Proposal would ban 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. 
  • No Replacement Fees.  The Proposal would ban fees for replacing an expired card or certificate if the underlying funds remain valid.

Entry filed under: Client Alerts, Financial Institutions, Uncategorized.

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