The Federal Reserve Board has published final rules
implementing the provisions of the Credit Card Act of 2009 relating to gift
cards, gift certificates and "general use prepaid cards." The rule applies
to all covered products sold or issued to a consumer on or after August
Summary of New Rules
new rules impose fee restrictions and new disclosure requirements on prepaid
cards, including gift cards and "general use prepaid cards," defined to mean
cards that are issued to consumers for household or personal use in a specified
amount and are redeemable at multiple, unaffiliated merchants. The definition
of "general use prepaid card" specifically excludes any card that is (1)
reloadable and (2) "not marketed or labeled as a gift card".
For purposes of the exclusion, temporary cards are considered
"reloadable" as long as they are issued solely in connection with a
addition to being reloadable, a card must also be "not marketed or labeled as a
gift card" in order to qualify for exclusion from the new rules. The official
commentary to the rules defines the term "marketed or labeled as a gift
card" to mean "directly or indirectly offering, advertising or
otherwise suggesting the potential use of a card . . . as a gift for another
person." Importantly, a card will not be entitled to the exemption if any
person in the chain of distribution, including the issuer, program manager or
retail seller, "markets or labels" it as a gift card, even if such
marketing is only occasional. The definition of "marketed or labeled"
as a gift card is broad and could include acts such as representations that the
card is "like a gift card" or the inadvertent stocking of cards in a
display topped by a sign that reads "gift cards."
commentary further provides examples of activities that are considered
"marketing or labeling" a prepaid card as a gift card, including (1)
using the word "gift" or "present" on a card or on
packaging or promotional materials, (2) suggesting that the card could be given
to another person as a "token of appreciation" or a "stocking
stuffer," (3) displaying a congratulatory message on the card or accompanying
material, or (4) incorporating "celebratory or gift-giving motifs"
such as ribbons, candles, etc., on the card, accompanying material or
promotional material. Further, the commentary specifically provides that
marketing a card as "a substitute for a checking, savings or deposit
account" or as a "budgetary tool" does not constitute
"marketing or labeling" as a gift card.
The commentary extends a safe harbor where all of the
entities in the distribution chain, including issuers, program managers and
retailers, maintain policies and procedures "reasonably designed to
avoid" the marketing of the card as a gift card. However, any
determination of whether a card is being marketed as a gift card within the
meaning of the statute will depend on facts and circumstances, including
"whether a reasonable consumer would be led to believe that the card is a
gift card". If a company is to avoid the requirements of the new rules in
connection with its sale of cards, it will be important that all display,
advertising and packaging materials be thoroughly reviewed to ensure that no
indicia of marketing as a gift card are present and to establish written
policies to ensure that such marketing does not occur.
Further, operations manuals should be revised to make clear that
these cards should not be referred to as "gift cards" in
communications with customers.
Fee, Expiration Date and Disclosure Requirements
The rules impose the following requirements with respect to
charging of dormancy or service fees by "any person" unless:
(1) there has been no activity on the account for the preceding 12months; (2)
only one such fee is imposed in any calendar month; and (3) the amount and
frequency, and the fact that a fee may be imposed for inactivity, are clearly
and conspicuously disclosed on the card itself.
2. No sale
of cards with expiration dates unless: (1) customers have an opportunity
to purchase a card with at least five years of validity; (2) the underlying
funds do not expire for at least the later of five years after issuance or last
reload or the card expiration date; (3) certain disclosures regarding
expiration and replacement cards are provided on the card itself; and (4) cardholders
may receive a replacement card, or the remaining value on the card, free of
of the types and amounts of fees other than dormancy or service fees and
the circumstances under which these fees may be imposed must be provided on or
with the card.
4. A toll-free
telephone number and, if one is maintained, a Web site that consumers may
use to access fee disclosures must be disclosed on the card itself.
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If you have any questions about this Legal Alert, please feel free
to contact the attorneys listed below or the Sutherland attorney with whom you
B. Knox Dobbins 404.853.8053
Lewis S. Wiener 202.383.0140
Cynthia M. Krus 202.383.0218
Hannah Campbell 404.853.8011
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