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Card-Carrying Facts: New Gift Card Regulations for Retailers

Gift cards can be an important component of customer loyalty programs. They can help attract customers, driving sales and brand awareness. New federal rules governing the use of gift cards have recently gone into effect. You certainly should be aware of and comply with the new laws.

Last year when President Obama signed the Credit Card Act of 2009 ("the Act") into law, the nation's attention largely focused on those provisions of the law that aim to change the way credit card companies do business with consumers. However, since the Act imposes requirements on gift card issuers, it also changed the way many retailers and franchise companies will do business with consumers.

Federal regulations implementing the Act's gift card requirements were issued on March 23, 2010 and became effective on August 22, 2010. Retailers that have not yet done so must act quickly to bring their gift card programs into compliance with the new regulations.

The Credit Card Act of 2009 amends the Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) by adding a new Section 915. The changes apply to general-use prepaid cards, gift certificates, and store gift cards. The terms "general-use prepaid card," "gift certificate," and "store gift card" are broadly defined to include most commonly used gift cards and gift certificates. However, they exclude an electronic promise, plastic card, or payment code or device that is: a) used for telephone services; b) reloadable and not marketed as a gift card; c) a loyalty, award, or promotional card; d) issued in paper form only (including for tickets and events); or e) redeemable solely for admission to events, including for services or goods obtained at an event.

Under the Act, a retailer may only charge a dormancy fee, inactivity charge, or other service fee for a general-use prepaid card, store gift card, or gift certificate if the following requirements are met:

  • there has been no use (activity) of the gift certificate or card within the past 12 months;
  • the retailer provides the proper disclosures;
  •  no more than one fee may be charged per month; and
  • the retailer informs the purchaser of the gift card of any fee before purchase (i.e., the consumer is given "clear and conspicuous" disclosures about the fees.

With respect to a dormancy fee, inactivity fee, or other service fee, the retailer must disclose the amount of such fee, how often it may be assessed, and that the fee may be charged for inactivity. The regulations provide that fees subject to restrictions include monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, such as reload fees, ATM fees, and point-of-sale fees.

The fee and disclosure requirements do not apply to any gift certificate or card that is distributed through an award, loyalty, or promotional program for which no money is exchanged (i.e., the consumer does not purchase the card).

The Act prohibits the sale of a gift certificate, store gift card, or general-use prepaid card with an expiration date that is less than 5 years from the date of issuance or that is less than 5 years from the date on which funds were last loaded to the card. If a gift certificate, store gift card, or general-use prepaid card has an expiration date, that expiration date must be "clearly and conspicuously stated."

Finally, the regulations prohibit any fees for replacing an expired certificate or card, or for refunding the remaining balance after a card expires (as the customer's funds, not the card itself, determine the expiration date).

Jan Gilbert is a partner in the Washington, D.C., office of Haynes and Boone, LLP and may be reached at jan.gilbert@haynesboone.com. Suzie Loonam Trigg is an associate in the firm's Austin office and may be reached at suzie.trigg@haynesboone.com.

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