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President Obama is expected to sign into law the Credit Card Act of 2009 (H.R. 627) which contains important new provisions regulating gift cards. The bill amends the Electronic Funds Transfer Act by inserting new language prohibiting expiration dates less than five years from the issue date of "general-use prepaid cards," gift certificates and store gift cards. The bill also restricts dormancy and service fees and inactivity charges and requires certain disclosures about fees and expiration dates. If enacted, the law will take effect fifteen months after enactment (approximately August, 2010, if it is enacted this month) and authorizes the Board of Governors of the Federal Reserve System, in consultation with the Federal Trade Commission, to develop rules relating to, among other things, the amount of dormancy and service fees. The bill would preempt state laws that are "inconsistent with the provisions" of the new law; a state law is not inconsistent "if the protection such law affords any consumer is greater than the protection afforded by this title." It appears, therefore, that state laws that provide comparable or greater protection would not be preempted.
Below is a detailed summary of the bill.
Definitions
The term "general-use prepaid card" means a card or other payment code or device issued by any person that is (a) redeemable at multiple, unaffiliated merchants or service providers, or automated teller machines; (b) issued in a requested amount, whether or not that amount may, at the option of the issuer, be increased in value or reloaded if requested by the holder; (c) purchased or loaded on a prepaid basis; and (d) honored, upon presentation, by merchants for goods or services, or at automated teller machines.
"Gift certificate" means an electronic promise that is (a) redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo; (b) issued in a specified amount that may not be increased or reloaded; (c) purchased on a prepaid basis in exchange for payment; and (d) honored upon presentation by such single merchant or affiliated group of merchants for goods or services.
"Store gift card" means an electronic promise, plastic card, or other payment code or device that is (a) redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo; (b) issued in a specified amount, whether or not that amount may be increased in value or reloaded at the request of the holder; (c) purchased on a prepaid basis in exchange for payment; and (d) honored upon presentation by such single merchant or affiliated group of merchants for goods or services.
The terms general-use prepaid card, gift certificate, and store gift card do not include an electronic promise, plastic card, or payment code or device that is (a) used solely for telephone services; (b) reloadable and not marketed or labeled as a gift card or gift certificate; (c) a loyalty, award, or promotional gift card, as defined by the Federal Reserve Board of Governors; (d) not marketed to the general public; (e) issued in paper form only (including for tickets and events); or (f) redeemable solely for admission to events or venues at a particular location or group of affiliated locations.
"Dormancy fee" or "inactivity charge or fee" means a fee, charge, or penalty for non-use or inactivity of a gift certificate, store gift card, or general-use prepaid card.
"Service fee" means a periodic fee, charge, or penalty for holding or use of a gift certificate, store gift card, or general-use prepaid card. With respect to a general-use prepaid card, the term service fee does not include a one-time initial issuance fee.
Fees
The bill prohibits imposing dormancy fees, inactivity charges or fees, or service fees unless:
(a) there has been no activity with respect to the certificate or card in the 12-month period ending on the date on which the charge or fee is imposed;
(b) the disclosure requirements (listed below) have been met;
(c) not more than one fee may be charged in any given month; and
(d) any additional requirements that the Federal Reserve Board of Governors may establish through rulemaking authorized in this bill have been met.
Disclosures
A gift certificate, store gift card or general-use prepaid card must clearly and conspicuously state:
(a) that a dormancy fee, inactivity charge or fee, or service fee may be charged;
(b) the amount of such fee or charge;
(c) how often such fee or charge may be assessed; and
(d) that such fee or charge may be assessed for inactivity,
The issuer or vendor of such certificate or card must inform the purchaser of such charge or fee before such certificate or card is purchased, regardless of whether the certificate or card is purchased in person, over the Internet, or by telephone. (However, the bill does not explicitly indicate where such disclosure should be made, for example, on the card itself, on card packaging, or on a web site page where a card can be purchased.)
The requirements relating to dormancy fees, service fees, and inactivity charges, and the required disclosures, do not apply to any gift certificate that is distributed pursuant to an award, loyalty, or promotional program, as defined by the Federal Reserve Board of Governors; and with respect to which, there is no money or other value exchanged.
Expiration dates
The bill prohibits selling or issuing a gift certificate, store gift card, or general-use prepaid card that has an expiration date unless:
(a) the expiration date is not earlier than 5 years after the date on which the gift certificate was issued, or the date on which card funds were last loaded to a store gift card or general-use prepaid card; and
(b) the terms of expiration are clearly and conspicuously stated.
Relation to state laws
The bill inserts the new gift card language into the Electronic Funds Transfer Act, 15 U.S.C. §1693 et seq., and amends the Electronic Funds Transfer Act to read as follows:
This title does not annul, alter, or affect the laws of any State relating to electronic fund transfers, dormancy fees, inactivity charges or fees, service fees, or expiration dates of gift certificates, store gift cards, or general-use prepaid cards, except to the extent that those laws are inconsistent with the provisions of this title, and then only to the extent of the inconsistency. A State law is not inconsistent with this title if the protection such law affords any consumer is greater than the protection afforded by this title. The [Federal Reserve] Board shall, upon its own motion or upon the request of any financial institution, State, or other interested party, submitted in accordance with procedures prescribed in regulations of the Board, determine whether a State requirement is inconsistent or affords greater protection. If the Board determines that a State requirement is inconsistent, financial institutions shall incur no liability under the law of that State for a good faith failure to comply with that law, notwithstanding that such determination is subsequently amended, rescinded, or determined by judicial or other authority to be invalid for any reason. This title does not extend the applicability of such law to any class of persons or transactions to which it would not otherwise apply.
This client alert is a publication of Loeb & Loeb LLP and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.
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