Gift Card Act of 2009

With much fanfare, the US House of Representatives and Senate passed the Credit Card Accountability Responsibility and Disclosure Act of 2009. For the average consumer and merchant, the full benefits and ramifications have yet to be felt. One section that was mostly overlooked, was a section that specifically addressed general-use prepaid cards, gift certificates and store gift cards. Here it is:

Credit Card Accountability Responsibility & Disclosure Act of 2009

This is a portion of H.R. 627: Credit Card Accountability Responsibility and Disclosure Act of 2009 that relates specifically to gift cards and the like:

TITLE IV--GIFT CARDS

SEC. 401. GENERAL-USE PREPAID CARDS, GIFT CERTIFICATES, AND STORE GIFT CARDS.

The Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) is amended--

1. by redesignating sections 915 through 921 as sections 916 through 922, respectively; and
2. by inserting after section 914 the following:

SEC. 915. GENERAL-USE PREPAID CARDS, GIFT CERTIFICATES, AND STORE GIFT CARDS.

1. Definitions- In this section, the following definitions shall apply:
   
   1. DORMANCY FEE; INACTIVITY CHARGE OR FEE- The terms ‘dormancy fee’ and ‘inactivity charge or fee’ mean a fee, charge, or penalty for non-use or inactivity of a gift certificate, store gift card, or general-use prepaid card.
   2. GENERAL USE PREPAID CARD, GIFT CERTIFICATE, AND STORE GIFT CARD-
      
      1. GENERAL-USE PREPAID CARD- The term ‘general-use prepaid card’ means a card or other payment code or device issued by any person that is--
         
         1. redeemable at multiple, unaffiliated merchants or service providers, or automated teller machines;
         2. issued in a requested amount, whether or not that amount may, at the option of the issuer, be increased in value or reloaded if requested by the holder;
         3. purchased or loaded on a prepaid basis; and
         4. honored, upon presentation, by merchants for goods or services, or at automated teller machines.
      2. GIFT CERTIFICATE- The term ‘gift certificate’ means an electronic promise that is--
         
         1. redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo;
         2. issued in a specified amount that may not be increased or reloaded;
         3. purchased on a prepaid basis in exchange for payment; and
         4. honored upon presentation by such single merchant or affiliated group of merchants for goods or services.
      3. STORE GIFT CARD- The term ‘store gift card’ means an electronic promise, plastic card, or other payment code or device that is--
         
         1. redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo;
         2. issued in a specified amount, whether or not that amount may be increased in value or reloaded at the request of the holder;
         3. purchased on a prepaid basis in exchange for payment; and
         4. honored upon presentation by such single merchant or affiliated group of merchants for goods or services.
      4. EXCLUSIONS- The terms ‘general-use prepaid card’, ‘gift certificate’, and ‘store gift card’ do not include an electronic promise, plastic card, or payment code or device that is--
         
         1. used solely for telephone services;
         2. reloadable and not marketed or labeled as a gift card or gift certificate;
         3. a loyalty, award, or promotional gift card, as defined by the Board;
         4. not marketed to the general public;
         5. issued in paper form only (including for tickets and events); or
         6. redeemable solely for admission to events or venues at a particular location or group of affiliated locations, which may also include services or goods obtainable--
            
            1. at the event or venue after admission; or
            2. in conjunction with admission to such events or venues, at specific locations affiliated with and in geographic proximity to the event or venue.
   3. SERVICE FEE-
      
      1. IN GENERAL- The term ‘service fee’ means a periodic fee, charge, or penalty for holding or use of a gift certificate, store gift card, or general-use prepaid card.
      2. EXCLUSION- With respect to a general-use prepaid card, the term ‘service fee’ does not include a one-time initial issuance fee.
2. Prohibition on Imposition of Fees or Charges-
   
   1. IN GENERAL- Except as provided under paragraphs (2) through (4), it shall be unlawful for any person to impose a dormancy fee, an inactivity charge or fee, or a service fee with respect to a gift certificate, store gift card, or general-use prepaid card.
   2. EXCEPTIONS- A dormancy fee, inactivity charge or fee, or service fee may be charged with respect to a gift certificate, store gift card, or general-use prepaid card, if--
      
      1. there has been no activity with respect to the certificate or card in the 12-month period ending on the date on which the charge or fee is imposed;
      2. the disclosure requirements of paragraph (3) have been met;
      3. not more than one fee may be charged in any given month; and
      4. any additional requirements that the Board may establish through rulemaking under subsection (d) have been met.
   3. DISCLOSURE REQUIREMENTS- The disclosure requirements of this paragraph are met if--
      
      1. the gift certificate, store gift card, or general-use prepaid card clearly and conspicuously states--
         
         1. that a dormancy fee, inactivity charge or fee, or service fee may be charged;
         2. the amount of such fee or charge;
         3. how often such fee or charge may be assessed; and
         4. that such fee or charge may be assessed for inactivity; and
      2. the issuer or vendor of such certificate or card informs the purchaser of such charge or fee before such certificate or card is purchased, regardless of whether the certificate or card is purchased in person, over the Internet, or by telephone.
   4. EXCLUSION- The prohibition under paragraph (1) shall not apply to any gift certificate--
      
      1. that is distributed pursuant to an award, loyalty, or promotional program, as defined by the Board; and
      2. with respect to which, there is no money or other value exchanged.
3. Prohibition on Sale of Gift Cards With Expiration Dates-
   
   1. IN GENERAL- Except as provided under paragraph (2), it shall be unlawful for any person to sell or issue a gift certificate, store gift card, or general-use prepaid card that is subject to an expiration date.
   2. EXCEPTIONS- A gift certificate, store gift card, or general-use prepaid card may contain an expiration date if--
      
      1. the expiration date is not earlier than 5 years after the date on which the gift certificate was issued, or the date on which card funds were last loaded to a store gift card or general-use prepaid card; and
      2. the terms of expiration are clearly and conspicuously stated.
4. Additional Rulemaking-
   
   1. IN GENERAL- The Board shall--
      
      1. prescribe regulations to carry out this section, in addition to any other rules or regulations required by this title, including such additional requirements as appropriate relating to the amount of dormancy fees, inactivity charges or fees, or service fees that may be assessed and the amount of remaining value of a gift certificate, store gift card, or general-use prepaid card below which such charges or fees may be assessed; and
      2. shall determine the extent to which the individual definitions and provisions of the Electronic Fund Transfer Act or Regulation E should apply to general-use prepaid cards, gift certificates, and store gift cards.
   2. CONSULTATION- In prescribing regulations under this subsection, the Board shall consult with the Federal Trade Commission.
   3. TIMING; EFFECTIVE DATE- The regulations required by this subsection shall be issued in final form not later than 9 months after the date of enactment of the Credit CARD Act of 2009.’

SEC. 402. RELATION TO STATE LAWS.

Section 920 of the Electronic Fund Transfer Act (as redesignated by this title) is amended by inserting ‘dormancy fees, inactivity charges or fees, service fees, or expiration dates of gift certificates, store gift cards, or general-use prepaid cards,’ after ‘electronic fund transfers,’.

SEC. 403. EFFECTIVE DATE.

This title and the amendments made by this title shall become effective 15 months after the date of enactment of this Act.

A complete summary and full text of the entire H.R. 627: Credit Card Accountability Responsibility and Disclosure Act of 2009 can be found at http://www.govtrack.us/congress/bill.xpd?bill=h111-627.

The Steve Sommers' Readers Digest version of the federal law is as follows:

• If you use expiration dates with your gift cards:
  
  1. the expiration term cannot be less than 5 years from the time of purchase or last recharge; and
  2. you must fully disclose the expiration date policy on the card and inform the purchaser prior to the purchase of the gift card.
• If you charge service fees to your gift cards:
  
  1. you cannot charge more than a single fee per month (for most merchants, no big deal),
  2. the fees can only be charged after one year of dormancy; and
  3. you must fully disclose the fees on the card and inform the purchaser prior to the purchase of the gift card.

If you are using gift certificates instead of gift cards, reread my above summary substituting “certificate” every place I mention “card.”

Now a possible gotcha here is the term dormancy -- the law states “there has been no activity with respect to the certificate or card in the 12-month period ending on the date on which the charge or fee is imposed.” Nowhere do I see a definition of “activity.” I know that California considers a balance inquiry as activity; other state only consider adding funds or purchase usage as activity. I'm sure we'll be hearing about this in court.

My recommendation: Don't use card expiration dates and instead charge a monthly service fee sometime after one year of dormancy. To be safe, I would interpret dormancy as any activity including balance inquiries.

I've always recommended not using expiration dates because many states have laws that "expired funds" are to be turned over to the state. Also, some states like California do not allow merchants to use expiration dates. If you still want to use expiration dates, I recommendation would be to not allow recharging the cards as each recharge will add a minimum of five years to the expiration date of the card.

In either case, fully document and prominently display your terms to the purchaser prior to selling the gift card. Any and all card carriers and displays should have the terms. Your web site should have a dedicated gift card page with the terms and conditions and your card stock or gift certificates should have the URL printed on it. The more places you disclose this information, the better. You don't want to be on the receiving end of a “they didn't warn me” accusation.

This Readers Digest version and recommendation, for the most part, only considers this specific federal law. You will need to incorporate any state or local laws that also apply. On the ConsumersUnion.org I did find a summary of various state laws regarding gift cards I thought useful: State Gift Card Protection Laws

Hope this info helps someone.

Side Rant - Formatting

I'm hoping that the topic numbering scheme used in this Act was simply a translation screw-up between the source where I found the document and the real document. Otherwise, someone in our government doesn't know how to follow a numbering standard. I was taught the Harvard format which I assume is the standard since most documents I read follow the same or very similar format:

1. Topic
   
   1. Subtopic
      
      1. Major Detail
         
         1. Minor Detail
            
            1. Subdetail

Whereas this document is using the following:

1. Topic
   
   1. Subtopic
      
      1. Major Detail
         
         1. Minor Detail

Maybe this is some standard attorney format to separate common language from lawyer speak? Or just is this part of the change we were promised?