I. INTRODUCTION
The Federal Reserve Board has issued final rules in response to the passage of the Credit Card Accountability and Responsibility and Disclosure Act of 2009, which contained provisions that restrict the fees and expiration dates that may apply to gift cards. As a result, effective August 22, 2010, inactivity fees on prepaid cards can be imposed only when a transaction has not occurred for at least 12 months. Also, prepaid cards cannot expire for at least five years after the card was issued or money was last loaded on to the card.
II. PRODUCTS COVERED
The final rule applies to gift certificates, store gift cards and general-use prepaid cards. Covered products include retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, network-branded gift cards, which are redeemable at any merchant that accepts the card brand and general-use prepaid cards that are redeemable at multiple, unaffiliated merchants or service providers, or automated teller machines. Consistent with the statute, the final rule does 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.
III. RESTRICTION ON DORMANCY, INACTIVITY, OR SERVICE FEES
The final rule prohibits a person from imposing a dormancy, inactivity, or service fee with respect to a gift certificate, store gift card or general-use prepaid card.
Dormancy, inactivity, and service fees may only be assessed for a certificate or card if: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees before the certificate or card is issued.
Fees subject to the final restrictions would include monthly maintenance or service fees, balance inquiry fees, and transaction-based fees, such as reload fees, ATM fees, and point-of-sale fees.
IV. RESTRICTIONS ON EXPIRATION DATES
The final rule prohibits 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.
The expiration date restrictions apply to a consumer’s funds, and not to the certificate or card itself. The final rule also includes provisions intended to give consumers a reasonable opportunity to purchase a certificate or card with at least five years before the certificate or card expiration date.
The final rule prohibits the imposition of any fees for replacement of an expired certificate or card, or for refunding the remaining balance, if the underlying funds remain valid.
V. DELAYED EFFECTIVE DATE FOR CERTAIN GIFT CARD DISCLOSURE REQUIREMENTS
Congress passed legislation (Gift Card Amendment) to delay the effective date of certain gift card disclosure provisions of the Credit Card Act. For gift certificates, store gift cards or general-use prepaid cards produced prior to April 1, 2010, the interim final rule delays the August 22, 2010, effective date of the disclosures to January 31, 2011 – if several conditions are met. The interim final rule is designed to permit the sale of existing card stock through January 31, 2011. While the disclosure requirements have been delayed for such gift cards, the substantive fee and expiration date protections provided by the Credit Card Act continue to apply to those certificates or cards sold to a consumer on or after August 22, 2010.
The gift card amendment requires that certain alternative disclosures be made to the consumer in order for an issuer to take advantage of the delayed effective date, through in-store signage, messages during customer service calls, Web sites, and general advertising. The final gift card rule generally requires disclosures to be made in writing or electronically, and in retainable form. The interim final rule provides relief by eliminating this requirement for the alternative disclosures. The prior-to-purchase disclosures otherwise required by the final rule need not be provided in a retainable form and the required disclosures may be provided orally.
VI. TEMPORARY EXEMPTION
The interim final rule delays the effective dates of the provisions of the final gift card rule relating to (a) prohibitions against the imposition of any dormancy, inactivity, or service fee, unless, among other things, certain specified clear and conspicuous disclosures about the fees are made on the certificate or card; (b) the requirement that the expiration date for the certificate or card’s underlying funds-or the fact that the underlying funds do not expire-be disclosed on the certificate or card. These disclosure requirements are subject to the delayed effective date under the gift card amendment for certificates or cards produced prior to April 1, 2010.
The effective date is also delayed for (a) provisions of the final rule prohibiting the issuance or sale of certificates or cards, unless policies and procedures have been established to ensure that a consumer will have a reasonable opportunity to purchase a certificate or card with at least five years remaining until the certificate or card expiration date; (b) the requirement that disclosures appear on the certificate or card of a toll-free telephone number, and, if one is maintained, a Web site that a consumer may use to obtain a replacement certificate or card, after expiration if the underlying funds may be available; (c) the requirement for certain disclosures to appear on the certificate or card about expiration and replacement cards, except where a non-reloadable certificate or card bears an expiration date that is at least seven years from the date of manufacture; and (d) the requirement for additional fee disclosures to appear on or with the certificate or card and disclosure on the certificate or card of a toll-free telephone number and, if one is being maintained, a Web site that a consumer may use to obtain fee information.
In addition, any requirements under the final rule that disclosures be made to the consumer prior to purchase are subject to the delayed effective date for certificates or cards produced prior to April 1, 2010.
VII. CONDITIONS IMPOSED
To take advantage of the gift card amendment’s delayed effective date, an issuer of the certificate or card must meet several specified conditions. First, the issuer must comply with the other provisions of the final rule, including the substantive restrictions on the imposition of fees. Second, the issuer must not impose an expiration date with respect to the funds underlying such a certificate or card. Third, the issuer must, at the consumer’s request, replace such certificate or card if the certificate or card has funds remaining at no cost to the consumer. Finally, the issuer must satisfy the disclosure requirements discussed in more detail below.
NOTE: Issuers of certificates or cards produced prior to April 1, 2010, need not satisfy these additional requirements if the certificates or cards fully comply with the April 2010 final gift card rule. Thus, if on August 22, 2010, an issuer sells gift cards produced prior to April 1, 2010, that do not have fees and do not expire, and which otherwise comply with the final gift card rule, that issuer would not then be required to make the in-store signage and other disclosures required under the interim final rule with respect to those gift cards because those cards satisfy the requirements of the final gift card rule.
VIII. ADDITIONAL DISCLOSURE REQUIREMENTS
In order for an issuer to take advantage of the delayed effective date, the Gift Card Amendment requires that certain alternative disclosures be made to the consumer. Issuers relying on the delayed effective date must disclose through in-store signage, messages during customer service calls, Web sites, and general advertising, that: (i) the underlying funds of such certificate or card do not expire; (ii) consumers holding such certificate or card have a right to a free replacement certificate or card, accompanied by the packaging and materials typically associated with such certificate or card; and (iii) any dormancy, inactivity, or service fee for such certificate or card that might otherwise be charged will not be charged if such fees do not comply with the final gift card rule.
Since issuers may not in all cases have direct control over in-store signage and store advertisements, the disclosure requirements may be made through a third party, such as a retailer or merchant. With respect to in-store signage and general advertising, the disclosure requirements are not required to be provided on or after January 31, 2011.