July 13, 2009
Darren Craig

 

Title IV of the Credit Card Accountability Responsibility and Disclosure Act of 2009, Pub. L. No. 111-24, 123 Stat. 1734 (2009) (“Credit CARD Act”) amends the Electronic Funds Transfer Act to impose new restrictions on merchant gift cards, gift certificates, and general use prepaid cards. The restrictions fall into two broad categories: (1) fees charged for periods of inactivity; and (2) expiration dates.

The Credit CARD Act prohibits an issuer from charging any fee as a result of inactivity unless the issuer clearly and conspicuously discloses to the purchaser, before the purchase, that the issuer may assess a fee if there is no activity on the card for a certain period, the amount of the fee, and how often the fee will be charged. An issuer may not assess any inactivity fee until there has been a period of inactivity for at least 12 months and may not assess more than one fee in any month.

The Act also prohibits an issuer from imposing an expiration date on a gift card, gift certificate, or general use prepaid card that is earlier than five years after the card or certificate is issued or five years after money is loaded onto the card. The expiration date must be clearly and conspicuously disclosed.

The new restrictions do not apply to gift certificates that are issued only in paper form. The restrictions also do not apply to cards used solely for telephone services, cards that are reloadable and not marketed or labeled as gift cards or gift certificates, cards issued as part of a loyalty, award, or promotional program, cards that are not marketed to the general public, and cards that are redeemable only at concerts or other events at a specific venue.

The Credit CARD Act’s provisions on gift cards do not preempt state laws that are more protective.

Congress has charged the Federal Reserve Board to issue, in consultation with the Federal Trade Commission, regulations that implement the legislation. In particular, the Federal Reserve must issue regulations concerning the maximum inactivity fee an issuer may assess and whether a card or certificate must reach a certain minimum amount before a fee is assessed. The regulations must be issued by February 2010. The Act becomes effective August 2010.