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November 16, 2009

Fed Proposes Rules on Gift Cards re: Fees, Expiration Dates

FederalReserve-130px.jpgThe Federal Reserve Board has announced proposed rules that it says "would restrict the fees and expiration dates that may apply to gift cards. The rules would protect consumers from certain unexpected costs and would require that gift card terms and conditions be clearly stated."

Highlights of Proposed Gift Cards Rule

The proposal would amend Regulation E to implement the gift card provisions of the

Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). The

proposal would set forth new protections for consumers that purchase or use certain prepaid

products, primarily gift cards.

 Products covered. The proposal applies to gift certificates, store gift cards, and general use

prepaid cards, as those terms are defined in the Credit CARD Act.

o Covered products include retail gift cards, which can be used to buy goods or

services at a single merchant or affiliated group of merchants, and networkbranded

gift cards, which are redeemable at any merchant that accepts the card

brand.

o Consistent with the statute, the proposed rule would not apply to other types of

prepaid cards, including reloadable prepaid cards that are not marketed or labeled

as a gift card or gift certificate, and prepaid cards received through a loyalty,

award or promotional program.

 Restrictions on dormancy, inactivity, or service fees. The proposed rule prohibits a

person from imposing a dormancy, inactivity, or service fee with respect to a gift

certificate, store gift card, or general-use prepaid card.

o Dormancy, inactivity, and service fees may only be assessed for a certificate or

card if: (1) there has been at least one year of inactivity on the certificate or card;

(2) no more than one such fee is charged per month; and (3) the consumer is given

clear and conspicuous disclosures about the fees.

o Fees subject to the proposed restrictions would include monthly maintenance or

service fees, balance inquiry fees, and transaction-based fees, such as reload fees

and point-of-sale fees.

 Restrictions on expiration dates. The proposed rule prohibits the sale or issuance of a gift

certificate, store gift card, or general-use prepaid card that has an expiration date of less

than five years after the date a certificate or card is issued or the date funds are last

loaded.

o The expiration date restrictions would apply to a consumer’s funds, and not to the

certificate or card itself. The proposal includes provisions intended to help ensure

consumers have at least five years to use a certificate or card from the date of

purchase.

o The proposed rule prohibits the imposition of any fees for replacement of an

expired card or certificate if the underlying funds remain valid

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