Due to the popularity of gift cards in restaurants and retailers, federal and state governments have increased their role in regulating gift cards. In this legislative update we’ll focus on “closed-loop” gift cards, those that are issued by a specific store or restaurant and which may only be used at the issuing store or restaurant. (“Open-loop” cards are those that are issued by banks or credit card companies and can be used at different stores or restaurants.)
Most states have statutes that regulate gift cards. These statutes usually address one or more of the following items:
- The definition of a “gift card”
- Disclosure requirements
- Expiration date provisions
- Fee provisions
- Escheat provisions
- Whether a gift card is redeemable by cash
In 2010, various states introduced legislation relating to these topics, such as requiring that consumers be allowed to redeem the remaining value of a gift card for cash when its value drops below a certain dollar amount, prohibiting the sale of gift cards with expiration dates or service fees, or eliminating escheat provisions. Additional information about existing state statutes or regarding the status of pending stage legislation is available on the website of the National Conference of State Legislatures.
Federal regulations The federal government recently passed the Credit Card Accountability, Responsibility and Disclosure Act of 2009 (the “Credit CARD Act”). Several provisions of the Credit CARD Act apply to issuers of gift cards. For example, Article IV of the Credit CARD Act requires that gift card issuers disclose fees, among other things, to gift card purchasers. Section 401 of the Credit CARD Act also amends the Electronic Fund Transfer Act to, among other things, prohibit the issuance or sale of store gift cards if they expire earlier than five years from the date on which funds were last loaded to a store gift card.
In addition, Section 403 of the Credit CARD Act requires that the gift card provisions and all of its related provisions become effective on Aug. 22, 2010. However, Congress amended Section 403 on July 27, 2010, to delay the effective date of certain disclosure requirements under the Credit CARD Act for gift cards produced prior to April 1, 2010, to Jan. 31, 2011 (the “Eco-Gift Card Act”). The Board of Governors of the Federal Reserve also issued a final rule to delay the effective date of these said disclosure requirements until Jan. 31, 2011. After Jan. 31, 2010, all gift card provisions under the Credit CARD Act will become effective for all gift cards.
For more information Click here for the text of the Credit CARD Act.
Click here for the text of the Eco-Gift Card Act.
Click here for additional information regarding the Board of Governors of the Federal Reserve’s recent ruling regarding the Credit CARD Act.