New Gift Card Laws That Were Passed in 2010 by the Ftc
These gift card provisions of the Credit Card Act have been incorporated into the Electronic Funds Transfer Act. A merchant who violates the regulations can be held liable to the consumer for actual damages, penalties of up to $1,000 per sale and attorneys` fees. The Federal Trade Commission has enforcement responsibility and can also issue an injunction against a company that the FTC believes violates or is likely to violate regulations. The new rules do not apply to calling cards, promotional or reward cards, cards that are not marketed to the general public, tickets to events or venues, and most importantly, reloadable cards that are not marketed as gift cards or paper certificates. Issuers like Starbucks offer reloadable cards that cater to the buyer. Some may think this is a loophole for an exception. But the Federal Reserve Board staff`s comment says the regulation applies to cards marketed “directly or indirectly” as gift cards, so suggestions of portability or poor control of advertising by resellers could result in the loss of the exclusion. The rules are too new to see enforcement action, so it is uncertain how the commentary will be put into practice. The announcement, which will be published in the Federal Register, is attached. The final rules will come into force on August 22, 2010.
Check out future articles on more details on the rules, including messages about loyalty, reward or promotional gift cards, and pre-purchase analysis for state gift card laws. For more information about gift cards, see the Consumer alert Purchase, gifts and redemption of gift cards. The Commission`s rules generally include retail gift cards, which can be used to purchase goods or services from an individual merchant or associated group of merchants, as well as network-branded gift cards that can be redeemed at any merchant who accepts the card brand. (C) General purpose prepaid cards – commonly referred to as “open-loop cards” – are defined in the Cards Act as cards or other payment codes or devices issued by a person that: (i) are redeemable at multiple unaffiliated merchants, service providers or ATMs; (ii) an amount claimed, whether or not that amount may, at the option of the issuer, be revalued or re-invoiced at the holder`s request; (iii) purchased or loaded on a prepaid basis; and (iv) be compensated upon presentation by merchants for goods or services or at ATMs. The final rules prohibit silence, inactivity and service charges on gift cards unless: (1) the consumer has not used the voucher or card in at least one year; (2) only one of those fees is required per month; and (3) the consumer is provided with clear and conspicuous information about fees. The expiry date of gift card credits must be at least five years after the date of issue or five years after the date the balance was last reloaded. The escheats requirements of state laws mean that an issuer must proceed with caution. Washington, for example, requires the issuer to transfer outstanding funds to its undrawn real estate fund after five years; In some states, it`s three years — but a cardholder may qualify for a longer period. About half of the states have considered regulations and exempted gift cards from their unclaimed property laws, but in others a conflict remains. This is an update to a previous article regarding the Federal Reserve Board`s final rules for implementing the gift card provisions of the Credit Card Accountability and Disclosure Act of 2009 (“CARD Act”). On July 27, 2010, H.R. 5502 came into force, extending the effective date of disclosure requirements under the CARD Act from August 22, 2010 to January 31, 2011 for eligible gift cards produced before April 1, 2010.
You may recall that the rules limit fees and expiration dates for different types of gift cards and gift cards, and require sellers and issuers to provide specific information. The FTC has taken enforcement action against several companies for misleading the marketing of gift cards. It also provides information to consumers on the purchase and use of gift cards. Federal regulations do not prejudge state law unless state rules are inconsistent and explicitly state law that better protects a consumer will not be excluded due to inconsistency. They complement the protections consumers already enjoy under state law, and most protections remain in place. For example, gift cards in Washington cannot expire even after five years, and the cardholder can exchange small balances for cash. Online registration may involve state privacy laws. Planning a gift card program, especially one that can span multiple states, requires consideration of these considerations, as well as B&O and income tax separation, and “conspicuous disclosure” requirements can mean redesigning a card itself. In 2010, new federal regulations came into effect to protect consumers by limiting gift card fees and expiry dates. These rules apply to two types of cards: retail gift cards, which can only be used at retailers and restaurants that sell them; and bank gift cards, which bear the logo of a payment card network such as American Express or Visa and can be used anywhere the brand is accepted. The Federal Reserve`s board on Tuesday announced final rules to limit the fees and expiration dates that can apply to gift cards. The rules protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly indicated.
Retail gift cards have become an increasingly popular way for consumers to buy things. However, given the economic downturn, many consumers are wondering what they should do to protect themselves if they buy gift cards from a retailer and that retailer later declares bankruptcy or goes out of business. Gift Cards, Store Gift Cards and General Purpose Prepaid Cards Generally, the Rules limit fees, expiry dates and impose certain disclosure requirements for (A) gift cards, (B) general purpose gift cards and (C) general purpose prepaid cards, as these terms (collectively, “gift cards”) are defined in the Cards Act. The final rules will be published under Regulation E to implement the gift card provisions of the Credit Card Accountability and Disclosure Act, 2009. FTC regulations under the Credit CARD Act largely cover most electronic merchandise cards. A gift card (which is defined as reloadable) or gift card (a non-reloadable card) cannot expire at least five years after the date of purchase. The card itself can expire five years after the date of the first purchase, but the underlying funds can expire no earlier than five years after the date of purchase or the last value top-up, so the holder of an expired card on the front may be entitled to a new card or refund. If the card holder and loaded balance have different expiration dates, this must be “clearly and visibly” indicated on the card and disclosed prior to purchase. Rest and service charges are also regulated. A card must state “clearly” prior to purchase that such fees may be charged, the amount, frequency and that they may be charged in case of inactivity.
These fees can only be billed once a month, and only once a year has passed since the last activity. Fees cannot be changed or collected retroactively after issuance and must include a toll-free number for consumer questions. However, federal law does not limit the amount of fees. After some delay, new federal regulations offering better protection to gift card holders recently went into effect, adding to a patchwork of existing state consumption laws. The new rules apply to both issuers and sellers of gift cards, gift cards and general-purpose prepaid cards, such as Visa or Mastercard prepaid, sold after August 22, 2010. We`ve seen our clients examine conflicts between state and federal laws, reseller advertising policies, gift card tax recognition, and unclaimed property laws. Definitions (A) Gift certificates – are defined in the Card Act as a card, code or other device that: (i) can be redeemed at an individual merchant or affiliated group of merchants using the same name, brand or logo; (ii) are expended in a specified quantity that cannot be increased or refilled; (iii) purchased on a prepaid basis for payment; and (iv) are honored for goods or services upon presentation by such individual distributor or a group of related distributors.