Compliance Blog

Posted by Sarah Loats

Title IV includes sections 401, 402, and 403 and brings new rules for gift cards. Section 401 holds substantive amendments to the Electronic Funds Transfer Act to limit the ability of gift card issuers to assess dormancy, inactivity or service fees on gift certificates, store gift cards, or general-use prepaid cards.

In general, such fees may not be imposed on these products unless there has been no activity for a 12-month period, and disclosure requirements have been met, but not more than one such fee may be charged in a given month. For the disclosures, the Act requires that the cards "clearly and conspicuously state" that a fee may be charged, the amount of that fee, how often it may be assessed, and that it may be charged for inactivity. In addition, the card issuer must inform the purchaser of the fees prior to purchase.

The Act also provides a prohibition on the sale of gift certificates, store gift cards, or general-use prepaid cards that have expiration dates, except that they may contain expiration dates if that date is "not earlier than 5 years after the date on which the gift certificate was issued, or the date on which the card funds were last loaded to a store gift card or general-use prepaid card" and the issuer clearly and conspicuously discloses the terms of expiration.

The Act defines "gift certificates," "store gift cards," and "general-use prepaid cards, and provides eclusions from the definitions such as a "loyalty, award, or promotional gift card, as defined by the Board."

The Federal Reserve, in consultation with the FTC, must prescribe regulations to implement the provisions of Section 401 and the regulations must be issued in final form not later than 9 months after the date of enactment of the Act - so February 2010. Section 403 indicates that Title IV will become effective 15 months after enactment of the Act (August 2010).

Section 402 amends the Electronic Funds Transfer Act to give the Federal Reserve the power to exempt the requirements concerning dormancy fees, expiration dates of gift cards or general use cards within any State if the Board determines that under the State’s law, the requirements are subject to the same subject matter that are substantially similar and there is adequate provision for enforcement. This must be done via regulation.

If your credit union issues gift cards, it will want to be on the look-out for the Federal Reserve's proposed and final rules. Since a final rule must be issued by February 2010, I would think a proposed rule would be out sometime this fall.