On Tuesday, the Federal Reserve Board issued final rules regulating gift certificates, store gift cards, and general-use prepaid cards. The rules become effective August 22, 2010, and will apply to all cards (that are subject to the rules) sold or issued on or after that date.
Generally, the rules (1) limit dormancy, inactivity or service fees, (2) require certain disclosures, and (3) prohibit expiration dates less than five years after issuance of gift certificates, store gift cards, and general-use prepaid cards. The new rules are part of Regulation E relating to electronic fund transfers (12 CFR Part 205). The Federal Reserve also issued Official Staff Commentary of the new rules which provide detailed examples and descriptions of the new requirements, and which provide a safe harbor from liability for those who comply with the Commentary.
Highlights of the Final Rules
- The Federal Reserve declined to limit the amount of service and dormancy fees even though it was authorized to do so, but said it will continue to monitor the gift card market and may impose caps on fees or other restrictions in the future.
- The Final Rules differ from the proposed rules (which we summarized in an earlier Alert) by requiring additional disclosures for cards issued as part of loyalty, award, or promotional programs (including labeling the front of the card as being issued as part of a loyalty, award or promotional program; disclosing fees and expiration dates; and providing a toll-free telephone number or website address).
- Gift certificates, store gift cards, and general-use prepaid cards subject to the law do not need to be in a card format. The Final Rules may apply to a device with a chip or other embedded mechanism that links the device to stored funds, such as a mobile phone or sticker containing a contactless chip that enables a consumer to access the funds.
- The following are excluded from the definition of gift certificates, store gift cards, and general-use prepaid cards: cards used solely for telephone services (but not cards that can be redeemed for mobile phone applications or mobile internet access); cards that are reloadable and not marketed or labeled as gift cards or gift certificates; loyalty, award and promotional cards; cards not marketed to the general public; certificates issued in paper form only; and cards redeemable solely for admission to specific events or venues.
- The Final Rules do not apply to cards for services or experiences (such as a spa treatment or a hotel stay) as long as the card does not state a denominated amount (such as "a $50 value") and the Rules do not apply to cards that provide discounts (such as cards for 20% off)
- Rebate cards are considered a type of loyalty, award or promotional card.
- The Final Rules contain detailed requirements for qualifying for the reloadable and not marketed as gift cards exclusion, and detailed rules for providing disclosures on non-physical cards.
- The Final Rules preempt state laws that are "inconsistent" with the rules; a state law is not inconsistent with the rules if it provides greater consumer protection.
In general, the Federal Reserve's rules are much more detailed than any state law regulating gift cards and contemplate many more kinds of cards, and formats, than state laws do. This provides much more specific guidance to marketers as to what restrictions may apply, but will also require careful review of the Rules and the Official Staff Commentary.
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