REGULATION E GIFT CARDS

Transcription

1 REGULATION E GIFT CARDS 2010 ABA Spring Meeting Vivian Wong Senior Attorney Division of Consumer and Community Affairs Federal Reserve Board April 23, 2010

2 GIFT CARDS BACKGROUND New consumer protections provided by Title IV of the Credit CARD Act of 2009 Board issued final rules on March 23, 2010 Provisions become effective August 22,

3 SCOPE Applies to gift certificates, store gift cards, and general-use prepaid cards, as those terms are defined in the CARD Act Generally, the rule covers: Retail gift cards (closed loop), which can be used to buy goods or services at a single merchant or affiliated group of merchants; and Network-branded gift cards (open loop), which are redeemable at any merchant accepting that card brand Statutory exclusions apply (e.g., loyalty, promotional, or award cards, reloadable non-gift cards) 3

4 DORMANCY AND SERVICE FEE RESTRICTIONS Dormancy, inactivity, and service fees prohibited unless: There has been no activity for the previous year; No more than one such fee is assessed per month; and Certain disclosures are provided regarding the fee terms, both on the card, and prior to purchase 4

5 DORMANCY AND SERVICE FEE RESTRICTIONS: SERVICE FEES Statute defines service fee as a periodic fee, charge, or penalty for holding or use of a gift certificate, store gift card, or general-use prepaid card Under final rule, periodic fees include any fees that may be imposed from time to time, including: Transaction fees (POS and ATM fees) Reload fees Balance inquiry fees Foreign currency conversion fees 5

6 EXPIRATION DATE RESTRICTIONS Funds underlying a covered card may not expire for at least 5 years from the date of issuance or date of last load Final rule attempts to minimize consumer confusion between card and funds expiration dates 6

7 EXPIRATION DATE RESTRICTIONS Policies and procedures must be established to provide consumers with a reasonable opportunity to purchase a card with at least 5 years remaining before card expiration Examples of ways to comply: Establish policies and procedures to prevent sale of card with less than 5 years before card expiration date; or Card is available for sale with at least 5 years and 6 months before card expiration 7

8 EXPIRATION DATE RESTRICTIONS Card must also have clear and conspicuous disclosures regarding the terms of expiration, including any distinction between the card and funds expiration date and that a replacement card may be obtained Distinction between card and funds expiration date and availability of replacement must be disclosed in equal prominence and in close proximity to the card expiration date Non-reloadable card that has an expiration date at least 7 years from date of manufacture is not required to provide distinction/replacement disclosure No fees may be imposed to replace or cash out an expired card if underlying funds remain valid. 8

9 ADDITIONAL DISCLOSURE REQUIREMENTS Fees other than dormancy, inactivity, or service fees must be disclosed on or with the card, and prior to purchase (e.g., one-time issuance fee) Toll-free number and a Web site, if maintained, that a consumer may use for fee information and for obtaining replacement card must be disclosed on the card 9

10 CLEAR AND CONSPICUOUS STANDARD Statute requires that disclosures regarding dormancy, inactivity, or service fees and expiration dates be clear and conspicuous Generally, Reg. E standard is clear and readily understandable Rule provides that disclosures are clear and conspicuous if they are readily understandable and the location and type size are readily noticeable to consumers Stickers and/or accompanying terms and conditions do not satisfy on card requirements 10

11 EXCLUSIONS Final rule implements statutory exclusions for certain cards: Usable solely for telephone services Reloadable and not marketed or labeled as a gift card or gift certificate (e.g., general-purpose reloadable cards (GPRs)) Loyalty, award, or promotional gift cards (subject to separate disclosure requirements) Not marketed to the general public Issued in paper form only Redeemable solely for admission to events or venues 11

12 EXCLUSIONS Reloadable and not marketed as a gift card Must establish policies and procedures to avoid directly or indirectly suggesting the card may be given as a gift Temporary issue non-reloadable cards issued in connection with a reloadable general purpose card may qualify for exclusion Loyalty, award or promotional gift cards Cards may qualify for this exclusion only if they include certain disclosures 12

13 MANDATORY COMPLIANCE DATE All covered cards sold on or after August 22, 2010 are subject to new rules Also applies to replacements of cards sold on or after August 22, 2010 Cards sold prior to August 22, 2010 are not subject to new rules Loyalty, award, or promotional gift cards issued as part of a program that began prior to August 22, 2010 are not subject to new disclosure requirements 13

14 QUESTIONS? 14