August 22, 2010

National Gift Card Regulation Goes Into Effect Today

Congress Gift Card lawThe modern plastic gift card was introduced in 1995. In those early days, merchants could dictate the term and condition without any government oversight. Gradually, a patchwork of state laws sprung up to offer consumers some protection. Unfortunately, there was no uniformity governing prepaid card’s expiration date, fees, and redemption, which left both consumers and retailers confused. Nevertheless, as of today, August 22, 2010, the federal gift card law set forth in Credit Card Accountability Responsibility and Disclosure Act of 2009 goes into effect. It has been a long time coming, but fifteen years later there is now national regulation covering gift cards across the United States.

Main points to remember:

  1. The federal law does not preempt state laws that provide greater consumer protection.
  2. Gift cards may have an expiration date. However, the expiration date must be at least 5 years from the date of purchase or date of last load.
  3. Dormancy, inactivity, and service fees are only allowed if the card has been inactive for more than one year. Such fees are limited to one per month. Fee disclosure must be visible on the card and properly displayed prior to purchase. An important note is that merchants and issuers have until January 31, 2011 to abide by the disclosure requirement due to an extension Congress passed in ECO-Gift CARD Act on July 21, 2010.
  4. Law covers gift certificate, store gift cards, and general-use prepaid cards. This includes electronic gift certificates, codes and other devices. The following types of prepaid devices are excluded from the law.
    • Telephone service cards.
    • Loyalty and promotional cards.
    • Reloadable cards not marketed as gift cards.
    • Paper issued gift certificate for tickets, admission, spa, and coupons.

There are nuances to the federal gift card law. For example, bank issued prepaid cards, like Visa, MasterCard, and American Express gift cards, are limited to only one service fee per month and only if the gift card has been inactive for more than one year. However, the banks can still charge one time fees, such as an initial activation fee, cash-out fee, supplemental card fee, and/or a replacement fee.

While the national gift card law is not perfect it offers a minimum level of protection for consumers across the country. More importantly, bank sponsored gift cards, which were previously exempted from most state gift card regulations because of federal banking laws, are now covered by the new law. This law helps cover gaps in state laws regulating gift cards, even in consumer friendly states, such as California.

If you have any questions about federal or state gift card laws, please let us know via the comment section.

Final Rule on Gift Card Amendment to Electronic Transfer Act [Federal Reserves]
Credit Card Accountability Responsibility and Disclosure Act of 2009 [Govtrack.us]

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