The federal Credit Card Accountability, Responsibility and Disclosure Act of 2009 (“CARD Act”) imposes new regulations on gift certificates, store gift cards and general use pre-paid cards (“gift cards”) with respect to expiration dates, fees, and disclosures both on the gift card and prior to purchase. The CARD Act’s provisions, along with the related administrative rules enacted by the Federal Reserve, are scheduled to go into effect onandnbsp;August 22, 2010. However, with the recent passage of House Bill 5502, gift cards produced prior to April 1, 2010 will not have to comply with the “on-card” disclosures untilandnbsp;January 31, 2011, with some restrictions.
Merchants and other issuers of gift cards must be sure they are complying with all regulations for all gift cards offered after the August 22nd effective date. A general overview of the new regulations is provided below:
- Expiration Dates.andnbsp;The underlying funds associated with a gift card may not expire sooner than five years after date of purchase or after date of last load, if it is a reloadable gift card. If the gift card’s underlying funds expire at any time, an expiration date must be placed on the gift card.
- Dormancy, Inactivity, or Service Fees.andnbsp;Dormancy, inactivity and service fees mayandnbsp;onlyandnbsp;be charged once per month and only after there has been no use of the card for one year.
- Disclosures. The Act requires disclosures both: (a) prior to the gift card purchase and (b) on the gift card itself, when there are expiration dates or fees associated with the gift card. The disclosures must provide specific information regarding the expiration dates and fees and must include a toll-free telephone number where consumers can obtain additional information. The disclosures must be “clear and conspicuous,” but there is no specific font requirement.
- Loyalty, Award, and Promotional Cards. Gift cards issued through loyalty, award and promotional programs are exempt from the expiration date and other restrictions of the CARD Act. Nonetheless, disclosures must still be made on or with the gift card, including the fact that the gift card is for promotional or loyalty purposes, whether there is an expiration date or fees associated with the underlying funds, and a toll-free telephone number for information related to any fee.
Loyalty, award and promotional programs are not specifically defined by the CARD Act. However, they can generally be thought of as a merchant “reward” to a customer, potential customer, or employee for purposes of marketing, such as:
- Reward programs for purchases made from the merchant
- Rebate programs
- Sweepstakes or contests
- Referral programs
- General Exemptions. Gift cards that are issued only in paper form are exempt from the Act. However, this exemption does not apply to gift cards that are initially issued to the purchaser electronically (for example, by e-mail) and then printed on paper. Rather, the gift card mustandnbsp;originatein paper form. Also, gift cards that are not issued for a specific dollar amount are not subject to the Act, such as cards for a percentage discount (i.e., 10% off) or cards for a type of service (i.e., a one-night hotel stay). Likewise, gift cards that are redeemable for an admission to an event are not subject to the Act.
Note that the CARD Act preempts only those state laws which are less restrictive than and/or in conflict with the Act’s regulations. State laws which provide greater consumer protection than the Act remain effective. Thus, Ohio’s law prohibiting gift cards with less than a two-year expiration date is preempted by the Act’s five-year expiration date requirement. However, Ohio’s prohibition against dormancy fees within two years following issuance of a gift card remains effective and must be applied in conjunction with the Act’s prohibition against dormancy fees during periods of inactivity of less than one year.
This Client Alert is merely a general overview of the CARD Act’s complex regulations. We recommend that all current and contemplated gift card and promotional programs be reviewed in light of the specific provisions of the Act in order to avoid running afoul of these detailed federal regulations. Violations of the Act may result in criminal and civil liability.