The FTC has filed comments to the Consumer Financial Protection Bureau (“CFPB”) Notice of Proposed Rulemaking, urging it to impose greater regulation of electronic payment devices to include general purpose, reloadable cards not marketed as gift cards, including creating disclosure requirements for fees and expiration dates. Such a move will add to the ever complex myriad of state and federal laws governing stored value and gift cards, certificates and other electronic payment methods.
Early this summer the CFPB announced its intention to revise the current scope of Regulation E. Regulation E, promulgated until recently by the Board of Governors of the Federal Reserve System (the “Fed”), implements the Electronic Funds Transfer Act (“EFTA”) (15 U.S.C. 1693 et seq.) which establishes the rights, liabilities, and responsibilities of parties to an electronic transfer of funds. The CFPB took over rulemaking authority for the EFTA on July 21, 2011, as part of the Dodd-Frank Act and thereafter republished the Fed’s existing Regulation E as an interim final rule. It now proposes to amend Regulation E to encompass a type of electronic payment device not currently regulated.
Current Regulation E regulates a wide swath of electronic fund transfers, including ATM transactions, point-of-sale purchases, and automated-clearing house transactions. In 2009, it was revised to implement certain provisions of the Credit Card Accountability Responsibility Disclosure Act (“CARD Act”), including restrictions on gift cards and related payment devices. The CARD Act restricts a person’s ability to impose expiration dates and certain fees on gift certificates, gift cards, and a similar device that the CARD Act named a “general-use prepaid card.” Regulation E defines “general-use prepaid card” as a “card, code or other device that is: (i) [i]ssued on a prepaid basis primarily for personal, family or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and (ii) [r]edeemable upon presentation at multiple, unaffiliated merchants for goods or services, or useable at automated teller machines.” 12 C.F.R. 1005.20(a)(3). However, the term does not apply to any device that is “[r]eloadable and not marketed or labeled as a gift card or gift certificate.” 12 C.F.R. 1005.20(b)(2). The CFPB’s May 2012 Notice announces its intention to extend Regulation E’s protections to the category of prepaid device not currently reached: general-purpose, reloadable cards that are not marketed or labeled as a “gift” (“GPR Cards”). In its Notice, the CFPB posits a series of questions on the topic and asks for public comment to guide it in crafting a proposed rule.
On July 30, 2012, the FTC announced that it had submitted a comment in response to the CFPB’s request. The FTC’s comment, drawing on existing regulation of credit, debit, and gift cards, focuses on four substantive areas which it urges the CFPB to include in its proposed GPR Card rule:
- Limits on liability for fraud and unauthorized use;
- Disclosure requirements for card fees and expiration dates;
- Error-resolution processes for transactions in which a merchant enters an erroneous amount; and
- Authorization standards for recurring payments.
The CFPB received a total of 217 comments in response to its request. However, in light of its history as the nation’s consumer protection agency, the FTC’s comments are widely expected to carry significant weight with the CFPB as it drafts its proposed rule. Edwards Wildman will continue to monitor the CFPB’s action, and state law activity, in the prepaid-card and other new payment methods arena. In the meantime, if you have questions on this topic or would like to discuss the legal implications of prepaid and stored value payment devices, please contact our Advertising, Digital Media & e-Commerce practice group.
To view the CFPB’s Notice of Proposed Rulemaking, please click here.
To view the FTC’s comment, please click here.
To view a list of all comments received by the CFPB, please click here.