On October 2, AB 8652 was introduced in the New York Assembly as a companion to Senate Bill 5771. These bills would substantially amend New York law regulating gift certificates, which includes some open-loop and closed-loop prepaid cards. This legislation would make four major changes to the current statute. It would (1) re-define “gift certificate,” (2) broaden the fee restrictions, (3) prohibit expiration dates, and (4) establish a cash redemption requirement. A chart detailing the proposed changes is included below.
Current New York law broadly defines “gift certificates” to include open-loop and closed-loop prepaid products that are not linked to a deposit account. The new bills would replace this broad definition with an equally broad, but less clear definition. According to the Senate and Assembly committee reports, the intent of the change was to “make clear that the definition of ‘gift certificate’ includes gift cards.” Seeing as the existing law cribs language from Reg E’s definition of “store gift card,” we’re not sure that such a clarification is necessary. Unfortunately the drafters did not address the glaring ambiguities surrounding the phrase “linked to a deposit account,” which is in the existing and proposed definitions. What does linked mean? Does this mean that any card program where the underlying funds are held in a bank account is exempt? What qualifies as a deposit account? Is a sub-account in a pooled account a deposit account? Inquiring minds want to know.
The bills would also broadly prohibit all post-issuance fees and expiration dates. New York would not be the first state to take on post-issuance fees or expiration dates, but eliminating both threatens the viability of some very popular products. Oddly enough, it also maximizes balances that are subject to escheatment.
Finally, the proposed bills would establish a redemption right if the “gift card” has a balance of $20 or less. There are a few troubling aspects to this requirement:
- “Gift card” is never defined in the bills or the underlying statute. Elsewhere in the statute and bills, restrictions are placed on “gift certificates.” One is left to wonder whether this redemption requirement applies to all gift certificates or if “gift card” is supposed to mean something else. Other states have redemption requirements, but most only apply to closed-loop cards.
- At $20, this would be twice as high as the next highest cash redemption requirement in the country.
- It is unclear which party has the redemption obligation. The merchant or the issuer? It’s unclear how a consumer would redeem the balance of a gift card issued by an out-of-state bank.
- Many gift cards restrict cash access for AML purposes. The redemption requirement would appear to prohibit such restrictions in covered products and could thus create a new avenue for money laundering.
Let’s hope this is just the first draft of New York’s amendments to its gift card statute and that the legislature will refine the bill. The filing of the companion bill in the Assembly, however, does suggest that legislators are ready to move forward and this bill may be in close to final form. Interested parties should act quickly to submit their concerns and suggestions to lawmakers.