Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit Card Act”): New Gift Card Legislation
More than half (55%) of people asked in a survey requested a gift card as their gift of choice last holiday season. Shoppers, on average, spent $139.91 on gift cards this year and 77.2% of people bought at least one gift card during the holidays, according to a survey by the National Retail Federation and BIGresearch.
According to the Code of Federal Regulations, “A gift card is a prepaid card that is designed to be purchased by one consumer and given to another consumer as a present or expression of appreciation or recognition. When provided in the form of a plastic card, a user of a gift card is able to access and spend the value associated with the device by swiping the card at a point-of-sale terminal, much as a person would use a debit card. Among the benefits of a gift card are the ease of purchase for the gift-giver and the recipient’s ability to choose the item or items ultimately purchased using the card.”
While gift cards have been successful for retailers in attracting new customers and keeping old ones, implementing them requires retailers to follow state and federal laws which are often complex and conflicting. California and an increasing number of states have already enacted gift certificate and gift card laws restricting transaction, maintenance and dormancy fees and prohibiting expiration. By now, few, if any, retailers sell gift certificates or gift cards that will expire. Some leading retailers have even eliminated dormancy and maintenance fees altogether.
Now in conjunction with these state laws, the recent federal Credit Card Act tightens the restrictions on dormancy, inactivity, and service fees with a particular emphasis on disclosure.
The Credit Card Act
The Credit Card Act applies to both closed-looped cards, cards that are honored by a single merchant or group of merchants (such as a chain of bookstores), and open-looped cards, cards issued by financial institutions (such as Visa or American Express) and can be redeemed at a variety of merchants who accept the brand.
These parameters do not include loyalty reward or promotional program devices that are reloadable and not marketed as a gift card or gift certificate.
Under the Credit Card Act, dormancy, inactivity or service fees for a gift card cannot be imposed unless: 1) there is no activity on the card within the one-year period prior to the imposition of the fee; 2) only one such fee is given out every month; and 3) vendors clearly and conspicuously state the terms and details of the fee. Such conspicuous disclosure of fees imposed must be provided on the card and disclosed prior to purchase with a toll-free number and, if applicable, a Web site which a consumer can use to obtain fee information or replacement cards.
Furthermore, gift certificates, store gift cards, and general-use prepaid cards can no longer expire for at least 5 years from the date of purchase. If there is an expiration date, it must “include a disclosure alerting consumers to the difference between the [gift] certificate or card expiration date and the funds expiration date, if any, and [call out a notice] that the consumer may contact the issuer for a replacement card,” according to the Code of Federal Regulations.
These changes will go into effect by federal mandate on August 22, 2010, just in time for the 2010 holiday season. The Credit Card Act will change the way retailers issue and administer gift cards. State laws differ, make sure you are in compliance with current or new gift cards programs.
JMBM has been defending retailers in complex gift certificate and gift card consumer class actions for more than a decade and we have watched the cases and legislation evolve over that time. We invite you to discuss how the Credit Card Act might affect your gift card program with us.