Congress recently passed a new law that limits service charges and expiration dates retailers and other issuers of consumer gift cards can impose on consumer gift cards. It also has certain disclosure requirements that issuers must put on their gift cards if the cards carry service fees or an expiration date. The new regulation, part of the Credit Card Act of 2009, goes into effect on August 22, 2010. The new law does not preempt any state regulation that provides more stringent limitations. Therefore, knowledge of the patchwork of state regulations is still necessary.
What are the new Federal limits on service charges?
The new law limits the service and/or dormancy fees retailers can charge gift card holders. It will be unlawful to charge any service or dormancy fees within the first 12 months after the card is issued. After 12 months has elapsed, the issuer may charge a once monthly fee. The fees must be prominently disclosed on the gift card and must be available for a consumer to review before purchasing the gift card.
What is the expiration date limitation?
The law prohibits any expiration date of less than five (5) years before the date the card was purchased or last reloaded. Therefore, retailers and other gift card issuers that offer reloadable cards and who wish to have the cards expire will need to track the dates that consumers reload their cards. Like the service fees, any expiration dates have to be disclosed on the gift card and must be available for a consumer to review prior to purchase.
Are there any exceptions?
Yes. A gift card that has been issued as part of a loyalty, reward or promotion where the consumer has not paid for the card is not subject to the new law. However, the exact definition of loyalty and reward cards has yet to be provided by the Federal Reserve. Pre-paid telephone cards, gift cards that are issued in paper form only, cards that are re-loadable and not marketed or labeled as a “gift card” or “gift certificate”, cards not marketing to the general public, and gifts cards for tickets to events are also exempt from the new law.