Federal Reserve Adopts Final Amendments to Regulation E on Store Gift Cards, Gift Certificates and General-Use Prepaid Cards

Federal Reserve Adopts Final Amendments to Regulation E on Store Gift Cards, Gift Certificates and General-Use Prepaid Cards

   By Arnold S. Rosenberg

The Federal Reserve amended Regulation E, implementing provisions of the Credit Card Accountability Responsibility and Disclosure Act or Credit CARD Act (Public L. No. 111-24), concerning store gift cards, gift certificates and general-use prepaid cards. The Final Rule, which becomes effective on Aug. 22, 2010, restricts the imposition of dormancy and service fees, limits the use of expiration dates and imposes new disclosure requirements

In this Emerging Issues Analysis, Arnold S. Rosenberg, assistant dean at Thomas Jefferson School of Law in San Diego and director of the Walter H. and Dorothy B. Diamond Graduate Program in International Taxation and Financial Services, examines the final amendments. He writes:

"The Final Rule contains its own definition of gift certificate as a 'card, code or other device that is . . . issued on a prepaid basis . . . to a consumer in a specified amount that may not be increased or reloaded in exchange for payment,' and must be redeemable at, and honored upon presentation to, 'a single merchant or affiliated group of merchants' for goods or services. . . .

"Like gift certificates covered by the Act and the Final Rule, gift cards are covered only if they satisfy three conditions: they must be issued for personal, family or household purposes; they must be prepaid and issued in a specified amount; and they must be redeemable upon presentation to a single merchant or group of affiliated merchants.

"Cards and certificates that entitle the consumer to a percentage discount or to a specified product (e.g., spa services) and do not state a dollar value thus are not covered by the Act and the Final Rule." On the other hand, a card or certificate that specifies a dollar amount but is limited to payment for specified goods or services - e.g., "$50 off any spa treatment" - would be covered despite the limitation.

"Unlike gift certificates, gift cards such as Starbucks cards that are reloadable are included among the covered products."

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