[Federal Register Volume 74, Number 223 (Friday, November 20, 2009)]
[Proposed Rules]
[Pages 60986-61012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-27717]
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Part III
Federal Reserve System
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12 CFR Part 205
Electronic Fund Transfers; Proposed Rule
Federal Register / Vol. 74, No. 223 / Friday, November 20, 2009 /
Proposed Rules
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FEDERAL RESERVE SYSTEM
12 CFR Part 205
[Regulation E; Docket No. R-1377]
Electronic Fund Transfers
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule; request for public comment.
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SUMMARY: The Board is proposing to amend Regulation E, which implements
the Electronic Fund Transfer Act, and the official staff commentary to
the regulation, which interprets the requirements of Regulation E. The
proposal restricts a person's ability to impose dormancy, inactivity,
or service fees for certain prepaid products, primarily gift cards. In
addition, the proposal generally prohibits the sale or issuance of such
products if they have an expiration date of less than five years. The
proposed amendments implement statutory requirements set forth in the
Credit Card Accountability Responsibility and Disclosure Act of 2009
that are effective on August 22, 2010.
DATES: Comments must be received on or before December 21, 2009.
ADDRESSES: You may submit comments, identified by Docket No. R-1377, by
any of the following methods:
Agency Web Site: http://www.federalreserve.gov. Follow the
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include the
docket number in the subject line of the message.
Fax: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper form in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Counsel, Vivian Wong,
Senior Attorney, or Mandie Aubrey or Dana Miller, Attorneys, Division
of Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 452-
3667. For users of Telecommunications Device for the Deaf (TDD) only,
contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Statutory Background
The Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) (EFTA or
Act), enacted in 1978, provides a basic framework establishing the
rights, liabilities, and responsibilities of participants in electronic
fund transfer (EFT) systems. The EFTA is implemented by the Board's
Regulation E (12 CFR part 205). Examples of the types of transactions
covered by the EFTA and Regulation E include transfers initiated
through an automated teller machine (ATM), point-of-sale (POS)
terminal, automated clearinghouse (ACH), telephone bill-payment plan,
or remote banking service. The Act and regulation provide for the
disclosure of terms and conditions of an EFT service; documentation of
EFTs by means of terminal receipts and periodic statements; limitations
on consumer liability for unauthorized transfers; procedures for error
resolution; and certain rights related to preauthorized EFTs. Further,
the Act and regulation restrict the unsolicited issuance of ATM cards
and other access devices.
The official staff commentary (12 CFR part 205 (Supp. I))
interprets the requirements of Regulation E to facilitate compliance
and provides protection from liability under Sections 915 and 916 of
the EFTA for financial institutions and other persons subject to the
Act who act in conformity with the Board's commentary interpretations.
15 U.S.C. 1693m(d)(1). The commentary is updated periodically to
address significant questions that arise.
On May 22, 2009, the Credit Card Accountability Responsibility and
Disclosure Act of 2009 (Credit Card Act) was signed into law.\1\
Section 401 of the Credit Card Act amends the EFTA and imposes certain
restrictions on a person's ability to impose dormancy, inactivity, or
service fees with respect to gift certificates, store gift cards, and
general-use prepaid cards. In addition, the Credit Card Act generally
prohibits the sale or issuance of such products if they are subject to
an expiration date earlier than five years from the date of issuance of
a gift certificate or the date on which funds were last loaded to a
store gift card or general-use prepaid card.
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\1\ Public Law 111-24, 123 Stat. 1734 (2009).
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The Board must prescribe rules implementing EFTA Section 915 within
nine months after enactment of the Credit Card Act. The gift card and
related provisions become effective 15 months after enactment, or on
August 22, 2010. See EFTA Section 915(d)(3); Section 403 of the Credit
Card Act.
II. Background
A gift card is a type of prepaid card that is designed to be
purchased by one consumer and given to another consumer as a present or
expression of appreciation or recognition. When provided in the form of
a plastic card, a user of a gift card is able to access and spend the
value associated with the device by swiping the card at a point-of-sale
terminal, much as a person would use a debit card. Among the benefits
of a gift card are the ease of purchase for the gift-giver and the
recipient's ability to choose the item or items ultimately purchased
using the card. According to one survey, over 95 percent of Americans
have received or purchased a gift card.\2\
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\2\ See Comdata, 2007 Adult Gift Card Study (available at:
http://storedvalue.com/assets/pdf/study/2007/study_adult_gift_card_2007.pdf).
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There are two distinct types of gift cards: closed-loop cards and
open-loop cards. Closed-loop gift cards constitute the majority of the
gift card market, both in terms of number of cards issued and the
dollar value of the amounts loaded onto or spent with gift cards.\3\
These cards generally are accepted or honored at a single merchant or a
group of affiliated merchants (such as a chain of book stores or
clothing retailers) as
[[Page 60987]]
payment for goods or services. They have limited functionality and
generally can only be used to make purchases at the merchant or group
of merchants.
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\3\ There are no consensus industry figures about the overall
size of the prepaid card market. See Rachel Schneider, ``The
Industry Forecast for Prepaid Cards, 2009,'' Center for Financial
Services Innovation (March 2009) at 4 (available at: http://www.cfsinnovation.com/research-paper-detail.php?article_id=330539).
According to the Federal Reserve's 2007 Electronic Payments Study,
$36.6 billion was spent using closed-loop prepaid cards in 2006,
compared to $13.3 billion spent using open-loop prepaid cards. See
2007 Federal Reserve Electronic Payments Study 27-42 (March 2008).
Industry studies using different methodologies suggest a larger
prepaid card market, but nonetheless confirm that the closed-loop
cards make up a substantial portion of the market. See, e.g., Tim
Sloane, ``Sixth Annual Closed Loop Prepaid Market Assessment,''
Mercator Advisory Group (October 2009) (estimating that of the
$247.7 billion total amount loaded across all prepaid segments in
2008, 75 percent, or $187.24 billion, were loaded onto closed-loop
cards, including closed-loop gift cards); ``Loyalty is Closed-Loop
Gift Card's `Second Wind','' The Green Sheet, at 53 (May 29, 2009)
(citing an Aite Group estimate of 904 million closed-loop gift cards
sold in 2007).
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Closed-loop gift cards are typically issued by a merchant, or by a
card program sponsor or service provider working with a merchant, and
not by a financial institution. These cards may be sold in a
predenominated or consumer-specified amount at the merchant itself or
distributed through other retail outlets, such as at grocery stores or
drug stores. Generally, closed-loop gift cards may not be reloaded with
additional value after card issuance. With closed-loop gift cards, the
issuer typically does not collect any information regarding the
identity of the gift card purchaser or the recipient.
For merchant-issuers, gift cards have largely replaced paper-based
gift certificates as a more cost-effective and efficient means of
facilitating gift-giving by consumers. In addition to reducing costs
associated with the issuance of paper certificates, electronic gift
cards may also be less vulnerable to fraud or counterfeiting. Merchants
benefit from the sale of items purchased with gift cards, as well as
from additional spending by gift card recipients beyond the face amount
on the card. Merchants may also derive revenue from the imposition of
certain fees, such as from monthly maintenance or transaction-based
fees or from interest earned from unused card balances.
Open-loop gift cards differ in several respects from closed-loop
gift cards. First, open-loop gift cards typically carry a card network
brand logo (such as Visa, MasterCard, American Express, or Discover).
Thus, they can be used at a wide variety of merchants that accept or
honor cards displaying that brand. Second, open-loop gift cards are
generally issued by financial institutions. Third, open-loop gift card
transactions are processed over the debit or credit card networks.
Fourth, open-loop gift cards may carry additional, and in some cases
higher, fees than closed-loop gift cards as a result of higher
compliance and customer service costs. Fifth, open-loop gift cards are
more likely to offer the capability of being reloaded with additional
value (reloadable) than are closed-loop gift cards.
A consumer may obtain gift cards in several ways. Gift cards can be
purchased at retail locations, by telephone, or on-line, and used
either for the purchaser's own purposes or given to another consumer as
a gift. In addition, gift cards can be received through a loyalty,
award, or promotional program. For example, a merchant may distribute
its own closed-loop gift card to encourage consumers to visit the store
or for customer retention purposes, such as through a loyalty or
frequent buyer program. Merchants and product manufacturers may also
issue gift cards to consumers to provide a rebate for the consumer's
purchase of a particular product instead of sending rebate checks.
Employers may provide gift cards to their employees as a reward for
good job performance.
Concerns have been raised regarding the amount of fees associated
with gift cards, the expiration dates of gift cards, and the adequacy
of disclosures. Consumers who do not use the value of the card within a
short period of time may be surprised to find that the card has expired
or that dormancy or service fees have reduced the value of the card.
Even where fees or terms are disclosed on or with the card, the
disclosures may not be clear and conspicuous.
At the State level, more than 40 States have enacted laws
applicable to gift cards in some fashion. Most commonly, State gift
card laws may restrict the circumstances under which dormancy,
inactivity, or service fees may be charged and/or restrict the
circumstances under which the card or funds underlying the card may
expire.\4\ Other State laws simply require the disclosure of fees or
expiration dates. Many States have applied abandoned property or
escheat laws to funds remaining on gift cards, and some States require
that consumers have the option of receiving cash back when the
underlying balance falls below a certain amount. However, while all
State gift card laws address closed-loop gift cards in some form, many
State laws do not apply to open-loop bank-issued cards.\5\
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\4\ See, e.g., Consumers Union, State Gift Card Consumer
Protection Laws (available at: http://www.consumersunion.org/pub/core_financial_services/003889.html); National Conference of State
Legislatures, Gift Cards and Gift Certificates Statutes and Recent
Legislation (available at: http://www.ncsl.org/programs/banking/GiftCardsandCerts.htm).
\5\ See, e.g., Ark. Code Sec. 4-88-704; Cal. Civil Code Sec.
1749.45; Fla. Stat. Sec. 501.95; and Md. Commercial Code Ann. Sec.
14-1320.
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III. Summary of Proposal
Restrictions on Dormancy, Inactivity, or Service Fees
Under the proposed rule, no person may impose a dormancy,
inactivity, or service fee with respect to a gift certificate, store
gift card, or general-use prepaid card, unless three conditions are
satisfied. First, such fees may be imposed only if there has been no
activity with respect to the certificate or card within the one-year
period prior to the imposition of the fee. Second, only one such fee
may be assessed in a given calendar month. Third, disclosures regarding
dormancy, inactivity, or service fees must be clearly and conspicuously
stated on the certificate or card, and the issuer or vendor must
provide these disclosures to the purchaser before the certificate or
card is purchased.
Expiration Date Restrictions
The proposed rule would also provide that a gift certificate, store
gift card, or general-use prepaid card may not be sold or issued unless
the expiration date of the funds underlying the certificate or card is
no less than five years after the date of issuance (in the case of a
gift certificate) or five years after the date of last load of funds
(in the case of a store gift card or general-use prepaid card). In
addition, information regarding whether funds underlying a certificate
or card may expire must be clearly and conspicuously stated on the
certificate or card and disclosed prior to purchase.
Two proposed alternative approaches are set forth to minimize
potential confusion for consumers if the expiration date on a
certificate or card and the expiration date for the underlying funds
differ. The first alternative would prohibit the sale or issuance of a
certificate or card that has a printed expiration date that is less
than five years from the date of purchase. The second alternative would
require policies or procedures to ensure that a consumer has a
reasonable opportunity to purchase a certificate or card that has an
expiration date that is at least five years from the date of purchase.
The proposed rule would also require a certificate or card to
include a disclosure alerting consumers to the difference between the
certificate or card expiration date and the funds expiration date, if
any, and that the consumer may contact the issuer for a replacement
card. This disclosure must be stated with equal prominence and in close
proximity to the certificate or card expiration date. In addition, the
proposed rule would prohibit the imposition of any fees for replacing
an expired certificate or card to ensure that consumers are able to
access the underlying funds for the full five-year period.
Additional Disclosure Requirements Regarding Fees
In addition to the statutory restrictions for dormancy, inactivity,
or service fees, the proposed rule would require the disclosure of all
other fees imposed in connection with a gift
[[Page 60988]]
certificate, store gift card, or general-use prepaid card. These
disclosures would have to be provided on or with the certificate or
card and disclosed prior to purchase. The proposed rule would also
require the disclosure on the certificate or card of a toll-free
telephone number and, if one is maintained, a Web site that a consumer
may use to obtain fee information or replacement certificates or cards.
Exclusions
Consistent with the statute, the proposed rule excludes certain
card products from the definitions of gift certificate, store gift
card, or general-use prepaid card. For example, cards, codes, or other
devices that are issued in connection with a loyalty, award, or
promotional program, or that are reloadable and not marketed or labeled
as a gift card or gift certificate, would not be subject to the
substantive restrictions on imposing dormancy, inactivity, or service
fees, or on expiration dates. However, under the proposal, disclosures
of all fees, including any dormancy, inactivity, or service fees, and
any expiration date that may apply, would be required for certificates
or cards issued through a loyalty, award, or promotional program.
IV. Legal Authority
Section 401 of the Credit Card Act creates a new Section 915 of the
EFTA and prohibits any person from charging dormancy, inactivity, or
service fees with respect to a gift certificate, store gift card, or
general-use prepaid card, as those terms are defined in the Act, unless
there have been at least 12 months of inactivity with respect to the
certificate or card, not more than one fee is charged in any given
month, and certain disclosures regarding such fees are provided to the
consumer. See EFTA Section 915(b); 15 U.S.C. 1693m(b). In addition,
Section 401 of the Credit Card Act makes it unlawful for any person to
sell or issue a gift certificate, store gift card, or general-use
prepaid card that is subject to an expiration date, unless the
expiration date is at least five years after the date on which a gift
certificate is issued or five years after funds are last loaded on a
store gift card or general-use prepaid card, and the terms of
expiration are clearly and conspicuously disclosed. See EFTA Section
915(c); 15 U.S.C. 1693m(c).
Section 401(d)(1) of the Credit Card Act requires the Board to
prescribe rules to carry out the new requirements. This section also
gives the Board the authority to prescribe rules addressing the amount
of dormancy, inactivity, or service fees that may be imposed, and the
balance below which such fees may be assessed. See EFTA Section
915(d)(1); 15 U.S.C. 1693m(d)(1). In addition, Section 401(d)(2) of the
Credit Card Act requires the Board to determine the extent to which the
individual definitions and provisions of the EFTA and Regulation E
should apply to gift certificates, store gift cards, and general-use
prepaid cards. See EFTA Section 915(d)(2); 15 U.S.C. 1693m(d)(2).
Lastly, Section 402 of the Credit Card Act amends EFTA Section 920 to
provide that the EFTA does not preempt any State laws that address
dormancy, inactivity, or service fees or expiration dates for gift
certificates, store gift cards, or general-use prepaid cards if such
State laws provide greater consumer protection than the new gift card
provisions.
In addition to the statutory mandates set forth in the Credit Card
Act, Section 904(a) of the EFTA authorizes the Board to prescribe
regulations necessary to carry out the purposes of the title. The
express purposes of the EFTA are to establish ``the rights,
liabilities, and responsibilities of participants in electronic fund
transfer systems'' and to provide ``individual consumer rights.'' See
EFTA Section 902(b); 15 U.S.C. 1693. Section 904(c) of the EFTA further
provides that regulations prescribed by the Board may contain any
classifications, differentiations, or other provisions, and may provide
for such adjustments or exceptions for any class of electronic fund
transfers, that the Board deems necessary or proper to effectuate the
purposes of the title, to prevent circumvention or evasion, or to
facilitate compliance.
V. Section-by-Section Analysis
Section 205.4 General Disclosure Requirements; Jointly Offered Services
Section 205.4 contains the general disclosure requirements under
Regulation E, including provisions relating to the form of disclosure.
Section 205.4(a)(1) provides that disclosures required by the
regulation shall be clear and readily understandable, in writing, and
in a form that the consumer may keep. To clarify that this standard is
one of general application, the Board is proposing to revise Sec.
205.4(a)(1) to provide that for certain disclosures required by the
regulation, different disclosure standards may apply when specified in
the rule.
For example, as further discussed below, the disclosures for
certain prepaid cards set forth in this proposal are subject to a
``clear and conspicuous'' standard, consistent with new Section 915 of
the EFTA, rather than the ``clear and readily understandable'' standard
that generally applies under Regulation E. See proposed Sec. 205.20,
discussed below. Similarly, under Sec. 205.11(c), notices provided by
financial institutions to satisfy the error investigation requirements
may be provided orally or in writing. See comment 11(c)-1.
Section 205.12 Relation to Other Laws
Section 920 of the EFTA (as redesignated by the Credit Card Act)
provides that the EFTA does not preempt any State laws relating to
electronic fund transfers except to the extent that such laws are
inconsistent with the EFTA's provisions. Section 920 further clarifies
that a State law is not inconsistent with the EFTA if the State law
provides greater protection for the consumer than under the Act.
Accordingly, Section 920 effectively creates a Federal floor for the
protections set forth in the Act (floor preemption). Section 205.12(b)
of Regulation E implements this provision.
The Credit Card Act amended Section 920 of the EFTA to apply the
EFTA's existing preemption provisions to State laws that address
``dormancy fees, inactivity charges or fees, service fees, or
expiration dates of gift certificates, store gift cards, or general-use
prepaid cards.'' See Section 402 of the Credit Card Act. Thus, State
laws that provide greater protection for consumers than Title IV of the
Credit Card Act as codified in the EFTA, are not preempted by the EFTA.
The Board is proposing to amend Sec. 205.12(b) of Regulation E and
comment 12(b)-1 to conform with the amendments to Section 920 of the
EFTA made by the Credit Card Act.
Section 205.20 Requirements for Gift Cards and Gift Certificates
20(a) Definitions
New EFTA Section 915(a)(2) generally defines the scope of gift
cards and gift certificates that are subject to the Credit Card Act's
restrictions on dormancy, inactivity, or service fees and the terms of
expiration. Specifically, Section 915 applies to gift certificates,
store gift cards, and general-use prepaid cards as those terms are
defined in the statute. In addition, new EFTA Section 915(a)(1) defines
a dormancy fee, inactivity charge or fee, and new EFTA Section
915(a)(3) defines a service fee. See 15 U.S.C. 1693m(a). Proposed Sec.
205.20(a) defines the following terms: gift certificate; store gift
card; general-use prepaid card; loyalty, award, or promotional gift
card; dormancy fee, inactivity charge or fee; and service fee.
[[Page 60989]]
The proposed definitions of gift certificate, store gift card, and
general-use prepaid card generally track the definitions set forth in
the statute. However, the Board is proposing certain adjustments to the
statutory definitions pursuant to its authority under EFTA Section
904(c) to provide clarity and to harmonize key terms throughout the
rule. In general, these adjustments are not intended to make
substantive changes to the statutory definitions.
As an initial matter, the Board notes that new EFTA Section 915
does not use consistent terminology to describe the payment devices
covered by the statute. For example, the statutory definition of a
general-use prepaid card refers to a ``card or other payment code or
device,'' while the statutory definition of a store gift card refers to
an ``electronic promise, plastic card, or other payment code or
device.''
The Board does not believe that distinguishing the types of
products covered by the rule by, for instance, the material that is
used to produce a payment card would be consistent with the statute's
overall purpose. The adoption of such distinctions would result in some
gift card products being excluded from the rule altogether based on the
type of material used to make the card. For example, if the definition
of store gift card literally required a card to be made out of plastic,
then a reloadable gift card that was made with a different material
would neither be a store gift card nor fall under any of the other
definitions of covered products.\6\
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\6\ Products issued in paper form only are excluded under new
EFTA Section 915(a)(2)(D)(v) and proposed Sec. 205.20(b)(5).
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In addition, the exclusions in EFTA Section 915(a)(2)(D) apply to
an ``electronic promise, plastic card, or payment code or device'' that
meets certain specified criteria. The Board does not believe that an
issuer that, for example, chooses to use non-plastic biodegradable
materials to create a more environmentally-friendly product should be
precluded from relying on an exclusion solely because its payment
device is not made of plastic. Therefore, the proposed rule generally
refers to ``cards, codes, or other devices'' to avoid such arbitrary
distinctions and to provide consistency across the definitions.
Proposed comment 20(a)-1 clarifies that the requirements of Sec.
205.20 generally apply to all cards, codes, or other devices that meet
the definition of gift certificate, store gift card, or general-use
prepaid card, even if they are not issued in card form. That is, the
rule would apply even if a physical card or certificate is not issued.
The proposed comment clarifies that products not issued in card form,
such as an account number or bar code that enables the consumer to
access underlying funds, would be subject to Sec. 205.20 if they
otherwise meet the definition of gift certificate, store gift card, or
general-use prepaid card. Similarly, Sec. 205.20 would apply to a
device with a chip or other embedded mechanism which links the device
to stored funds, such as a mobile phone or sticker containing a
contactless chip, if the device otherwise meets the definition of gift
certificate, store gift card or general-use prepaid card.
In addition, the term ``electronic promise'' is used in several
places in the statute to refer to a type of payment mechanism or
device. See EFTA Sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D). The
Board does not believe, however, that there is a meaningful distinction
between electronic promises and cards, codes, or other devices that can
be used as payment mechanisms. Instead, the Board views an electronic
promise as a commitment to pay that is itself manifested or represented
by a ``card, code, or other device,'' rather than as a distinct payment
mechanism. Proposed comment 20(a)-2 clarifies that the term
``electronic promise'' means ``a person's commitment or obligation
communicated or stored in electronic form made to a consumer to provide
payment for goods or services for transactions initiated by the
consumer.'' \7\ The proposed comment further provides that the promise
is represented by a card, code, or other device that is issued or
honored by the person, reflecting the person's commitment or obligation
to pay. Thus, the proposal contemplates that the term ``card, code, or
other device'' when used in the regulation also incorporates the
statutory reference to ``electronic promises.'' For example, if a
merchant issues a code that can be given as a gift and redeemed by the
recipient in an on-line transaction for goods or services, that code
represents an electronic promise by the merchant and would be a card,
code, or other device covered by Sec. 205.20. See proposed comment
20(a)-2.
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\7\ See, e.g., UCC 3-106(a)(12) (defining ``promise'' as a
``written undertaking to pay money signed by the person undertaking
to pay. An acknowledgment of an obligation by the obligor is not a
promise unless the obligor also undertakes to pay the obligation.'')
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Last, the statutory definitions of ``gift certificate'' and ``store
gift card'' refer to products that are ``issued in a specified
amount.'' In contrast, the statutory definition of a ``general-use
prepaid card'' refers to products that are ``issued in a requested
amount.'' One way to reconcile the use of these different terms in the
statute is to interpret ``specified'' as referring to cards that are
issued in a predenominated amount (e.g., a $50 gift card), and to
interpret ``requested'' as referring to a consumer-requested amount
(e.g., where the consumer states the amount to load on a gift card).
Such an interpretation would mean that gift certificates and store gift
cards issued in a consumer-requested amount and general-use prepaid
cards issued in a predenominated amount would be excluded from the
rule. The Board does not believe that such a result would be consistent
with the statute's purpose.
The Board believes that consumers should receive the same
protections when purchasing gift cards or gift certificates regardless
of whether the amount on the card or certificate is determined by the
issuer or the consumer. Thus, the Board is interpreting the statutory
definitions of gift certificate, store gift card, and general-use
prepaid card broadly to cover both predenominated and consumer-
designated certificates or cards. Therefore, the proposed rule uses the
term ``specified'' consistently across all three defined product terms
to capture all certificates or cards whether they are issued in
predenominated amounts or in a consumer-requested, or variable load,
amount.
The Board notes that although the EFTA generally applies only to
consumer accounts, the gift card provisions of the Credit Card Act do
not expressly limit the scope of the new restrictions to cards issued
for non-business purposes. The Board solicits comment on whether it is
appropriate to limit the scope of the final rule so that it does not
apply to cards issued for business purposes. Any such limitation,
however, would presumably not exclude cards that are purchased by a
business for the purposes of redistribution or resale to consumers for
consumers to use. For example, a program manager may purchase gift
cards directly from an issuing merchant and sell those cards through
the program manager's retail outlets. Or, a corporation may give gift
cards it has purchased directly from the issuing merchant to consumers
pursuant to a reward or other incentive program. In such cases, the
Board believes that because the end use of the gift card is for
consumer purposes, the consumer protections provided by the Credit Card
Act should apply, unless the card is otherwise excluded. (See EFTA
Section 915(a)(2)(D) and proposed Sec. 205.20(b), discussed below.)
Accordingly, given
[[Page 60990]]
that issuers would have to adopt controls and potentially monitor the
distribution or sale of gift cards to ensure that the end use is for
business purposes, comment is also requested regarding the overall
utility of, or need for, such a scope provision in the final rule.
20(a)(1) Gift Certificate
Proposed Sec. 205.20(a)(1) defines the term ``gift certificate''
as a card, code, or other device that is: (a) Issued to a consumer in a
specified amount that may not be increased or reloaded in exchange for
payment; and (b) redeemable upon presentation at a single merchant or
an affiliated group of merchants for goods or services. The proposed
definition generally tracks the definition set forth in the statute,
but modifies the terms to simplify and clarify the definition. See EFTA
Section 915(a)(2)(B).
The term ``affiliated group of merchants''--as further discussed
below under the definition of ``store gift card''--includes two or more
merchants or other persons that are related by common ownership or
common corporate control and share the same name, mark or logo. The
term also includes two or more merchants or other persons that agree
among each other to honor any card, code, or other device that bears
the same name, mark, or logo (other than the mark or logo of a payment
network) for the purchase of goods or services solely at such merchants
or persons. See proposed comment 20(a)(2)-2.
20(a)(2) Store Gift Card
Proposed Sec. 205.20(a)(2) defines the term ``store gift card'' as
a card, code, or other device that is: (a) Issued to a consumer in a
specified amount, whether or not that amount may be increased or
reloaded by the cardholder, in exchange for payment; and (b) redeemable
upon presentation at a single merchant or an affiliated group of
merchants for goods and services. The proposed definition generally
tracks the definition set forth in the statute, but modifies the terms
to simplify and clarify the definition. See EFTA Section 915(a)(2)(C).
Under the proposed rule, closed-loop cards generally would be
considered ``store gift cards'' or ``gift certificates,'' unless one of
the exclusions in Sec. 205.20(b), discussed below, applies.
A card, code, or other device that meets the requirements in
proposed Sec. 205.20(a)(2) qualifies as a ``store gift card,'' whether
or not the cardholder may later add more funds to the card, code, or
other device. Thus, because ``store gift card'' includes non-reloadable
cards, codes, or other devices that are redeemable at single merchants
or affiliated groups of merchants, proposed comment 20(a)(2)-1
clarifies and illustrates by way of example that a gift certificate as
defined in Sec. 205.20(a)(1) would be a type of store gift card.
Proposed comment 20(a)(2)-2 provides guidance on the term
``affiliated group of merchants.'' Under new EFTA Section 915(a)(2),
both the definition of ``gift certificate'' and ``store gift card''
refer to certificates or cards that are redeemable at a single merchant
or ``an affiliated group of merchants that share the same name, mark,
or logo.'' The term ``affiliate'' is not defined within the statute.
However, in other contexts, ``affiliate'' is used to describe a
relationship between two or more companies that is defined by some form
of common ownership or common corporate control by one of the
companies. See, e.g., 12 CFR 222.3(b) (defining ``affiliate'' under the
Board's Regulation V (Fair Credit Reporting)); 12 CFR 223.2 (defining
``affiliate'' under the Board's Regulation W (Transactions Between
Member Banks and Their Affiliates)). The Board believes that such a
concept should similarly apply to the term ``affiliate'' when used in
the proposed rules. Accordingly, the terms ``gift certificate'' and
``store gift card'' generally include cards, codes, or other devices
that are redeemable at some or all of the companies that are related by
virtue of common ownership or common corporate control and that share
the same name, mark, or logo. An ``affiliated group of merchants''
would also include franchisees because franchisees generally are
subject to a common corporate set of policies or practices under the
terms of their franchise licenses.
Under some retail card programs, merchants that honor the same
certificate or card may not be owned or otherwise controlled by the
same parent company. For instance, two unrelated companies may be
engaged in complementary businesses and agree to operate a common gift
card program in which cardholders may use the same certificate or card
at either of the two businesses. To illustrate, a movie theater chain
and a restaurant chain may decide to operate a gift card program that
enables cardholders to use the same gift card to pay for movie tickets
and for a meal preceding or following the movie. While such companies
would not be considered ``affiliates'' in other contexts, the Board
believes that it is appropriate to treat such arrangements like gift
card programs operated by retailers with the same parent company or
under common corporate control. Accordingly, proposed comment 20(a)(2)-
2 provides that the term ``affiliated group of merchants'' would
include two or more merchants or other persons that agree among each
other, by contract or otherwise, to redeem cards, codes, or other
devices bearing the same name, mark, or logo for purchases of goods or
services solely at the establishments of such merchants or persons.
(See also proposed comment 20(a)(3)-2 regarding mall cards, discussed
below.) The proposed comment clarifies, however, that merchants or
other persons would not be considered affiliated merely because they
agree to accept a card that bears the mark, logo, or brand of a payment
network. Thus, for example, a grocery store would not be considered
affiliated with a hardware store merely because they both agree to
accept Visa or MasterCard-branded cards.
Proposed comment 20(a)(2)-3 addresses mall cards and cross-
references proposed comment 20(a)(3)-2, discussed below.
20(a)(3) General-Use Prepaid Card
Proposed Sec. 205.20(a)(3) defines ``general-use prepaid card'' as
a card, code, or other device that is: (a) Issued to a consumer in a
specified amount, whether or not that amount may be increased or
reloaded by the cardholder, in exchange for payment; and (b) redeemable
upon presentation at multiple, unaffiliated merchants or service
providers for goods or services, or usable at ATMs. The proposed
definition generally tracks the definition set forth in the statute,
but modifies the terms to simplify and clarify the definition. See EFTA
Section 915(a)(2)(A). Under the proposed rule, open-loop cards
generally are considered to be ``general-use prepaid cards,'' unless
one of the exclusions in Sec. 205.20(b), discussed below, applies.
Proposed comment 20(a)(3)-1 clarifies that a card, code, or other
device is ``redeemable upon presentation at multiple, unaffiliated
merchants'' if, for example, the merchants agree to honor the card,
code, or device if it bears the mark, logo, or brand of a payment
network, pursuant to the rules of the payment network.
One popular form of gift card is a mall gift card, which is
generally intended to be used or redeemed at participating retailers
located within the same shopping mall. In some cases, however, the mall
card may also be network-branded which permits the card to be used at
any retailer that accepts that card brand, including retailers located
outside of the mall. Proposed comment
[[Page 60991]]
20(a)(3)-2 provides that a mall card could be considered a store gift
card or a general-use prepaid card depending on the locations in which
the card may be redeemed. That is, if use of the mall card is limited
to the retailers at the associated shopping mall, the card is more
likely to be considered a store gift card. If the mall card also
carries the brand of a payment network and can be used at any retailer
accepting that brand, the card would be considered a general-use
prepaid card. Regardless, the substantive and disclosure requirements
of Sec. 205.20 would apply to mall cards whether they are considered
store gift cards or general-use prepaid cards.
20(a)(4) Loyalty, Award, or Promotional Gift Card
New EFTA Section 915(a)(2)(D)(iii) excludes an electronic promise,
plastic card, or payment code or device from the definitions of ``gift
certificate,'' ``store gift card,'' or ``general-use prepaid card'' if
it is a loyalty, award, or promotional gift card, as such term is
defined by the Board. Proposed Sec. 205.20(a)(4) generally defines the
term ``loyalty, award, or promotional gift card'' as a card, code, or
other device that: (a) Is issued in connection with a loyalty, award,
or promotional program; (b) is redeemable upon presentation at one or
more merchants for goods or services, or usable at ATMs; and (c)
provides certain disclosures about any fees and expiration dates that
may apply to the card, code, or other device.
As an initial matter, the Board notes that the proposed definition
generally applies to any card, code, or other device issued pursuant to
a loyalty, award, or promotional program, regardless of whether the
consumer has provided any form of payment or other value to obtain the
card. The proposed definition covers, for example, gift cards mailed to
a consumer as a rebate on a product that a consumer has purchased in
response to a sales promotion, and gift cards given by a merchant to
reward frequent customers. The definition also covers cards provided by
employers to reward job performance. Proposed comment 20(a)(4)-1
provides examples of loyalty, award, or promotional programs.
Under proposed Sec. 205.20(b)(3), further discussed below, if a
card, code, or other device is deemed to be a loyalty, award, or
promotional gift card, it would not be subject to the substantive
restrictions on imposing dormancy, inactivity or service fees, or the
requirement to have expiration dates of at least five years.
Accordingly, to mitigate potential consumer surprise from unexpected
fees or expiration dates for these cards, proposed Sec.
205.20(a)(4)(iii) provides that in order to qualify as a ``loyalty,
award, or promotional gift card,'' certain disclosures regarding the
fees and expiration dates applying to such cards must also be provided
to the consumer. These disclosures are discussed in more detail below
under Sec. 205.20(b)(3).
20(a)(5) Dormancy or Inactivity Fee
New section 915(a)(1) of the EFTA defines a ``dormancy fee,'' or an
``inactivity charge or fee'' as ``a fee, charge, or penalty for non-use
or inactivity of a gift certificate, store gift card, or general-use
prepaid card.'' Proposed Sec. 205.20(a)(5) implements this definition
with non-substantive wording modifications to improve readability.
Because the Board believes the terms ``charge'' and ``penalty'' are
synonymous with ``fee'' as used in this definition, the proposal
simplifies the definition by not including the references to ``charge''
or ``penalty'' used in the statute.
20(a)(6) Service Fee
New EFTA Section 915(a)(3)(A) defines a ``service fee'' as ``a
periodic fee, charge, or penalty for holding or use of a gift
certificate, store gift card, or general-use prepaid card.'' Proposed
Sec. 205.20(a)(6) implements this definition using substantially the
same language as the statute. Because the Board believes the terms
``charge'' and ``penalty'' are synonymous with ``fee'' as used in this
definition, the proposal simplifies the definition by not including the
statutory references to ``charge'' or ``penalty'' used in the statute.
In addition, proposed comment 20(a)(6)-1 clarifies that a periodic
fee is a fee that may be imposed from time to time for holding or using
a gift certificate, store gift card, or general-use prepaid card. Such
fees may include a monthly maintenance fee, a transaction fee, a reload
fee, or a balance inquiry fee, whether or not the fee is waived for a
certain period of time or is only imposed after a certain period of
time. Transaction fees include, for example, fees imposed each time a
transaction is conducted with the certificate or card and foreign
transaction fees.
The Board considered an alternative interpretation of a ``periodic
fee'' as a fee that is imposed at regular intervals, which would
include a monthly maintenance fee, but not transaction fees or reload
fees that are triggered by consumer activity. The Board notes, however,
that the statutory definition of ``service fee'' refers to the ``use''
of a gift certificate, store gift card, or general-use prepaid card.
See new EFTA Section 915(a)(3)(A) (15 U.S.C. 1693m(a)(3)(A)).
Therefore, the Board believes that Congress intended to also capture
consumer-initiated fees such as transaction fees and reload fees in the
definition of ``service fee.'' Moreover, the Board is concerned that a
narrow interpretation of ``service fee'' would lead to circumvention by
issuers and result in a shift in fee structures from fees imposed at
regular intervals to fees that are imposed for a transaction or service
associated with the certificate or card. The Board believes that
interpreting the term ``service fee'' broadly, and thus limiting the
imposition of such fees, will improve the transparency and
predictability of costs to the consumer.
Consistent with new EFTA Section 915(a)(3)(B), proposed comment
20(a)(6)-1 also clarifies that a one-time initial issuance fee is not a
service fee. Proposed comment 20(a)(6)-1 also provides examples of
other one-time fees that are not service fees, including cash-out fees.
20(b) Exclusions
New EFTA Section 915(a)(2)(D) states that the terms ``general-use
prepaid card,'' ``gift certificate,'' and ``store gift card'' do not
include an electronic promise, plastic card, or payment code or device
that falls into one of six specified categories. See 15 U.S.C.
1593m(a)(2)(D). For example, reloadable cards that are not marketed or
labeled as a gift card or gift certificate are excluded from the
statutory definitions. Similarly, prepaid cards that are not marketed
to the general public are excluded from the statutory definitions.
Thus, under the statute, an excluded promise, card, code, or device is
not subject to the substantive restrictions regarding when a dormancy,
inactivity, or service fee may be imposed, or on expiration dates.
These excluded products also are not subject to the disclosure
requirements in the statute.
Proposed Sec. 205.20(b) implements the statutory exclusions and
provides that the terms ``gift certificate,'' ``store gift card,'' and
``general-use prepaid card'' do not include any cards, codes, or other
devices that meet any of the six conditions specified in the statute.
As noted above, the proposed rule uses the term ``card, code, or other
device,'' instead of the term ``electronic promise, plastic card, or
payment code or device'' for clarity and no substantive difference is
intended.
Proposed comment 20(b)-1 provides guidance on the effect of meeting
any of the specified exclusions. The comment
[[Page 60992]]
states that an excluded card, code, or other device is not subject to
any of the substantive restrictions and disclosure requirements
regarding the imposition of dormancy, inactivity, or service fees, or
expiration dates. The proposed comment also provides that the
additional disclosures in proposed Sec. 205.20(f) regarding other fees
imposed in connection with a card, code, or other device do not apply
to an excluded card, code, or other device.\8\
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\8\ See, however, proposed Sec. 205.20(a)(4)(iii) with respect
to loyalty, award, or promotional gift cards.
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Proposed comment 20(b)-2 clarifies that a card, code, or other
device may qualify for one or more exclusions. For example, a
corporation may award its employees with a gift card that is marketed
solely to businesses for incentive-related purposes. Under this
example, the card, code, or other device may qualify for the exclusion
for loyalty, award, or promotional gift cards, or for the exclusion for
cards, codes, or other devices not marketed to the general public. Even
if a card, code, or other device does not qualify for a particular
exclusion, it may still fall outside the rule under a different
exclusion. Thus, for example, if the gift card awarded by the
corporation is of a type that can also be purchased directly from a
merchant, the gift card may fall outside coverage under the rule
because it is a loyalty, award, or promotional gift card (provided that
certain disclosures are provided with the card as proposed under Sec.
205.20(a)(4)(iii)), even though the card would not qualify as a card
that is not marketed to the general public because it can also be
obtained through retail channels. See proposed Sec. 205.20(b)(4),
discussed below.
The six specific exclusions are discussed below.
20(b)(1) Usable Solely for Telephone Services
Proposed Sec. 205.20(b)(1) implements the exclusion for cards,
codes, or other devices that are usable solely for telephone services.
See EFTA Section 915(a)(2)(D)(i). Proposed comment 20(b)(1)-1 contains
examples of products that fall within this exclusion, such as prepaid
cards for long-distance telephone service and prepaid cards for
wireless telephone service. The proposed comment further clarifies that
this exclusion also includes prepaid products that may be used for
other services analogous in function to a telephone, such as prepaid
cards for voice over Internet protocol (VoIP) access time.
The Board notes that mobile phones today are capable of a number of
different functions in addition to voice communications, including
providing consumers the ability to send text messages and to access the
Internet. Accordingly, the Board solicits comment on whether it should
exercise its authority under EFTA Section 904 to expand the proposed
exclusion to cover other prepaid cards that may be redeemed for similar
or related technology services, such as prepaid cards used to obtain
mobile broadband or Internet access time. See, e.g., N.J. Rev. Stat.
Sec. 56:8-110 (excluding prepaid telecommunications and technology
cards from the definitions of ``gift card'' and ``gift certificate'').
The Board is concerned that interpreting the exclusion narrowly may
have the unintended effect or reducing the availability or variety of
prepaid telephone certificates or cards in the market.
20(b)(2) Reloadable and Not Marketed or Labeled as a Gift Card or Gift
Certificate
Proposed Sec. 205.20(b)(2) implements the exclusion for cards,
codes, or other devices that are reloadable and not marketed or labeled
as a gift card or gift certificate. See EFTA Section 915(a)(2)(D)(ii).
Consistent with the statute, the card, code, or other device must
be both reloadable and not marketed or labeled as a gift card or gift
certificate to qualify for the exclusion. Thus, a non-reloadable card
is not excluded, even if it is not marketed or labeled as a gift card
or gift certificate, unless a different exclusion applies. Similarly, a
reloadable card that is marketed as a gift card or gift certificate
does not qualify for the exclusion. Proposed comment 20(b)(2)-1
provides that a card, code, or other device is ``reloadable'' if it has
the capability of having more funds added by a consumer after the
initial purchase or issuance.
Proposed comment 20(b)(2)-2 clarifies the meaning of the term
``marketed or labeled as a gift card or gift certificate.'' Under the
proposed comment, the term means directly or indirectly offering,
advertising, or otherwise suggesting the potential use of a card, code,
or other device as a gift for another person. Moreover, whether the
exclusion applies does not depend on the type of entity that is making
the promotional message. For example, a card may be marketed or labeled
as a gift card or gift certificate if anyone (other than the purchaser
of the card),\9\ including the issuer, the retailer, the program
manager that may distribute the card, or the payment network on which a
card is used, promotes the use of the card as a gift card or gift
certificate. A certificate or card, including a general-purpose
reloadable card, may also be deemed to be marketed or labeled as a gift
card or gift certificate even if it is primarily marketed for another
purpose. For example, a reloadable network-branded card would be
marketed or labeled as a gift card or gift certificate if the issuer
principally advertises the card as a less costly alternative to a bank
account but promotes the card in a television, radio, newspaper, or
Internet advertisement, or on signage as ``the perfect gift'' during
the holiday season.
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\9\ Thus, a card would not be deemed to be marketed or labeled
as a gift card or gift certificate solely because the purchaser
gives the card to another consumer as a ``gift.''
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Proposed comment 20(b)(2)-3 provides positive and negative examples
of the term ``marketed or labeled as a gift card or gift certificate.''
Positive examples of marketing or labeling as a gift card or gift
certificate include displaying the word ``gift'' or ``present,''
displaying a congratulatory message, and incorporating gift-giving or
celebratory imagery or motifs on the card, certificate or accompanying
material, such as documentation, packaging and promotional displays. In
contrast, a card, code, or other device is not marketed or labeled as a
gift card or gift certificate if the issuer, vendor, or other person
represents that the card, code, or other device can be used as a
substitute for a checking, savings, or deposit account, as a budgetary
tool, or to cover emergency expenses. Similarly, a card, code, or other
device is not marketed as a gift card or gift certificate if it is
promoted as a substitute for travelers' checks or cash for personal
use, or promoted as a means of paying for a consumer's health-related
expenses. See proposed comment 20(b)(2)-3. The Board solicits comment
on whether additional guidance on marketing is necessary to provide
clarity with respect to the activities that may trigger coverage under
the rule and the activities that would not.
As discussed above, a gift card may be sold directly to the
consumer by a merchant at the merchant's store. In this type of
arrangement, the merchant is typically the primary party involved in
issuing the card and operating the card program. As such, the issuer
can be expected to have substantial control over all facets of the card
program, including how the card is sold or marketed.
[[Page 60993]]
In other cases, a gift card may be sold to consumers through
another merchant or retailer, such as a grocery store or a drug store,
on display racks that may make retail gift cards available alongside
gift cards from other merchants and other types of prepaid cards,
including general-purpose reloadable cards and telephone cards. In this
type of arrangement, multiple parties are generally involved in the
card distribution process. These parties may include: an issuer
(whether it is a merchant or a bank); a program manager who works with
issuers to administer any or all aspects of a card program, including
transaction processing, distribution, and marketing; and a seller or
distributor of the card.\10\ A seller or distributor of the card can be
an issuer, a program manager, or another party, such as a shopping mall
or a retailer. In these arrangements, responsibilities for operating
the program, including compliance with applicable laws or payment
network rules, are generally allocated by contract.
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\10\ In addition to these parties, a processor may work with the
issuer and the program manager to process card transactions, and in
some cases provide Web site and telephone customer service. For
open-loop card programs, the payment network operates the network
and establishes operating rules for card issuers, processors, and
merchants or ATMs that accept the card.
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When multiple parties are involved in a card program, the issuer
may not play a significant role in the card distribution process and
thus may have less control over how the card is displayed or marketed
at the locations where the card is sold. An exclusion that depends upon
how a card is marketed therefore poses substantial compliance risk for
an issuer that cannot fully control how its prepaid cards are marketed
to consumers. For example, where a card is sold in a substantial number
of retail outlets, the card issuer cannot verify in every instance how
the card is displayed or marketed at each retail outlet to ensure that
it is not being marketed as a gift card or gift certificate through
signage, advertisements, or otherwise.
To address this issue, proposed comment 20(b)(2)-4 provides that
the exclusion for a card, code, or other device that is reloadable and
not marketed or labeled as a gift card or gift certificate applies if
the individual card, code, or other device is not marketed or labeled
as a gift card or gift certificate and if entities subject to the rule
maintain policies and procedures reasonably designed to avoid such
marketing. The proposed comment provides illustrative examples of
procedures that would qualify and not qualify for the exclusion for
reloadable cards, codes, or other devices that are not marketed or
labeled as gift cards or gift certificates.
Under the first example, an issuer or program manager distributes a
general-purpose reloadable card through retailers and enters into a
contract with the retailer to establish the terms and conditions under
which the card will be sold and marketed at the retailer. The contract
includes restrictions prohibiting the general-purpose reloadable card
from being sold or otherwise marketed as a gift card or gift
certificate, and requirements for policies and procedures to regularly
monitor or otherwise verify that the cards are not being sold or
marketed as such. The issuer or program manager then sets up one
promotional display at the retailer for gift cards and another
physically separated display for excluded products under proposed Sec.
205.20(b), including the general-purpose reloadable cards, such that a
reasonable consumer would not believe that the excluded cards are gift
cards. Under these circumstances, the exclusion in Sec. 205.20(b)(2)
applies even if a retail clerk inadvertently stocks or places some of
the general-purpose reloadable cards on the gift card display because
the issuer or program manager maintains policies and procedures
reasonably designed to avoid the marketing of the general-purpose
reloadable card as a gift card or gift certificate. See proposed
comment 20(b)(2)-4.i.
In the second example, the same facts apply, except that the issuer
or program manager has set up a single promotional display at the
retailer on which a variety of prepaid cards, including store gift
cards, general-purpose reloadable cards, and wireless telephone cards,
are sold. A sign stating ``Gift Cards'' appears prominently at the top
of the display. Under proposed comment 20(b)(2)-4.ii, any general-
purpose reloadable cards sold under such circumstances would not
qualify for the exclusion in proposed Sec. 205.20(b)(2) because the
issuer or program manager does not maintain policies and procedures
reasonably designed to avoid the marketing of the general-purpose
reloadable cards as gift cards or gift certificates.
The Board solicits comment on whether the proposed comment provides
sufficient guidance regarding procedures that could enable an issuer,
program manager, or other covered entity to comply with the rule with
respect to an excluded product under proposed Sec. 205.20(b)(2). In
particular, comment is requested on practical issues that may arise in
a retail environment, for example, in areas where there may not be
sufficient space for covered and non-covered products to be separately
displayed, such as a checkout lane. Commenters are urged to provide
specific examples of measures that may be utilized to ensure that a
reasonable consumer would not believe that a card that would otherwise
be excluded, such as a general-purpose reloadable card, is a gift card
or gift certificate.
Some general-purpose reloadable cards that are not intended to be
marketed as a gift card, but rather as an alternative to a bank account
(or account substitute), such as for the unbanked, may be initially
sold as a non-reloadable open-loop card. After the card is purchased,
the cardholder may call the issuer to register the card. Once the
issuer has obtained the cardholder's personal information, a new
personalized, reloadable card may be sent to the cardholder.
The Board understands that under one model, the cardholder may use
the temporary non-reloadable card to conduct transactions immediately
after card purchase and up until the card is registered by the consumer
and replaced with the personalized, reloadable card. Under another
model, the temporary non-reloadable card may not be used by the
consumer to make purchases until the consumer calls to register the
card. Under the second model, the temporary card can be used after
registration until the personalized, reloadable card arrives in the
mail and is activated by the cardholder.
Under either model, the temporary card would not appear to qualify
for the reloadable and not marketed as a gift card or gift certificate
exclusion because it is non-reloadable. If the rule were to provide
that such products were to fall within the exclusion notwithstanding
the issuance of the initial non-reloadable card, then consumers that
elect not to register the card (and therefore do not obtain a
reloadable card) would not be given the statutory protections under the
Credit Card Act. Conversely, if the rule were to provide that such
products do not qualify for the exclusion at any point even if the card
is ultimately replaced by a reloadable card, then the exclusion in EFTA
Section 915(a)(2)(D)(ii) and proposed Sec. 205.20(b)(2) would
effectively be eliminated for most, if not all, general-purpose
reloadable cards, given existing business models and other regulatory
considerations.
Under a third approach, the restrictions on assessing dormancy,
inactivity, or service fees, and on expiration dates could be applied
solely to the initial non-reloadable card, but
[[Page 60994]]
not to the reloadable replacement card. While the third approach may
provide certain flexibility for some issuers, the Board is concerned
that consumers may be confused or surprised when they receive new terms
regarding dormancy, inactivity, or service fees and expiration dates
for the reloadable card that differ from the terms previously disclosed
at the initial purchase. Given these considerations, the Board solicits
comment on the appropriate treatment of these products.
20(b)(3) Loyalty, Award, or Promotional Gift Card
Proposed Sec. 205.20(b)(3) implements the exclusion for cards,
codes, or other devices for loyalty, award, or promotional gift cards.
See EFTA Section 915(a)(2)(D)(iii). As discussed above, proposed Sec.
205.20(a)(4) generally defines a ``loyalty, award, or promotional gift
card'' as a card, code, or other device that is issued in connection
with a loyalty, award, or promotional program.
In contrast to gift cards purchased at a store, loyalty, award, and
promotional gift cards typically are not funded by direct payment from
the consumer, but instead are funded by the entity sponsoring the card
program, such as a merchant, an employer, or a company. Prepaid cards
issued through such programs may serve as cost-effective substitutes
for traditional means of distributing funds through a promotion, such
as rebate checks, vouchers, or cash awards.
Much like rebate checks, vouchers, and cash awards, gift cards
distributed through a loyalty, award, or promotional program are
typically redeemable for a limited period of time. Loyalty, award, or
promotional gift cards thus generally carry shorter expiration dates
compared to gift cards purchased through retail channels.
From a consumer's perspective, consumers who receive a gift card
redeemable at one merchant as part of a loyalty, award, or promotional
program may be surprised to find that the fees and expiration date on
the card differ substantially from a card that they may have purchased
directly from that same merchant. Improved disclosure of these terms
for cards subject to the exclusion may help reduce consumer surprise or
confusion.
Consistent with the statutory exclusion in EFTA Section 915(a)(2),
the proposed rule does not impose substantive restrictions on dormancy,
inactivity, or service fees, or on expiration dates, for cards, codes,
or other devices issued pursuant to a loyalty, award, or promotional
program. Nonetheless, the Board believes that clear and conspicuous
disclosures of the terms that apply to a loyalty, award, or promotional
gift card are necessary to help consumers avoid surprise from
unexpected dormancy, inactivity, or service fees or from short
expiration dates.
Accordingly, the Board is proposing to exercise its authority under
new EFTA Section 915(a)(2)(D)(iii) to define loyalty, award or
promotional gift cards to require that consumers are given clear and
conspicuous disclosures about any fees, including dormancy, inactivity,
or service fees, or expiration dates, that may apply when they receive
a gift card through a loyalty, award, or promotional program. This
requirement would be implemented in proposed Sec. 205.20(a)(4)(ii).
Thus, in order to be deemed a ``loyalty, award, or promotional gift
card,'' and therefore qualify for the exclusion in proposed Sec.
205.20(b)(3), the card, code, or other device must set forth
disclosures regarding any fees and expiration dates that may apply to
the card, code, or device. While disclosures regarding dormancy,
inactivity, or service fees, expiration dates, and a toll-free number
and Web site for additional information must be on the card, code or
other device, disclosures regarding other fees may accompany the card,
code, or other device. See also proposed Sec. Sec. 205.20(d)(2),
(e)(2), and (f), discussed below. The proposed rule is intended to
strike a balance between the competing considerations of enabling
companies to manage the costs of providing consumers gift cards in
connection with loyalty, award, or promotional programs, and limiting
potential consumer confusion or surprise arising from the different
terms that may apply to such cards.
20(b)(4) Not Marketed to the General Public
Proposed Sec. 205.20(b)(4) implements the exclusion for cards,
codes, or other devices that are not marketed to the general public.
See EFTA Section 915(a)(2)(D)(iv). Whether a card is ``marketed to the
general public'' depends on the facts and circumstances, but the term
generally describes cards, codes, or other devices that are offered,
advertised or otherwise promoted to the general public. See proposed
comment 20(b)(4)-1. A card, code, or other device may be marketed to
the general public regardless of the advertising medium, including
television, radio, newspaper, the Internet, or signage.
In determining whether the exclusion applies to a particular card,
code, or other device, proposed comment 20(b)(4)-1 provides that a
number of factors must be considered, including the means or channel
through which the card, code, or device may be obtained by a consumer,
the subset of consumers that are eligible to obtain the card, code or
device, and whether the availability of the card, code, or device is
advertised or otherwise promoted in the marketplace. Thus, the Board
does not view the method of distribution by itself as dispositive in
determining whether a card, code, or other device is marketed to the
general public.
Proposed comment 20(b)(4)-2 provides examples illustrating the
exclusion. For instance, a merchant may sell its gift cards at a
discount to a business, either directly or indirectly through a third
party. The business that purchases the cards may give them to employees
or loyal consumers as incentives or rewards. In determining whether the
gift card is marketed to the general public, the merchant-issuer must
consider whether the card is of a type that is advertised or made
available to consumers generally or can be easily obtained elsewhere.
If the card may also be purchased through retail channels, the
exclusion in Sec. 205.20(b)(4) does not apply, even if the consumer
obtained the card as an incentive or reward. See proposed comment
20(b)(4)-2.i. In these cases, consumers could be confused when they
receive gift cards that appear substantially similar to those that they
could have purchased directly from a merchant, but contain different
terms and conditions, such as a shorter expiration date. Of course,
other exclusions under the proposed rule, such as the exclusion for
cards issued in connection with a loyalty, award, or promotional
program, may apply to such cards. See proposed Sec. 205.20(b)(3).
Similarly, the Board has also considered whether cards issued or
sold by a business pursuant to a marketing campaign that targets a
specific subset of consumers would fall within the exclusion. The Board
is concerned that a broad interpretation of the exclusion for cards not
marketed to the general public would create a loophole and undermine
the protections afforded to consumers under the rule. For example, a
national retail chain could decide to market its gift cards only to
members of its frequent buyers program. However, if any member of the
general public may become a member of the program, the general public
would still be able to obtain the cards. Thus, the Board believes such
cards would be covered by the rule in those circumstances, unless
another exclusion applies. See proposed comment 20(b)(4)-2.ii.
Similarly, a reloadable card advertised
[[Page 60995]]
to teenagers to help them manage their everyday expenses and for
emergencies, or marketed to parents to enable them to monitor spending
would be a card marketed to the general public. See proposed comment
20(b)(4)-2.iii.
In contrast, where the availability of the card itself is not
advertised or otherwise promoted, but rather, is merely used as the
means through which funds are delivered to a consumer, the Board
believes the card is not marketed to the general public. Proposed
comment 20(b)(4)-2 includes four examples of cards that may fall within
the exclusion depending on the circumstances: (a) A card containing
insurance proceeds provided by an insurance company to a customer to
settle a claim; (b) a card containing travel expenses or per diem funds
provided by a business to an employee; (c) a card containing store
credit provided by a retailer to a customer following a merchandise
return if the card states that it is issued for store credit; and (d) a
card containing tax refunds provided by a tax preparer to a customer.
See proposed comments 20(b)(4)-2.iv-.vii.
Whether a non-reloadable tax refund card is marketed to the general
public will depend upon the facts and circumstances. For example, if a
tax preparer merely provides the prepaid card as a mechanism for
providing a tax refund to a consumer, and does not advertise or
otherwise promote the ability to receive a tax refund through a prepaid
card, the card would be excluded because it is not marketed to the
general public. However, if the tax preparer engages in a marketing
campaign that touts the ability of a consumer to receive a prepaid card
for faster access to their tax refund proceeds, the tax refund card
would not be exempt under this exclusion. See proposed comment
20(b)(4)-2.vii.
20(b)(5) Issued in Paper Form Only
Proposed Sec. 205.20(b)(5) sets forth the exclusion for cards,
codes, or other devices that are issued in paper form only. See EFTA
Section 915(a)(2)(D)(v). As explained in proposed comment 20(b)(5)-1,
the exclusion applies where the sole means of issuing the card, code,
or other device is by paper. Examples of excluded paper gift
certificates or cards include paper certificates distributed by
restaurants or spas that are redeemable for a specific service or a
specified dollar amount, and paper vouchers valid for tickets or
events.
To prevent potential circumvention of the rule, the proposed
commentary explains that the exclusion does not apply simply because a
card, code, or other device is reproduced or otherwise printed on
paper. For example, a bar code or card or certificate number sent
electronically to a consumer and redeemable for goods or services is
not issued in paper form, even if it may be reproduced or otherwise
printed on paper by the consumer.\11\ Similarly, Sec. 205.20(b)(5)
would not apply where an on-line retailer electronically mails a
certificate redeemable for goods or services to a consumer, which the
consumer could print out on a home printer. In these circumstances,
although the consumer might hold a paper facsimile of the card, code,
or other device, the exclusion does not apply because the information
necessary to redeem the value was initially issued in electronic form.
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\11\ An issuer may, however, replace a gift certificate that was
initially issued in paper form only with a plastic card or
electronic code (for example, to replace a lost paper certificate)
without falling outside the exclusion in Sec. 205.20(b)(5).
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The proposal does not, however, preclude a paper certificate
bearing a bar code or account number that is given to the consumer at
the time of purchase from qualifying for the exclusion. For example, a
retailer may generate a bar code on a paper certificate at the time of
purchase that enables the retailer to scan the certificate and maintain
a record of the certificate electronically, rather than enter the
information in a ledger. Because the bar code is not issued to the
consumer in any form other than on the paper given to the consumer,
this certificate would qualify for the exclusion for cards, codes, or
other devices issued in paper form.
Comment is requested regarding whether this aspect of the proposal
creates an undue risk of circumvention. For example, a paper
certificate or card that is encoded with a magnetic stripe might
qualify for the exclusion. Other than the material on which the
magnetic stripe is printed or produced, however, there is no meaningful
distinction between a plastic card with a magnetic stripe and a paper
certificate or card with a magnetic stripe encoded on the paper.
20(b)(6) Redeemable Solely for Admission to Events or Venues
Proposed Sec. 205.20(b)(6) excludes cards, codes, or other devices
that are redeemable solely for admission to events or venues at a
particular location or group of affiliated locations, or to obtain
goods or services, in conjunction with such admission, at the event or
venue, or at specific locations affiliated with and in geographic
proximity to the event or venue. See EFTA Section 915(a)(2)(D)(vi).
Under the proposed rule, the exclusion in Sec. 205.20(b)(6) is
generally limited to cards, codes, or other devices that do not state a
specific monetary value but instead are redeemable for an admission to
an event or venue, such as a ticket to a sporting event or a pass to
enter an amusement park. In addition, the exclusion applies to cards,
codes, or other devices that entitle consumers to obtain goods or
services, in conjunction with admission to an event or venue. See EFTA
Section 915(a)(2)(D)(vi). For example, the consumer might purchase a
certificate or card that entitles the recipient to one ticket to an
amusement park plus a dollar amount that can be spent on concessions at
the park. Consistent with the statute, the proposed exclusion in Sec.
205.20(b)(6) would also cover circumstances where the consumer may
obtain goods or services at specific locations affiliated with and in
geographic proximity to the event or venue in conjunction with
admission. For example, a certificate or card may enable a consumer to
gain admission to an amusement park and to receive a souvenir of the
occasion at a retailer affiliated with the park and located within or
nearby the park.
While the exclusion would apply to cards, codes, or other devices
that are redeemable for admission to an event or venue, and for goods
or services purchased in conjunction with that admission, the exclusion
does not cover cards, codes, or other devices issued in a specified
monetary value that could be applied toward such admission. For
example, a merchant with an affiliated amusement park could issue a $25
gift card to a consumer that can be redeemed by the recipient to
purchase goods at any of the merchant's retail outlets and its on-line
store. Under the terms of the prepaid card program, however, the
merchant could also allow the card to be provided as a form of payment
to purchase tickets at the amusement park.
The Board is concerned that permitting the exclusion to apply in
these circumstances would create opportunities for circumvention
because an issuer could simply list the purchase of tickets at the
amusement park as one of several permitted uses of a gift card to avoid
the consumer protections provided by the Credit Card Act. Accordingly,
the proposed rule would not apply the exclusion to a card that can be
redeemed in a specified amount towards admission to an event or venue.
In this regard, the Board notes that the statute refers to cards,
codes, or other devices that are redeemable solely for
[[Page 60996]]
admission to events or venues at a particular location or group of
affiliated locations. See EFTA Section 915(a)(2)(D)(vi).
The proposed exclusion in Sec. 205.20(b)(6) also would not apply
to other payment devices that do not have a specified monetary value
but are redeemable for a specified product or service, other than
admission to an event or venue. For example, an issuer or retailer may
sell a certificate or card that is redeemable for a spa treatment or
for a hotel stay. In such circumstances, the certificate or card is not
applied to obtain admission to the spa or hotel itself, but is used to
pay for services at those locations. The exclusion does not apply to
such cards because they are not redeemable solely for admission to an
event or venue. See EFTA Section 915(a)(2)(D)(vi). Nonetheless, other
exclusions in the rule may apply in these circumstances. See, e.g.,
proposed Sec. 205.20(b)(3).
Proposed comment 20(b)(6)-1 provides examples to illustrate the
exclusion in Sec. 205.20(b)(6). In addition to the examples discussed
above, the proposed comment also provides an example of cards that are
redeemable solely for membership to a buyer's club or warehouse or to a
gym. Such cards would fall within the exclusion in Sec. 205.20(b)(6)
because memberships are necessary for entry or admission to those
locations. The exclusion would not apply if the card has value that
could be applied either for a membership or for goods or services at
the warehouse or gym. See comment 20(b)(6)-1.v.
20(c) Form of Disclosures
20(c)(1) Clear and Conspicuous
New EFTA Sections 915(b)(3)(A) and (c)(2)(B) (15 U.S.C.
1693m(b)(3)(A) and (c)(2)(B)), as added by Section 401 of the Credit
Card Act, require that the disclosures made pursuant to those
paragraphs be clear and conspicuous. The Board believes it is also
appropriate to apply the clear and conspicuous standard to the
disclosures the Board is proposing under Sec. 205.20(f). Thus,
pursuant to the Board's authority under new EFTA section 904, proposed
Sec. 205.20(c)(1) applies the clear and conspicuous standard to all
disclosures required under Sec. 205.20.
Proposed comment 20(c)(1)-1 clarifies the meaning of the term
``clear and conspicuous'' for the purposes of this section.
Specifically, as the proposed comment explains, disclosures are clear
and conspicuous for the purposes of this section if they are readily
understandable and, in the case of written and electronic disclosures,
the location and type size are readily noticeable to consumers.
Disclosures need not, however, be located on the front of the
certificate or card to be considered clear and conspicuous. Disclosures
are clear and conspicuous for the purposes of this section if they are
in a print that contrasts with and is otherwise not obstructed by the
background on which they are printed. For example, disclosures on a
card or computer screen are not likely to be conspicuous if obscured by
a logo printed in the background. Similarly, the proposed comment
states that a disclosure on the back of a card that is printed on top
of indentations from embossed type on the front of the card is not
likely to be conspicuous if it obstructs the readability of the type.
The proposed comment clarifies that oral disclosures, to the extent
they are permitted, meet the clear and conspicuous standard when they
are given at a volume and speed sufficient for a consumer to hear and
comprehend them.
Though the proposal requires that the prescribed disclosures be
clear and conspicuous, it does not include a specific type size or
prominence requirement, except where otherwise noted. As discussed
below in proposed Sec. 205.20(e)(3)(iii), certain disclosures
regarding funds expiration are required to be made with equal
prominence and in close proximity to the certificate or card expiration
date on a certificate or card. The Board included this requirement
because of its specific concerns related to customer confusion with
respect to a certificate or card expiration date that may differ from
the expiration date for the underlying funds. However, the Board
believes requiring every disclosure on a certificate or card to have an
equal prominence or a minimum type size standard is impractical,
because the size of certificates or cards will vary. Therefore, a
general type size that is appropriate for one card may not fit on a
smaller card, due to the limited amount of space. Moreover, such
standards would present issues for disclosures even on standard-sized
cards, because the amount of space on such cards is limited.
The Board requests comment on whether description of the clear and
conspicuous standard in the final rule should include a type size or
prominence requirement for all disclosures and, if so, what standard is
appropriate. The Board also requests comment on whether there are
alternatives to a type size or prominence requirement that could ensure
that disclosures on a card are clear and conspicuous to a consumer.
Proposed Sec. 205.20(c)(1) states that the disclosures required by
this section may contain commonly accepted or readily understandable
abbreviations or symbols. Proposed comment 20(c)(1)-2 provides
illustrative examples, stating that the use of abbreviations and
symbols such as ``mo.'' for month or a ``/'' to indicate ``per'' is
permissible. The proposed comment notes that it is sufficient under the
clear and conspicuous standard to state, for example, that a particular
fee is charged ``$2.50/mo. after 12 mos.''
20(c)(2) Format
Proposed Sec. 205.20(c)(2) states that disclosures required by
this section generally must be provided to the consumer in written or
electronic form. Because the disclosures are not required to be in
written form, proposed comment 20(c)(2)-1 clarifies that electronic
disclosures made under this section are not subject to compliance with
the consumer consent and other applicable provisions of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.), which only applies when information is required to be
provided to a consumer in writing. The comment clarifies that
electronic disclosures may not be provided through a hyperlink or in
another manner by which the purchaser can bypass the disclosure. An
issuer or vendor is not required to confirm that the consumer has read
the electronic disclosures.
Proposed comment 20(c)(2)-2 addresses disclosure requirements in
circumstances where no physical certificate or card is issued. Under
the proposed comment, disclosures would be required to accompany the
code, confirmation, or other written or electronic document provided to
the consumer.
Proposed Sec. 205.20(c)(2) states that only disclosures provided
under Sec. 205.20(c)(3) may be provided orally. Allowing oral
disclosures is necessary because, in some circumstances, disclosures
cannot be made prior to purchase unless made orally, such as when a
certificate or card is purchased by telephone. Even where oral
disclosures are permitted, written or electronic disclosures must still
be provided on or with the certificate or card. See proposed Sec. Sec.
205.20(d)(2), (e)(3), and (f).
20(c)(3) Disclosures Prior to Purchase
New EFTA Section 915(b)(3)(B) (15 U.S.C. 1693m(b)(3)(B)), requires
that dormancy, inactivity, or service fees be
[[Page 60997]]
disclosed before a gift certificate, or store gift card, or general-use
prepaid card is purchased. In addition, the Board proposes to use its
authority under EFTA Section 904 to require the disclosure of
additional fees under Sec. 205.20(f)(1), discussed below, and the
terms and conditions of expiration of the funds prior to purchase of
the certificate or card. See proposed Sec. Sec. 205.20(e)(3) and
(f)(1), discussed below. These requirements are implemented in proposed
Sec. 205.20(c)(3).
The Board believes that consumers contemplating the purchase of a
certificate or card need information about all fees and the terms and
conditions of expiration before purchasing a certificate or card. Even
if the purchaser is not the ultimate user of the certificate or card,
the Board believes that a purchaser should be aware of any potential
costs to the recipient and the amount of time the recipient has to use
the funds underlying the certificate or card. Making this type of
information available to purchasers may also foster competition.
Proposed comment 20(c)(3)-1 clarifies that the disclosures required
under this paragraph must be provided regardless of whether the
certificate or card is purchased in person, on-line, by telephone, or
by other means.
20(c)(4) Disclosures on the Certificate or Card
Proposed Sec. 205.20(c)(4) addresses the requirements in Sec.
205.20 that certain disclosures be provided on the certificate or card
itself. See proposed Sec. Sec. 205.20(d)(2), 205.20(e)(3), and
205.20(f)(2). The paragraph states that a disclosure made in an
accompanying terms and conditions document, on packaging, or on a
sticker or other label affixed to the certificate or card does not
constitute a disclosure on the certificate or card.
The Board believes this interpretation is consistent with new EFTA
Section 915(b)(3)(A), which requires that a gift certificate, store
gift card, or general-use prepaid card clearly and conspicuously state
any dormancy, inactivity, or service fee and the conditions under which
they can be imposed. Requiring the fees and conditions to be disclosed
on the certificate or card ensures that the consumer and, if
applicable, the gift recipient will always have access to the
disclosures, because they cannot be separated from the certificate or
card. Moreover, a number of State laws already require certain fee and
expiration date disclosures on certificates or cards.\12\ Pursuant to
its authority under new EFTA Section 915(d)(1)(A), and as discussed
below in Sec. Sec. 205.20(e)(3) and (f)(2), the Board is proposing to
extend the requirement that certain disclosures be on the certificate
or card itself to certain additional disclosures. Specifically, the
proposal states that the certificate or card itself must state the
terms and conditions of expiration of the funds; a toll-free telephone
number a consumer may call for fee information or replacement
certificates or cards; and, if one is maintained, a Web site a consumer
may access for fee information or replacement certificates or cards.
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\12\ See, e.g., Ark. Code Sec. 4-88-703 and Neb. Rev. Stat.
Sec. Sec. 69-1305.03(e) and (f) (requiring expiration date and
certain fees to be disclosed on the gift certificate or card), and
Or. Rev. Stat. Sec. 646A.278 (requiring expiration date to be
disclosed on the gift card).
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The Board recognizes that the proposed requirements regarding
disclosures that must appear on a covered certificate or card may
present implementation challenges with respect to certain products,
particularly those that are small and have little space on which to
print required disclosures. The Board seeks comment regarding any
approaches or solutions that could avoid potential impediments to
innovation while still providing consumers clear and conspicuous
disclosures. The Board also seeks comment regarding how issuers
currently provide disclosures and how issuers comply with State laws
which have similar disclosure requirements to those set forth in the
proposed rules.
20(d) Prohibition on Imposition of Fees or Charges
New EFTA Sections 915(b)(1) and (2) generally prohibit the
imposition of a dormancy, inactivity, or service fee with respect to a
gift certificate, store gift card or general-use prepaid card unless:
(a) There has been no activity for the 12-month period ending on the
day the charge is imposed; (b) certain disclosure requirements have
been met; (c) only one such fee is charged in any given month; and (d)
the certificate or card complies with any additional requirements the
Board may establish. See 15 U.S.C. 1693m(b)(1) and (2). Regarding the
disclosure requirements noted above, new EFTA Section 915(b)(3)
provides that before a dormancy, inactivity, or service fee may be
imposed, a certificate or card must clearly and conspicuously disclose:
(a) That a dormancy, inactivity, or service fee may be charged; (b) the
amount of the fee; (c) how often such fee or charge may be assessed;
and (d) that such fee or charge may be assessed for inactivity. See 15
U.S.C. 1693m(b)(3). Moreover, the issuer or vendor of such certificate
or card must inform the purchaser of such charge or fee before such
certificate or card is purchased, regardless of whether the certificate
or card is purchased in person, over the Internet, or by telephone. See
15 U.S.C. 1693m(b)(3)(B).
Proposed Sec. 205.20(d) generally implements new EFTA Sections
915(b)(1), (2), and (3) while proposed Sec. 205.20(c)(3), discussed
above, implements new EFTA Section 915(b)(3)(B).\13\ The Board notes
that although ``dormancy or inactivity fee'' is defined separately from
``service fee,'' for improved readability, proposed Sec. 205.20(d) and
associated commentary refer to these fees collectively as ``dormancy,
inactivity, or service fees.'' As discussed above, proposed Sec.
205.20(c)(3) also requires the issuer or vendor to inform the purchaser
about certain other terms prior to purchase.
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\13\ The proposed rule does not separately implement the
exclusion in new EFTA Section 915(b)(4) from the dormancy,
inactivity, or service fee restrictions for gift certificates
distributed pursuant to an award, loyalty, or promotional program
and with respect to which there is no money or other value
exchanged. The Board believes this exclusion is already effectively
implemented through the definition of ``gift certificate'' in
proposed Sec. 205.20(a)(1)(iii) and the exclusion in proposed Sec.
205.20(b)(3) for loyalty, award, or promotional gift cards.
---------------------------------------------------------------------------
The Board is proposing several comments to clarify the provisions
in Sec. 205.20(d). Proposed comment 20(d)-1 illustrates with examples
how to determine when a dormancy, inactivity, or service fee may be
imposed. Proposed comment 20(d)-2 clarifies the meaning of ``activity''
for purposes of proposed Sec. 205.20(d)(1). Specifically, any action
by the consumer to increase, decrease or otherwise make use of the
funds underlying a certificate or card constitutes activity. For
example, the purchase and activation of a card or the reloading of
funds onto a card constitutes activity for purposes of Sec.
205.20(d)(1). However, activity with respect to a certificate or card
would not include the imposition of a fee, the replacement of an
expired, lost, or stolen certificate or card, or a balance inquiry. The
Board solicits comment on whether there are any other actions taken by
a consumer that should be considered ``activity'' for purposes of
proposed Sec. 205.20(d)(1).
Proposed Sec. 205.20(d)(2) and (c)(3) require similar, but not
identical, disclosures. Proposed comment 20(d)-3 clarifies the
interaction between these provisions. Specifically, the proposed
[[Page 60998]]
comment provides that depending on the context, a single disclosure
regarding dormancy, inactivity, or service fees imposed that meets the
clear and conspicuous requirement may satisfy both the requirement in
Sec. 205.20(d)(2) that the disclosures be provided on the certificate
or card and the requirement in Sec. 205.20(c)(3) that the disclosures
be provided prior to purchase. For example, if the disclosures on a
certificate or card, required by Sec. 205.20(d)(2), are visible to the
consumer without having to remove packaging or other materials sold
with the certificate or card for a purchase made in person, the
disclosures also meet the requirements of Sec. 205.20(c)(3). If,
however, the disclosure does not meet the requirements of both
Sec. Sec. 205.20(d)(2) and (c)(3), proposed comment 20(d)-3 states
that a dormancy, inactivity, or service fee may need to be disclosed
multiple times or in multiple locations to satisfy the requirements of
Sec. Sec. 205.20(d)(2) and (c)(3). For example, if the disclosures on
a certificate or card, required by Sec. 205.20(d)(2), are obstructed
by packaging or other materials sold with the certificate or card for a
purchase made in person, they also must be disclosed on the packaging
sold with the certificate or card or in other manner visible to the
consumer to meet the requirements of Sec. 205.20(c)(3).
Proposed Sec. Sec. 205.20(d)(2), (e)(3), and (f)(2) require
certain disclosures to be made on the certificate or card itself, as
applicable. Proposed comment 20(d)-4 clarifies that in addition to
disclosures required under Sec. 205.20(d)(2), any applicable
disclosures under Sec. Sec. 205.20(e)(3) and (f)(2) of this section
must also be provided on the certificate or card.
Finally, proposed comment 20(d)-5 clarifies the prohibition in
Sec. 205.20(d)(3) against charging more than one dormancy, inactivity,
or service fee in any given calendar month. Specifically, proposed
comment 20(d)-5 provides that if a dormancy, inactivity, or service fee
is already imposed in a given calendar month, a second dormancy,
inactivity, or service fee may not be imposed that month. If more than
one dormancy, inactivity, or service fee is possible on a given day,
the person assessing the fee may choose which dormancy, inactivity, or
service fee to impose. The proposed comment also clarifies that the
restriction in proposed Sec. 205.20(d)(3) applies only to dormancy,
inactivity, or service fees. As a result, a fee that is not a dormancy,
inactivity, or service fee may be imposed in addition to a dormancy,
inactivity, or service fee in a given month. Proposed comment 20(d)-5
would also provide examples with specific dates to illustrate these
concepts.
20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration
Dates
New EFTA Section 915(c) prohibits the sale of a gift certificate,
store gift card, or general-use prepaid card subject to an expiration
date unless: (a) The expiration date is not earlier than five years
after the date on which a gift certificate was issued, or the date on
which card funds were last loaded to a store gift card or general-use
prepaid card; and (b) the terms of expiration are clearly and
conspicuously stated. See 15 U.S.C. 1693m(c). Proposed Sec. 205.20(e)
implements new EFTA Section 915(c).
Application of EFTA Section 915(c) to Certificate or Card Expiration
and Funds Expiration
New EFTA Section 915(c) does not specify whether the restrictions
apply to the expiration of the certificate or card itself or the
underlying funds. It is the Board's understanding that for many
general-use prepaid cards, and perhaps some gift certificates and store
gift cards, the expiration date for the certificate or card differs
from the expiration date for the underlying funds. For example, the
underlying funds of some network-branded cards, which are required to
have card expiration dates under card network rules and systems, never
expire.
In order to ensure that consumers receive the full protection
established by the statute with respect to the value of the certificate
or card, proposed Sec. 205.20(e)(2) would require that funds be
available for the later of: (a) Five years from the date the gift
certificate was issued, or the date on which funds were last loaded to
a store gift card or general-use prepaid card; or (b) until the
certificate or card expiration date.
In addition, to prevent consumer confusion, the proposed rule
addresses the potential mismatch and resulting disconnect between a
stated expiration or valid through date of the certificate or card and
the date the funds expire. Specifically, consumers may assume that once
the certificate or card expiration date has passed, the underlying
funds are no longer valid or available. Presumably, a certificate or
card expiration date that matches the funds expiration date would not
cause confusion among consumers. However, a certificate or card
expiration date that is identical to the funds expiration date may not
be feasible. First, at the time a certificate or card expiration date
is printed on a certificate or card, it may be impossible to predict
the funds expiration date, which would, under the Board's proposed
rule, depend on when a consumer purchases the certificate or card or
adds funds to a reloadable card. For example, if the certificate or
card expiration date is printed during the certificate or card
manufacturing process, this process may occur several months prior to
the date the consumer purchases the certificate or card and activates
it for use. Second, because the expiration date required under new EFTA
Section 915(c) for store gift cards and general-use prepaid cards must
be calculated from the date the funds were last loaded, this would
mean, in practice, that funds underlying a reloadable card might never
expire.
The Board considered prohibiting the use of expiration or valid
through dates for gift certificates, store gift cards, and general-use
prepaid cards. However, the Board understands that certain network
systems may not be able to support products that do not carry
expiration or valid through dates because of fraud and security
concerns. In addition, card expiration dates may be necessary for other
business reasons, such as to ensure that a card can remain usable for
its lifespan. Moreover, merchants have become accustomed to looking
for, or, in the case of telephone or on-line purchases, requesting,
certificate or card expiration dates. Mandating certificates or cards
without expiration or valid through dates could create significant
confusion among merchants, which in turn, could result in problems for
consumers' use of gift certificates, store gift cards, and general-use
prepaid cards at such merchants. Therefore, to harmonize, to the extent
feasible, the certificate or card expiration date and the funds
expiration date, the Board is proposing two alternative approaches for
applying new EFTA Section 915(c) to the expiration of a certificate or
card in Sec. 205.20(e)(1).
Under Alternative A of proposed Sec. 205.20(e)(1), the Board is
proposing that a person may not sell a gift certificate, store gift
card, or general-use prepaid card subject to an expiration date unless
the certificate or card expiration date is at least five years after
the date the certificate or card is sold or issued to a consumer. The
Board understands that there are some issuers and retailers of prepaid
cards with systems and procedures currently in place to prevent the
sale or issuance of a certificate or card unless there is a minimum
amount of time left before the certificate or card expiration date; for
example, 12 to 18 months from the date of sale or issuance. These
issuers and retailers may currently employ
[[Page 60999]]
inventory controls or point-of-sale procedures to prevent sales of
certificates or cards that do not meet the minimum time. For these
issuers and retailers, compliance with Alternative A would likely only
involve altering their systems and procedures to accommodate the five-
year time period instead of the current minimum time frame. However,
the Board is concerned that it may not be operationally feasible for
all issuers and retailers of gift certificates, store gift cards, and
general-use prepaid cards to institute these types of systems and
procedures by the mandatory compliance date of the final rule.
Alternative B of proposed Sec. 205.20(e)(1) would instead require
entities involved in issuing, distributing, and selling certificates or
cards to adopt policies and procedures to ensure that a consumer will
have a reasonable opportunity to purchase a certificate or card with at
least five years remaining until the certificate or card expiration
date. Proposed comment 20(e)-1 under Alternative B would set forth
positive and negative examples of providing consumers a reasonable
opportunity to purchase a certificate or card with at least five years
remaining until the certificate or card expiration date. For example, a
person subject to this rule would comply with Alternative B of proposed
Sec. 205.20(e)(1) if a card is printed with an expiration date that is
six years from the date the card was produced and on a display rack at
a retail store within six months of the date the card was produced.
Similarly, a person would comply with Alternative B of proposed Sec.
205.20(e)(1) if a card is printed with an expiration date that is seven
years from the date the card was produced and on a display rack at a
retail store within one year and six months of the date the card was
produced. However, a person would not comply with Alternative B of
proposed Sec. 205.20(e)(1) if a card is printed with a card expiration
date six years from the date it was produced and is stored in a
distribution warehouse for more than one year before being made
available for sale.
Unlike Alternative A of Sec. 205.20(e)(1), Alternative B would not
require a person to confirm that a certificate or card is in fact sold
or issued to a consumer with at least five years before the certificate
or card expiration date. As a result, the expiration date reflected on
the certificate or card may, in some cases, be less than five years
from the date of sale or issuance. While the consumer would still have
use of the underlying funds for a minimum of five years from the date
of sale or issuance, as would be required under proposed Sec.
205.20(e)(2), the Board is concerned that a certificate or card
reflecting a certificate or card expiration date earlier than the funds
expiration date could prompt consumers to dispose of the certificate or
card before the funds expiration date.
The Board believes that Alternative A would provide the greatest
precision in matching the certificate or card expiration date with the
funds expiration date, though Alternative B may be easier to implement
than Alternative A. Given that persons subject to the rule may be able
to comply with Alternative B more rapidly than Alternative A, the Board
also solicits comment on whether it should consider adopting
Alternative B for a transitional period and adopt Alternative A as of a
subsequent date in order to provide more time to implement Alternative
A.
While either Alternative A or Alternative B may adequately address
potential consumer confusion regarding expiration dates with respect to
non-reloadable cards, such protections may not be sufficient for
reloadable cards where the funds expiration date changes each time the
card is reloaded. The Board is proposing to address this issue by
requiring certain disclosures related to the expiration of the
underlying funds. As discussed more fully below in the supplementary
information to proposed Sec. 205.20(e)(3), the Board is proposing that
the terms and conditions of expiration of the underlying funds be
disclosed on the certificate or card, including, where applicable, a
statement that the certificate or card expires, but the underlying
funds either do not expire or expire later than the certificate or
card, and that the consumer may contact the issuer for a replacement
card. See proposed Sec. 205.20(e)(3)(iii).
The Board also solicits comment on whether an additional or
alternative substantive solution to the proposed notice in Sec.
205.20(e)(3) may be warranted. Specifically, the Board is requesting
comment on whether it should also or alternatively require issuers to
automatically issue a replacement card to consumers prior to the card
expiration date of a reloadable card if the underlying funds will not
expire until after the card expiration date. The Board understands that
for some reloadable cards, issuers currently collect certain
information from the consumer, including name and address, before the
consumer may be permitted to reload funds to the card, or in some
cases, use the card at all. Thus, these issuers would have the
information necessary to send replacement cards before the card
expiration date, much as issuers currently do for credit cards, which
would avoid consumer confusion as to whether the underlying funds may
still be available. The Board is concerned, however, that not all
issuers of reloadable cards may have the systems in place to collect
name and address information and that establishing such systems could
be prohibitively expensive for these issuers. Furthermore, if a
consumer does not notify the gift card issuer of changes in address,
the issuer may not have a reliable current address to which it could
send a replacement card. The Board seeks comment on operational
considerations and the feasibility of implementing this requirement for
reloadable cards.
Disclosures Related to Certificate or Card Expiration and Funds
Expiration
New EFTA Section 915(c)(2)(B), which the Board proposes to
implement in Sec. 205.20(e)(3), requires that the terms and conditions
of expiration be clearly and conspicuously stated. See 15 U.S.C.
1693m(c)(2)(B).
Under proposed Sec. 205.20(e)(3), three disclosures must be stated
on the certificate or card, as applicable. First, proposed Sec.
205.20(e)(3)(i) provides that the disclosures must state the expiration
date for the underlying funds or, if the underlying funds do not
expire, that fact. In some instances, the exact expiration date of the
underlying funds may not be able to be determined. For example, in the
case of reloadable cards, the funds expiration date is determined under
the statute and the Board's proposed rule by the date the consumer last
loaded funds onto the card. As a result, the funds expiration date
adjusts each time the consumer reloads the card. For example, if a
consumer purchases a reloadable card on January 15, 2010, the funds may
expire on or after January 15, 2015. However, if a consumer loads more
funds onto the card on July 15, 2012, the funds may not expire until on
or after July 15, 2017. To accommodate this circumstance, proposed
comment 20(e)-1 under Alternative A (comment 20(e)-2 under Alternative
B) clarifies that Sec. 205.20(e) does not require disclosure of the
precise date the funds will expire. It would be sufficient to disclose,
for example, ``Funds expire 5 years from the date funds last loaded to
the card.''; ``Funds can be used 5 years from the date money was last
added to the card.''; or ``Funds do not expire.'' The Board requests
comment on whether these sample disclosures would effectively
communicate how long a consumer has
[[Page 61000]]
access to funds underlying a certificate or card.
Proposed comment 20(e)-2 under Alternative A (comment 20(e)-3 under
Alternative B) clarifies that if the certificate or card and the
underlying funds do not expire, that fact need not be disclosed. The
Board believes that disclosing the fact that the underlying funds do
not expire is not necessary in these situations because there is no
risk of consumers confusing the expiration date of the certificate or
card with that of the underlying funds.
Second, proposed Sec. 205.20(e)(3)(ii) provides that the
disclosures must also include a toll-free telephone number and, if one
is maintained, a Web site that a consumer may use to obtain a
replacement certificate or card after the certificate or card expires,
if the underlying funds may be available. Requiring a toll-free
telephone number to be maintained for purposes of obtaining a
replacement card is appropriate because, as discussed above, a
certificate or card expiration date may be earlier than the funds
expiration date.\14\ While the proposed rule does not similarly require
that a Web site be maintained for such purposes, if one is maintained,
that Web site must also be disclosed under Sec. 205.20(e)(3)(ii). By
requiring contact information to be on the certificate or card itself,
the Board believes that consumers will more easily be able to obtain a
replacement certificate or card should the certificate or card expire
before the underlying funds.
---------------------------------------------------------------------------
\14\ As discussed below under proposed Sec. 205.20(f), the
requirement that the telephone number be toll-free recognizes that
the end user of a certificate or card may not reside in the area
where the certificate or card was initially purchased.
---------------------------------------------------------------------------
Proposed comment 20(e)-3 under Alternative A (comment 20(e)-4 under
Alternative B) clarifies that if a certificate or card does not expire,
or if the underlying funds are not available after the certificate or
card expires, the disclosure required by proposed Sec.
205.20(e)(3)(ii) need not be stated on the certificate or card. A toll-
free telephone number and a Web site may still be required to be
disclosed, however, pursuant to proposed Sec. 205.20(f)(2) if the
certificate or card has fees. Proposed comment 20(e)-4 under
Alternative A (comment 20(e)-5 under Alternative B) clarifies that the
same toll-free telephone number and Web site may be used to comply with
the requirements of Sec. Sec. 205.20(e)(3)(ii) and (f)(2).\15\ In
addition, the proposed comment provides that neither a toll-free number
nor a Web site must be maintained or disclosed on a certificate or card
if no fees are imposed in connection with the certificate or card, and
the certificate or card and underlying funds do not expire.
---------------------------------------------------------------------------
\15\ The contact information may also be the same contact
information provided for any or all customer service issues or
questions relating to the certificate or card.
---------------------------------------------------------------------------
Finally, proposed Sec. 205.20(e)(3)(iii) would require, if
applicable, a statement that the certificate or card expires, but the
underlying funds either do not expire or expire later than the
certificate or card, and that the consumer may contact the issuer for a
replacement card. This requirement is designed to ensure that consumers
are alerted to any distinction between the certificate or card
expiration date and the funds expiration date so that they do not
mistakenly believe the funds are no longer available during the minimum
five-year period set forth in the statute.
Proposed Sec. 205.20(e)(3)(iii) also requires the statement to be
disclosed with equal prominence and in close proximity to the
certificate or card expiration date. While other required disclosures
in this section are not subject to similar prominence and proximity
requirements, the Board believes that such requirements are appropriate
for the disclosures required under proposed Sec. 205.20(e)(3)(iii).
Typically, the expiration date for a certificate or card may be printed
on the certificate or card in a prominent location and type size, which
enables the merchant to easily verify the validity of the card at
point-of-sale and the consumer to find this date when making telephone
or on-line purchases. Thus, the Board is concerned that the prominence
of the expiration date on the certificate or card (without any
additional protections) may lead consumers to assume that once the
certificate or card itself expires, the underlying funds will be
unavailable. The disclosures proposed under Sec. 205.20(e)(3)(iii)
regarding expiration are intended not only to inform consumers of their
rights, but also to reduce potential consumer confusion that may occur
if an expiration date for a certificate or card differs from the funds
expiration date. Therefore, the Board believes disclosures regarding
the expiration of the funds require more specific format requirements
than other disclosures that are required to be on the certificate or
card.
As clarified in proposed comment 20(e)-5 under Alternative A
(comment 20(e)-6 under Alternative B), close proximity, in the context
of a certificate or card, means that the disclosure must appear on the
same side as the certificate or card expiration date so that consumers
do not automatically assume funds are not available after the
certificate or card expiration date. For example, many card expiration
dates are stated on the front of a card. If the disclosure alerting the
consumer to the fact that this expiration date does not apply to the
underlying funds is printed on the back of the certificate or card, the
consumer may not notice the disclosure if he or she does not have
reason to look for an additional disclosure. However, if the disclosure
is on the front of the card in close proximity to the card expiration
date, the consumer may be more likely to notice it and seek additional
information regarding how the consumer could continue to use the card
after the card expiration date.
Proposed comment 20(e)-5 under Alternative A (comment 20(e)-6 under
Alternative B) also clarifies that if the disclosure is the same type
size and is located immediately next to or directly above or below the
certificate or card expiration date, without any intervening text or
graphical displays, the disclosures would be deemed to be equally
prominent and in close proximity. The disclosure need not be embossed
on the certificate or card to be deemed equally prominent, even if the
expiration date is embossed on the certificate or card. The Board
believes these format standards would sufficiently ensure that most
consumers can determine whether an expiration date for a certificate or
card is different from the funds expiration date.
Proposed comment 20(e)-5 under Alternative A (comment 20(e)-6 under
Alternative B) provides examples regarding how a disclosure may inform
a consumer of the distinction between the certificate or card
expiration and the funds expiration. The disclosure may state on the
front of the card, for example, ``Valid thru 09/2016. Call for new
card.''; ``Active thru 09/2016. Call for replacement card.''; or ``Call
for new card after 09/2016.'' The Board believes these disclosures,
used in conjunction with other disclosures required to be on the card,
such as a toll-free number that a consumer could call for a replacement
card, would provide sufficient information to inform consumers that
they may be able to continue using their funds after the certificate or
card itself has expired.
The Board recognizes that the amount of space available for
disclosures near the certificate or card expiration date is limited.
The Board requests comment regarding the feasibility of disclosing the
sample disclosures or similar statements ``in close proximity'' to the
certificate or card expiration date. The Board also requests comment on
whether the ``equal prominence''
[[Page 61001]]
standard is appropriate in the context of certificates or cards, or if
the Board should prescribe a minimum type-size requirement and, if so,
what type size is appropriate. Finally, the Board requests comment on
other effective methods of notifying consumers that underlying funds
may continue to be available after a certificate or card itself
expires.
Finally, the Board notes that proposed Sec. Sec. 205.20(d)(2),
(e)(3), and (f)(2) (as discussed below) require certain disclosures to
be made on the certificate or card itself, as applicable. Proposed
comment 20(e)-6 under Alternative A (comment 20(e)-7 under Alternative
B) thus clarifies that in addition to any disclosures required under
Sec. 205.20(e)(3), any applicable disclosures under Sec. Sec.
205.20(d)(2) and (f)(2) of this section must also be provided on the
certificate or card.
Other Protections and Clarifications
To ensure that consumers have full use of the funds loaded on a
certificate or card for the minimum five-year period set forth in the
statute, the Board proposes to use its authority under EFTA Section
904(c) to restrict the imposition of fees to replace an expired
certificate or card if the funds loaded on the certificate or card have
not expired. See 15 U.S.C. 1693b(c). Proposed Sec. 205.20(e)(4) under
both alternatives thus ensures that consumers retain a cost-free means
to access funds if a certificate or card expires before the funds have
expired. Proposed Sec. 205.20(e)(4) contains an exception, however,
for certificates or cards that have been lost or stolen. As a result, a
fee to replace a certificate or card before the expiration date of the
funds may be imposed for a lost or stolen certificate or card, to the
extent otherwise permitted under law. Proposed comment 20(e)-7 under
Alternative A (comment 20(e)-8 under Alternative B) clarifies that
although a fee is permitted to be charged to replace a lost or stolen
certificate or card under proposed Sec. 205.20(e)(4), the rule does
not create a substantive requirement that issuers replace a lost or
stolen certificate or card.
Proposed comment 20(e)-8 under Alternative A (comment 20(e)-9 under
Alternative B), clarifies that a certificate or card is not considered
to be issued or loaded with funds until it has been activated for use.
The Board understands that gift card issuers often produce gift cards
for display on retail shelves and racks or for mailing to consumers.
However, for security reasons, these cards cannot be used until the
card has been activated by a retail employee or by telephone. The
proposed comment clarifies that although a certificate or card may have
been produced, it is not considered to be ``issued'' or to have had
funds ``loaded'' for purposes of Sec. 205.20(e) until that card has
been activated for use.
20(f) Additional Disclosure Requirements for Gift Certificates or Cards
EFTA Section 905(a)(4) (15 U.S.C. 1693c(a)(4)) and Sec.
205.7(b)(5) of Regulation E require the disclosure of any fees imposed
by a financial institution for electronic fund transfers or for the
right to make such transfers. Pursuant to its authority under new EFTA
Section 915(d)(2) (15 U.S.C. 1693m(d)(2)) to determine the extent to
which the individual provisions of the EFTA and Regulation E should
apply to gift certificates, store gift cards, and general-use prepaid
cards, the Board is proposing Sec. 205.20(f) to require additional
fee-related disclosures for such certificates and cards.
20(f)(1) Fee Disclosures
The Board believes it is important for consumers to be aware of the
fees that may be imposed before they use a certificate or card. As a
result, proposed Sec. 205.20(f)(1) would require that, for each type
of fee that may be imposed in connection with a gift certificate, store
gift card, or general-use prepaid card, certain information concerning
fees must be disclosed on or with the certificate or card.
Specifically, the type of fee, the amount of the fee (or an explanation
of how the fee will be determined), and the conditions under which the
fee may be imposed must be disclosed. The provision excludes dormancy,
inactivity, and service fees, which must be disclosed under proposed
Sec. 205.20(d)(2). Therefore, fees other than dormancy, inactivity, or
service fees, such as one-time initial issuance fees and cash-out fees,
must be disclosed under proposed Sec. 205.20(f)(1). Furthermore, in
light of the other disclosures that must be provided on the certificate
or card itself and because the size of a certificate or card may limit
the disclosures that may be clearly and conspicuously disclosed on the
certificate or card, the proposal permits this additional information
to be disclosed either on or with the certificate or card. In addition,
similar to the disclosure requirements for dormancy, inactivity, and
service fees, the Board proposes to require the disclosure of these
fees prior to purchase, as discussed above in the supplementary
information to Sec. 205.20(c)(3).
20(f)(2) Telephone Number for Fee Information
The Board also proposes to use its authority under new EFTA
Sections 915(c)(2)(B) and 915(d)(1)(A), and EFTA Section 904 to require
that a toll-free telephone number and, if one is maintained, a Web
site, for information on fees be disclosed clearly and conspicuously on
a gift certificate, store gift card, or general-use prepaid card. See
15 U.S.C. 1693m(c)(2)(B); 15 U.S.C. 1693m(d)(1)(A); 15 U.S.C. 1693b.
Under proposed Sec. 205.20(f)(2), a toll-free telephone number must be
maintained to provide information on fees required to be disclosed
under proposed Sec. Sec. 205.20(d)(2) and (f)(1). The proposed rule
does not similarly require that a Web site be maintained for such
purposes, but if one is maintained, that Web site must also be
disclosed under Sec. 205.20(f)(2).
As discussed above, given the limited space on a certificate or
card, the Board anticipates that issuers may opt to disclose some fee
information on materials accompanying the certificate or card, as
opposed to on the certificate or card itself. If such information
accompanies the certificate or card, the disclosure may become
separated from the actual certificate or card. By requiring the
reference to the toll-free telephone number and, if one is maintained,
the Web site on the certificate or card, the proposal seeks to ensure
that consumers have an easy and cost-free means of obtaining fee
information related to the certificate or card, even if the consumer no
longer has the original disclosure.
Furthermore, the Board believes requiring the telephone number to
be toll-free is appropriate. Because gift certificates, store gift
cards, and general-use prepaid cards may be given by the purchaser to
another person, the end user of the certificate or card may not reside
in the area where the certificate or card was initially purchased. In
addition, the majority of certificates or cards sold in the United
States are issued by large retailers or large banks whose customer
service centers are not necessarily located in the area where the
certificate or card was purchased or will be used. A toll-free
telephone number would provide consumers with a means to access fee and
replacement certificate or card information without cost no matter
where in the United States the user of the certificate or card may
utilize the certificate or card.
Moreover, the Board understands that many issuers already maintain
toll-free telephone numbers and Web sites for consumers to contact for
further
[[Page 61002]]
information. Issuers maintaining toll-free telephone numbers or Web
sites often provide this information directly on the certificates or
cards they issue. As a result, the Board believes the proposed rule
would not impose additional burden on many issuers.
The proposal contains several comments to clarify proposed Sec.
205.20(f). Proposed comment 20(f)-1 clarifies that if a certificate or
card does not have any fees, the disclosure required by Sec.
205.20(f)(2) need not be disclosed on the certificate or card. A
telephone number and a Web site may still be required to be disclosed
pursuant to Sec. 205.20(e)(3)(ii) if funds underlying a certificate or
card may be available after the certificate or card expires.
Proposed comment 20(f)-2 clarifies that the same toll-free number
and Web site may be used to fulfill the requirements of Sec. Sec.
205.20(e)(3)(ii) and (f)(2).\16\ Neither a toll-free number nor a Web
site must be maintained or disclosed if no fees are imposed in
connection with a certificate or card, and the certificate or card and
underlying funds do not expire.
---------------------------------------------------------------------------
\16\ The contact information may also be the same contact
information provided for any or all customer service issues or
questions relating to the certificate or card.
---------------------------------------------------------------------------
Proposed Sec. Sec. 205.20(d)(2), (e)(3), and (f)(2) require
certain disclosures to be made on the certificate or card itself, as
applicable. Proposed comment 20(f)-3 thus clarifies that in addition to
any disclosures required to be made pursuant to Sec. 205.20(f)(2), any
applicable disclosures under Sec. Sec. 205.20(d)(2) and (e)(3) of this
section must be disclosed on the certificate or card.
Additional Issues
Authority To Adopt Additional EFTA Protections
New EFTA Section 915(d)(2) directs the Board to determine the
extent to which the individual definitions and provisions of the EFTA
or Regulation E should apply to general-use prepaid cards, gift
certificates, and store gift cards. See 15 U.S.C. 1693m(d)(2). As
discussed in proposed Sec. 205.20(f), the Board is proposing to
exercise this authority to mandate for each type of fee that may be
imposed (such as a transaction fee, a balance inquiry fee, or an
issuance fee), disclosure of the type of fee, the amount of the fee,
and the conditions under which such fee may be imposed. These
disclosures must be provided on or with a gift certificate, store gift
card, or general-use prepaid card subject to the rule. This requirement
is consistent with the requirement in EFTA Section 905(a)(4) (15 U.S.C.
1693c(a)(4)) and Regulation E Sec. 205.7(b)(5) to disclose any charges
for EFTs or for the right to make transfers.
The Board is not proposing at this time to apply to gift
certificates, store gift cards, or general-use prepaid cards, any other
requirements that generally apply to accounts under the EFTA and
Regulation E, such as periodic statement disclosures or error
resolution obligations. See, e.g., EFTA Sections 906(c) and 908; 15
U.S.C. 1693d(c) and 1693f. The Board believes that it is more
appropriate to make any such determination in the context of a broader
rulemaking that covers prepaid cards generally to avoid any regulatory
gaps or inconsistencies. For example, a requirement to impose some form
of periodic statement or error resolution obligations for reloadable
gift cards could lead to inconsistent treatment if similar requirements
were not simultaneously adopted for general-purpose reloadable cards,
which in many cases are marketed as substitutes for accounts subject to
the EFTA and Regulation E.
At this time, the Board is also not proposing to exercise the
authority under new EFTA Section 915(d)(1) to limit the amount of
dormancy, inactivity, or service fees, or the balance below which such
fees or charges may be assessed. See 15 U.S.C. 1693m(d)(1). The Board
understands that dormancy and inactivity fees in connection with retail
gift cards have trended downward over time. For example, the most
recent survey by one government agency indicates the median inactivity
fee has decreased from $1.73 per month to $1.38 per month from 2003 to
2007.\17\ Given this trend, there does not appear to be a need for the
Board to adopt additional restrictions at this time. Moreover, the
statute only permits one such fee per month if there has been no
activity over the preceding 12-month period. The Board will continue to
monitor the development of the gift card market and could take action
to address dormancy, inactivity, or service fees at a later time, if
appropriate.
---------------------------------------------------------------------------
\17\ See Montgomery County Office of Consumer Protection, Gift
Card Reports, 2003-2007 (available at: http://www.montgomerycountymd.gov/ocptmpl.asp?url=/content/ocp/consumer/a-zgiftcardreports.asp). One major issuer of a network-branded gift
cards has recently announced plans to eliminate monthly fees
altogether. See Andrew Martin, ``American Express to End Monthly
Fees on Gift Cards,'' New York Times, October 1, 2009, at B2. In
addition, the Retail Gift Card Association which is comprised of
nine of the top retail merchant issuers of retail closed-loop gift
cards includes in its Code of Principles, the elimination of
dormancy or inactivity fees and of expiration dates. See Retail Gift
Card Association, Code of Principles (available at: http://www.thergca.org/uploads/Code_of_Principles_PDF.pdf) .
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Transition Issues
As discussed above, the Credit Card Act requires the Board to adopt
final rules implementing new EFTA Section 915 within nine months of the
date of enactment, or no later than February 22, 2010. These final
rules must become effective no later than August 22, 2010.
In light of the pending effective date of the final rule, the Board
seeks comment on the potential costs that would be incurred if issuers
and other program participants were required to remove and replace card
stock, including cards that have already been placed into store
inventory, to ensure that all products sold on or after August 22, 2010
fully comply with the new requirements.
The Board also solicits comment on whether it should consider rules
to grandfather gift certificates, store gift cards, or general-use
prepaid cards, as those terms are defined, that are in the marketplace
as of the effective date of the rule from some or all of the
requirements set forth in this rulemaking. For example, the Board could
require all such certificates or cards to comply with the substantive
restrictions on imposing dormancy, inactivity, or service fees, and
expiration dates, but otherwise permit such certificates or cards to be
sold even if they do not contain the required disclosures. To the
extent such relief would be provided, however, the Board believes it
would be appropriate to do so only for cards that are sold in physical
retail channels, but not to cards that are purchased on-line or by
telephone, as they may not present the same operational challenges in
replacing existing card stock compared to the former. In addition, if
the Board were to permit certificates or cards that are available on
retail shelves or in distribution warehouses to be sold to consumers
after the effective date, comment is requested regarding how issuers or
vendors could alert consumers to the changed terms regarding dormancy,
inactivity, or service fees and funds expiration dates. The Board also
solicits comment on an appropriate transition period after which all
certificates or cards must fully comply with the new rules.
V. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
generally requires an agency to perform an
[[Page 61003]]
assessment of the impact a rule is expected to have on small entities.
However, under section 605(b) of the RFA, the regulatory
flexibility analysis otherwise required under section 604 of the RFA is
not required if an agency certifies, along with a statement providing
the factual basis for such certification, that the rule will not have a
significant economic impact on a substantial number of small entities.
Based on its analysis and for the reasons stated below, the Board
believes that this proposed rule is not likely to have a significant
economic impact on a substantial number of small entities. A final
regulatory flexibility analysis will be conducted after consideration
of comments received during the public comment period.
1. Statement of the need for, and objectives of, the proposed rule.
The EFTA was enacted to provide a basic framework establishing the
rights, liabilities, and responsibilities of participants in electronic
fund transfer systems. The primary objective of the EFTA is the
provision of individual consumer rights. 15 U.S.C. 1693. The EFTA
authorizes the Board to prescribe regulations to carry out the purpose
and provisions of the statute. 15 U.S.C. 1693b(a). The Act expressly
states that the Board's regulations may contain ``such classifications,
differentiations, or other provisions, * * * as, in the judgment of the
Board, are necessary or proper to effectuate the purposes of [the Act],
to prevent circumvention or evasion [of the Act], or to facilitate
compliance [with the Act].'' 15 U.S.C. 1693b(c).
The Board is proposing revisions to Regulation E to implement Title
IV of the Credit Card Act which would generally prohibit any person
from imposing a dormancy, inactivity, or service fee with respect to a
gift certificate, store gift card, or general-use prepaid card. Title
IV also generally provides that a gift certificate, store gift card, or
general-use prepaid card may not be sold or issued unless the
expiration date is no less than five years from the date a gift
certificate is issued or five years from the date funds were last
loaded to a store gift card or general-use prepaid card.
In addition, the proposed rule would require the disclosure of all
other fees imposed in connection with a gift certificate, store gift
card, or general-use prepaid card. The certificate or card must also
state a toll-free telephone number and, if one is maintained, a Web
site that a consumer may contact to obtain fee information or
replacement certificates or cards.
The Board believes that the revisions to Regulation E discussed
above are consistent with the Act, as amended by Title IV of the Credit
Card Act, and within Congress's broad grant of authority to the Board
to adopt provisions that carry out the purposes of the statute.
2. Small entities affected by the proposed rule. The number of
small entities affected by this proposal is unknown. Under the proposed
rule, a person would be prohibited from imposing a dormancy,
inactivity, or service fee with respect to a gift certificate, store
gift card, or general-use prepaid card, unless three conditions are
satisfied. First, a dormancy, inactivity, or service fee may be imposed
only if there has been no activity with respect to the certificate or
card within the one-year period prior to the imposition of the fee.
Second, only one such fee may be assessed in a given calendar month.
Third, disclosures regarding dormancy, inactivity, or service fees must
be clearly and conspicuously stated on the certificate or card, and the
issuer or vendor must provide these disclosures to the purchaser before
the certificate or card is purchased.
The proposed rule would also provide that a gift certificate, store
gift card, or general-use prepaid card may not be sold or issued unless
the expiration date of the funds underlying the certificate or card is
no less than five years after the date of issuance (in the case of a
gift certificate) or five years after the date of last load of funds
(in the case of a store gift card or general-use prepaid card). In
addition, information regarding whether funds underlying a certificate
or card may expire must be clearly and conspicuously stated on the
certificate or card and given prior to purchase.
Two proposed alternative approaches are set forth to minimize
potential confusion for consumers if the certificate or card expires
before the underlying funds expire. The first alternative would
prohibit the sale or issuance of a certificate or card that has a
printed expiration date that is less than five years from the date of
purchase. The second alternative would require entities subject to the
rule to maintain policies or procedures to ensure that a consumer has a
reasonable opportunity to purchase a certificate or card with an
expiration date that is at least five years from the date of purchase.
The proposed rule would also prohibit the imposition of any fees for
replacing an expired certificate or card to ensure that consumers are
able to access the underlying funds for the full five-year period.
In addition to the statutory fee restrictions described above, the
proposed rule would require the disclosure of all other fees imposed in
connection with a gift certificate, store gift card, or general-use
prepaid card. These disclosures would have to be provided on or with
the certificate or card and given prior to purchase. The proposed rule
would also require the disclosure on the certificate or card of a toll-
free telephone number and, if one is maintained, a Web site that a
consumer may contact to obtain fee information or replacement
certificates or cards.
Overall, to comply with the proposed rule, all persons involved in
issuing, distributing or selling a gift card program may need to review
and potentially revise disclosures that appear on or with a certificate
or card. In addition, under either alternative approach to the rule
addressing potential inconsistencies between card expiration dates and
funds expiration dates, issuers, sellers, and distributors of gift
certificates, store gift cards, and general-use prepaid cards will have
to review and potentially revise their inventory distribution and
management policies and controls to minimize the possibility that a
consumer may purchase a card with an expiration date of less than five
years from the date of purchase.
For gift certificates and store gift cards in particular, the
proposed rule would potentially cover all merchants to the extent that
they issue or sell gift certificates or store gift cards. According to
the U.S. Census Bureau, there were over 3 million businesses that are
involved in retail or food services as of September 2009.\18\ These
businesses are potential issuers of gift certificates or store gift
cards.\19\
---------------------------------------------------------------------------
\18\ See U.S. Census Bureau, Press Release, ``Advance Monthly
Sales for Retail and Food Services--September 2009,'' (available at:
http://www.census.gov/retail/marts/www/marts_current.pdf).
\19\ The Board is unaware of any industry data regarding the
number of merchants that issue gift certificates, store gift cards,
or general-use prepaid cards. Nonetheless, the Board believes the
actual number of merchants that issue such certificates or cards is
likely to be far fewer than the number of businesses that are
involved in retail or food services overall.
---------------------------------------------------------------------------
The Small Business Administration (SBA) has defined a small
business as one whose average annual receipts do not exceed $7 million
or who have fewer than 500 employees.\20\ Of the over 3 million retail
or food services businesses, the Board expects that well
[[Page 61004]]
over 90% of these businesses qualify as small businesses under the
SBA's standards.\21\ Consequently, a very large number of small
entities across all retail trade or food categories could be subject to
the proposed rules.
---------------------------------------------------------------------------
\20\ See SBA, Summary of Size Standards by Industry (available
at: http://www.sba.gov/contractingopportunities/officials/size/summaryofssi/index.html).
\21\ See Small Business Administration, Office of the Advocacy,
Frequently Asked Questions (available at: http://web.sba.gov/faqs/faqindex.cfm?areaID=24); Employer Firms, & Employment by Employment
Size of Firm by NAICS Codes, 2006 (available at: http://www.sba.gov/advo/research/us06_n6.pdf).
---------------------------------------------------------------------------
Nonetheless, the proposed requirements would only apply to the
extent that a certificate or card program imposes dormancy, inactivity,
or service fees or establishes an expiration date with respect to the
underlying funds. In this regard, the Board understands that the vast
majority of gift certificates and store gift cards issued by merchants
or retailers today do not carry such fees or expiration dates.\22\
Moreover, smaller merchants are more likely to issue gift certificates
in paper form only. Such certificates are excluded from coverage by the
statute and proposed rule. See proposed Sec. 205.20(b)(5). Thus, the
Board believes the proposed rule would not impact a significant number
of merchants that issue store gift cards or gift certificates.
Similarly, the Board believes the proposed rule also would not
significantly impact the entities that distribute or sell such cards or
certificates on behalf of merchants. Moreover, the Board understands
that given their size, such entities are unlikely to be ``small
businesses'' as defined by the SBA.
---------------------------------------------------------------------------
\22\ See Montgomery County Office of Consumer Protection, Gift
Cards 2007 (available at: http://www.montgomerycountymd.gov/ocptmpl.asp?url=/content/ocp/consumer/a-zgiftcardreports.asp)
(reporting that 18 of 22 retail gift cards surveyed do not carry any
fees or expiration dates). See also Retail Gift Card Association,
Code of Principles (available at: http://www.thergca.org/uploads/Code_of_Principles_PDF.pdf) (recommending as a best practice for
retail gift card programs that no fees or expiration dates should
apply).
---------------------------------------------------------------------------
In addition, the proposed rule would potentially cover issuers of
general-use prepaid cards, primarily financial institutions, card
program managers that issue or distribute general-use prepaid cards,
and distributors or retailers of such cards. General-use prepaid cards
may be more likely to carry dormancy, inactivity, or service fees and
expiration dates compared to gift certificates and store gift cards.
Consequently, entities that issue, distribute or sell general-use
prepaid cards would be more likely to be impacted by the proposed rule.
As an initial matter, the Board notes that cards that would
otherwise be considered general-use prepaid cards may in many cases be
exempt from the statute and proposed rule because they are reloadable
and not marketed or labeled as a gift card or gift certificate.
Moreover, as noted above, open-loop cards, which include general-use
prepaid cards, make up a relatively small portion of the total prepaid
card market in terms of number of cards issued and the dollar value of
the amounts loaded. Thus, although the Board is not aware of any data
regarding entities that issue or otherwise sell general-use prepaid
cards, the Board does not believe that, overall, the rule is likely to
have a significant impact on a substantial number of small entities
with respect to the issuance or sale of general-use prepaid cards.
3. Other Federal rules. The Board has not identified any Federal
rules that duplicate, overlap, or conflict with the proposed revisions
to Regulation E.
4. Significant alternatives to the proposed revisions. The Board
solicits comment on any significant alternatives that would reduce
regulatory burden associated with this proposed rule on small entities.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the rule
under the authority delegated to the Board by the Office of Management
and Budget (OMB). The collection of information that is subject to the
PRA by this proposed rule is found in 12 CFR part 205. The Federal
Reserve may not conduct or sponsor, and an organization is not required
to respond to, this information collection unless the information
collection displays a currently valid OMB control number. The OMB
control number is 7100-0200.
This information collection is required to provide benefits for
consumers and is mandatory. See 15 U.S.C. 1693 et seq. Since the Board
does not collect any information, no issue of confidentiality arises.
The respondents/recordkeepers are for-profit financial institutions,
including small businesses. Institutions are required to retain records
for 24 months, but this regulation does not specify types of records
that must be retained.
Title IV of the Credit Card Act prohibits any person from imposing
a dormancy, inactivity, or service fee with respect to a gift
certificate, store gift card, or general-use prepaid card, unless three
conditions are satisfied. First, such fees may be imposed only if there
has been no activity with respect to the certificate or card within the
one-year period prior to the imposition of the fee or charge. Second,
only one such fee may be assessed in a given month. Third, disclosures
regarding dormancy, inactivity, or service fees must be clearly and
conspicuously stated on the certificate or card, and the issuer or
vendor must provide these disclosures before the certificate or card is
purchased.
The Credit Card Act also provides that a gift certificate, store
gift card, or general-use prepaid card may not be sold or issued unless
the expiration date is no less than five years after the date of
issuance (in the case of a gift certificate) or five years after the
date of last load of funds (in the case of a store gift card or
general-use prepaid card). In addition, the statute requires that the
terms of expiration must be clearly and conspicuously stated on the
certificate or card.
Any entities involved in the issuance, distribution, or sale of
gift certificates, store gift cards, or general-use prepaid cards (or
the issuance or distribution of loyalty, award, or promotional gift
cards) potentially are affected by this collection of information
because these entities will be required to provide disclosures
regarding the fees imposed in connection with these certificates or
cards and when the funds underlying a certificate or card expire. Under
the proposed rule, gift certificates, store gift cards, and general-use
prepaid cards must state certain disclosures about dormancy,
inactivity, or service fees; expiration dates; and a telephone number
and Web site, if one is maintained, for additional information.
Disclosures about other fees must be provided on or with the
certificate or card. In addition, disclosures about fees and expiration
dates must be provided to the consumer prior to purchase. Loyalty,
award, and promotional gift cards also must state disclosures regarding
applicable fees and expiration dates.
Entities subject to the rule will have to review and revise
disclosures that are currently provided on or with a certificate or
card to ensure that they accurately state any fees and expiration dates
that may apply.
The total estimated burden increase, as well as the estimates of
the burden increase associated with each major section of the proposed
rule as set forth below, represents averages for all respondents
regulated by the Federal Reserve. The Federal Reserve expects that the
amount of time required to implement each of the proposed changes for a
given institution may vary based on the size and complexity of the
respondent. Furthermore, the burden estimate for this rulemaking
includes the burden addressing overdrafts to Regulation E, as announced
in a
[[Page 61005]]
separate final rulemaking (Docket No. R-1343).
Proposed Sec. 205.20(b)(2) implements the exclusion for cards,
codes, or other devices that are reloadable and not marketed or labeled
as a gift card or gift certificate. As noted in proposed comment
205.20(b)(2)-4.i., institutions would qualify for this exclusion so
long as policies and procedures reasonably designed to avoid the
marketing of a prepaid card not otherwise subject to the rule, such as
a general-purpose reloadable card, as a gift card or gift certificate
are established and maintained. The Federal Reserve estimates that the
1,205 respondents regulated by the Federal Reserve would take, on
average, 40 hours (one-business week) to implement written policies and
procedures and provide training associated with proposed Sec.
205.20(b)(2). The Federal Reserve estimates the annual one-time burden
for respondents to be 48,200 hours and believes that, on a continuing
basis, respondents would take an average of 8 hours annually to
maintain their policies and procedures.
The Federal Reserve is proposing two alternative approaches for
applying new EFTA Section 915(c) to the expiration of a certificate or
card in Sec. 205.20(e)(1). Alternative A proposes that institutions
may not sell a gift certificate, store gift card, or general-use
prepaid card subject to an expiration date unless the certificate or
card expiration date is at least five years after the date the
certificate or card is sold or issued to a consumer. Alternative B
would require institutions involved in issuing, distributing, and
selling certificates or cards to adopt policies and procedures to
ensure that a consumer will have a reasonable opportunity to purchase a
certificate or card with at least five years remaining until the
certificate or card expiration date. With either alternative the
Federal Reserve estimates that the 1,205 respondents regulated by the
Federal Reserve would take, on average, 40 hours (one-business week) to
implement or modify written policies and procedures and provide
training associated with proposed Sec. 205.20(e)(1). The Federal
Reserve estimates the annual one-time burden for respondents to be
48,200 hours and believes that, on a continuing basis, respondents
would take an average of 8 hours annually to maintain their policies
and procedures.
Under proposed Sec. 205.20(e)(3), three disclosures must be stated
on the certificate or card, as applicable: (1) Disclosures must state
the terms of expiration of the underlying funds or, if the underlying
funds do not expire, that fact; (2) Disclosures must also include a
toll-free telephone number and, if one is maintained, a Web site that a
consumer may use to obtain a replacement certificate or card after the
certificate or card expires, if the underlying funds may be available;
(3) The terms and conditions of funds expiration required to be
disclosed must also include a statement that the certificate or card
expires, but the underlying funds either do not expire or expire later
than the certificate or card, and that the consumer may contact the
issuer for a replacement card. The Federal Reserve estimates that the
1,205 respondents regulated by the Federal Reserve would take, on
average, 80 hours (two-business weeks) to update their systems to
revise disclosures and redesign certificates or cards to comply with
the proposed disclosure requirements in section 205.20(e)(3). The
Federal Reserve estimates the annual one-time burden for respondents to
be 96,400 hours and believes that, on a continuing basis, there would
be no additional increase in burden.
The Federal Reserve estimates the proposed rule would impose a one-
time increase in the annual burden under Regulation E for all
respondents regulated by the Federal Reserve by 192,800 hours, from
526,520 to 719,320 hours. In addition, the Federal Reserve estimates
that, on a continuing basis, the proposed requirements would increase
the annual burden by 19,280 hours from 526,520 to 545,800 hours. The
total annual burden would increase by 212,080 hours, from 526,520 to
738,600 hours.
The other Federal financial agencies are responsible for estimating
and reporting to OMB the total paperwork burden for the institutions
for which they have administrative enforcement authority. They may, but
are not required to, use the Federal Reserve's burden estimation
methodology. Using the Federal Reserve's method, the current total
estimated annual burden for all persons subject to Regulation E,
including Federal Reserve-supervised institutions would be
approximately 1,403,459 hours. The above estimates represent an average
across all respondents and reflect variations between persons based on
their size, complexity, and practices. All covered persons, including
depository institutions (of which there are approximately 17,200),
potentially are affected by this collection of information, and thus
are respondents for purposes of the PRA. The proposed rule would impose
a one-time increase in the estimated annual burden for such
institutions by 2,752,000 hours. On a continuing basis the proposed
rule would increase in the estimated annual burden for such
institutions by 275,200 hours. The proposal total annual burden for the
respondents regulated by the Federal financial agencies is estimated to
be 4,430,659 hours.
Comments are invited on: (a) Whether the proposed collection of
information is necessary for the proper performance of the Federal
Reserve's functions; including whether the information has practical
utility; (b) the accuracy of the Federal Reserve's estimate of the
burden of the proposed information collection, including the cost of
compliance; (c) ways to enhance the quality, utility, and clarity of
the information to be collected; and (d) ways to minimize the burden of
information collection on respondents, including through the use of
automated collection techniques or other forms of information
technology. Comments on the collection of information should be sent to
Michelle Shore, Federal Reserve Board Clearance Officer, Division of
Research and Statistics, Mail Stop 95-A, Board of Governors of the
Federal Reserve System, Washington, DC 20551, with copies of such
comments sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0200), Washington, DC 20503.
Text of Proposed Revisions
Certain conventions have been used to highlight the proposed
changes to the text of the regulation and staff commentary. New
language is shown inside bold-faced arrows, while language that would
be deleted is set off with bold-faced brackets.
List of Subjects in 12 CFR Part 205
Consumer protection, Electronic fund transfers, Federal Reserve
System, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board proposes to
amend 12 CFR part 205 and the Official Staff Commentary, as follows:
PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)
1. The authority citation for part 205 continues to read as
follows:
Authority: 15 U.S.C. 1693b.
2. Section 205.4(a)(1) is revised to read as follows:
Sec. 205.4 General disclosure requirements; jointly offered services.
(a)(1) Form of disclosures. Disclosures required under this part
shall be clear and readily understandable, in writing, and in a form
the consumer may keep[rtrif], except as otherwise provided in this
part[ltrif]. The disclosures required by
[[Page 61006]]
this part may be provided to the consumer in electronic form, subject
to compliance with the consumer-consent and other applicable provisions
of the Electronic Signatures in Global and National Commerce Act (E-
Sign Act) (15 U.S.C. 7001 et seq.). A financial institution may use
commonly accepted or readily understandable abbreviations in complying
with the disclosure requirements of this part.
* * * * *
3. Section 205.12(b)(1) is revised to read as follows:
Sec. 205.12 Relation to other laws.
* * * * *
(b) * * *
(1) Inconsistent requirements. The Board shall determine, upon its
own motion or upon the request of a State, financial institution, or
other interested party, whether the act and this part preempt State law
relating to electronic fund transfers[rtrif], or to dormancy,
inactivity, or service fees, or expiration dates, of gift certificates,
store gift cards, or general-use prepaid cards[ltrif].
* * * * *
4. Section 205.20 is added as follows:
Sec. 205.20 Requirements for gift cards and gift certificates.
(a) Definitions. For purposes of this section, except as excluded
under paragraph (b), the following definitions apply:
(1) Gift certificate means a card, code, or other device that is:
(i) Issued to a consumer in a specified amount that may not be
increased or reloaded in exchange for payment; and
(ii) Redeemable upon presentation at a single merchant or an
affiliated group of merchants for goods or services.
(2) Store gift card means a card, code, or other device that is:
(i) Issued to a consumer in a specified amount, whether or not that
amount may be increased or reloaded by the cardholder, in exchange for
payment; and
(ii) Redeemable upon presentation at a single merchant or an
affiliated group of merchants for goods or services.
(3) General-use prepaid card means a card, code, or other device
that is:
(i) Issued to a consumer in a specified amount, whether or not that
amount may be increased or reloaded by the cardholder, in exchange for
payment; and
(ii) Redeemable upon presentation at multiple, unaffiliated
merchants for goods or services, or usable at automated teller
machines.
(4) Loyalty, award, or promotional gift card means a card, code, or
other device that:
(i) Is issued in connection with a loyalty, award, or promotional
program;
(ii) Is redeemable upon presentation at one or more merchants for
goods or services, or usable at automated teller machines; and
(iii) Sets forth the disclosures specified in paragraphs (d)(2),
(e)(2), and (f)(2) of this section and provides the disclosures
specified in paragraph (f)(1) of this section on or with the card,
code, or other device.
(5) Dormancy or inactivity fee. The terms ``dormancy fee'' and
``inactivity fee'' mean a fee for non-use of or inactivity on a gift
certificate, store gift card, or general-use prepaid card.
(6) Service fee. The term ``service fee'' means a periodic fee for
holding or use of a gift certificate, store gift card, or general-use
prepaid card.
(b) Exclusions. The terms ``gift certificate,'' ``store gift
card,'' and ``general-use prepaid card'', as defined in paragraph (a)
of this section, do not include any card, code, or other device that
is:
(1) Useable solely for telephone services;
(2) Reloadable and not marketed or labeled as a gift card or gift
certificate;
(3) A loyalty, award, or promotional gift card;
(4) Not marketed to the general public;
(5) Issued in paper form only; or
(6) Redeemable solely for admission to events or venues at a
particular location or group of affiliated locations, or to obtain
goods or services, in conjunction with admission to such events or
venues, at the event or venue or at specific locations affiliated with
and in geographic proximity to the event or venue.
(c) Form of disclosures. (1) Clear and conspicuous. Disclosures
made under this section must be clear and conspicuous. The disclosures
may contain commonly accepted or readily understandable abbreviations
or symbols.
(2) Format. Disclosures made under this section generally must be
provided to the consumer in written or electronic form. Only
disclosures provided under paragraph (c)(3) of this section may be
given orally.
(3) Disclosures prior to purchase. Before a gift certificate, store
gift card, or general-use prepaid card is purchased, the issuer or
vendor of such certificate or card must disclose to the consumer the
information required by paragraphs (d)(2), (e)(3), and (f)(1) of this
section.
(4) Disclosures on the certificate or card. Paragraphs (d)(2),
(e)(3), and (f)(2) of this section require that certain information be
disclosed on the certificate or card. A disclosure made in an
accompanying terms and conditions document, on packaging surrounding a
certificate or card, or on a sticker or other label affixed to the
certificate or card does not constitute a disclosure on the certificate
or card.
(d) Prohibition on imposition of fees or charges.
No person may impose a dormancy, inactivity, or service fee with
respect to a gift certificate, store gift card, or general-use prepaid
card, unless:
(1) There has been no activity with respect to the certificate or
card in the one-year period ending on the date on which the fee is
imposed;
(2) The following are stated, as applicable, clearly and
conspicuously on the gift certificate, store gift card, or general-use
prepaid card:
(i) The amount of any dormancy, inactivity, or service fee that may
be charged;
(ii) How often such fee may be assessed; and
(iii) That such fee may be assessed for inactivity; and
(3) Not more than one dormancy, inactivity, or service fee is
imposed in any given calendar month.
Alternative A--Paragraph (e)
(e) Prohibition on sale of gift certificates or cards with
expiration dates. No person may sell or issue a gift certificate, store
gift card, or general-use prepaid card with an expiration date, unless:
(1) The certificate or card expiration date, if any, is at least
five years after the date the certificate or card was sold or issued to
a consumer;
(2) The expiration date for the underlying funds is at least the
later of:
(i) Five years after the date the gift certificate was issued, or
five years after the date on which funds were last loaded to a store
gift card or general-use prepaid card; or
(ii) The certificate or card expiration date, if any;
(3) The following disclosures are provided on the certificate or
card, as applicable:
(i) The expiration date for the underlying funds or, if the
underlying funds do not expire, that fact;
(ii) A toll-free telephone number and, if one is maintained, a Web
site that a consumer may use to obtain a replacement certificate or
card after the certificate or card expires if the underlying funds may
be available; and
(iii) A statement, disclosed with equal prominence and in close
proximity to the certificate or card expiration date, that the
certificate or card expires, but
[[Page 61007]]
the underlying funds either do not expire or expire later than the
certificate or card, and that the consumer may contact the issuer for a
replacement card; and
(4) No fee or charge is imposed on the cardholder for replacing the
gift certificate, store gift card, or general-use prepaid card prior to
the funds expiration date, unless such certificate or card has been
lost or stolen.
Alternative B--Paragraph (e)
(e) Prohibition on sale of gift certificates or cards with
expiration dates. No person may sell or issue a gift certificate, store
gift card, or general-use prepaid card with an expiration date, unless:
(1) The person has policies and procedures in place to ensure that
a consumer will have a reasonable opportunity to purchase a certificate
or card with at least five years remaining until the certificate or
card expiration date;
(2) The expiration date for the underlying funds is at least the
later of:
(i) Five years after the date the gift certificate was issued, or
the date on which funds were last loaded to a store gift card or
general-use prepaid card; or
(ii) The certificate or card expiration date, if any;
(3) The following disclosures are provided on the certificate or
card, as applicable:
(i) The expiration date for the underlying funds or, if the
underlying funds do not expire, that fact;
(ii) A toll-free telephone number and, if one is maintained, a Web
site that a consumer may use to obtain a replacement certificate or
card after the certificate or card expires if the underlying funds may
be available; and
(iii) A statement, disclosed with equal prominence and in close
proximity to the certificate or card expiration date, that the
certificate or card expires, but the underlying funds either do not
expire or expire later than the certificate or card, and that the
consumer may contact the issuer for a replacement card; and
(4) No fee or charge is imposed on the cardholder for replacing the
gift certificate, store gift card, or general-use prepaid card prior to
the funds expiration date, unless such certificate or card has been
lost or stolen.
(f) Additional disclosure requirements for gift certificates or
cards. Additional disclosures must be provided in connection with a
gift certificate, store gift card, or general-use prepaid card, as
applicable, as indicated below:
(1) Fee disclosures. For each type of fee that may be imposed in
connection with the certificate or card (other than a dormancy,
inactivity, or service fee subject to the disclosure requirements under
paragraph (d)(2) of this section), the following information must be
provided on or with the certificate or card:
(i) The type of fee;
(ii) The amount of the fee (or an explanation of how the fee will
be determined); and
(iii) The conditions under which the fee may be imposed.
(2) Telephone number for fee information. A toll-free telephone
number and, if one is maintained, a Web site that a consumer may use to
obtain information about fees described in paragraphs (d)(2) and (f)(1)
of this section must be disclosed on the certificate or card.
5. In Supplement I to part 205.
a. Under Sec. 205.12 Relation to other laws, under (b) Preemption
of inconsistent State laws, paragraph 1. is revised.
b. Section 205.20--Requirements for Gift Cards and Gift
Certificates is added.
Supplement I to Part 205--Official Staff Interpretations
* * * * *
Section 205.12--Relation to Other Laws
* * * * *
(b) Preemption of Inconsistent State Laws
1. Specific determinations. The regulation prescribes standards for
determining whether State laws that govern EFTs[rtrif], dormancy,
inactivity, or service fees, or expiration dates of gift certificates,
store gift cards, or general-use prepaid cards[ltrif] are preempted by
the act and the regulation. A State law that is inconsistent may be
preempted even if the Board has not issued a determination. However,
nothing in section 205.12(b) provides a financial institution with
immunity for violations of State law if the institution chooses not to
make State disclosures and the Board later determines that the State
law is not preempted.
* * * * *
Section 205.20--Requirements for Gift Cards and Gift Certificates
20(a) Definitions
1. Form of card, code, or device. Section 205.20 applies to any
card, code, or other device that meets one of the definitions in Sec.
205.20(a)(1) through (a)(3) of this section, even if it is not issued
in card form. Section 205.20 would apply, for example, to the issuance
of an account number or bar code that can access underlying funds.
Similarly, Sec. 205.20 would apply to a device with a chip or other
embedded mechanism, linking the device to stored funds, such as a
mobile phone or sticker containing a contactless chip, if the device
otherwise meets the definition of gift certificate, store gift card or
general-use prepaid card.
2. Electronic promise. The term ``electronic promise'' as used in
EFTA Sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D) means a person's
commitment or obligation communicated or stored in electronic form made
to a consumer to provide payment for goods or services for transactions
initiated by the consumer. The electronic promise is itself represented
by a card, code or other device that is issued or honored by the
person, reflecting the person's commitment or obligation to pay. For
example, if a merchant issues a code that can be given as a gift and
that entitles the recipient to redeem the code in an on-line
transaction for goods or services, that code represents an electronic
promise by the merchant and would be a card, code, or other device
covered by Sec. 205.20.
Paragraph 20(a)(2)--Store Gift Card
1. Relationship between ``gift certificate'' and ``store gift
card''. The term ``store gift card'' in Sec. 205.20(a)(2) includes
``gift certificates'' as defined in Sec. 205.20(a)(1). For example, a
numeric or alphanumeric code representing a specified dollar amount or
value that is electronically sent to a consumer as a gift which can be
redeemed or exchanged by the recipient to obtain goods or services may
be both a ``gift certificate'' and a ``store gift card'' if the
specified amount or value cannot be increased.
2. Affiliated group of merchants. The term ``affiliated group of
merchants'' means two or more affiliated merchants or other persons
that are related by common ownership or common corporate control (see,
e.g., 12 CFR 227.3(b) and 12 CFR 223.2) and that share the same name,
mark, or logo. For example, the term would include franchisees that are
subject to a common set of corporate policies or practices under the
terms of their franchise licenses. The term also applies to two or more
merchants or other persons that agree among each other, by contract or
otherwise, to redeem cards, codes, or other devices bearing the same
name, mark, or logo (other than the mark, logo, or brand of a payment
network), for the purchase of goods or services solely at such
merchants or persons. For example, assume a movie theatre chain and a
restaurant chain jointly agree to
[[Page 61008]]
issue cards that share the same ``Flix and Food'' logo that can be
redeemed solely towards the purchase of movie tickets or concessions at
any of the participating movie theatres, or towards the purchase of
food or beverages at any of the participating restaurants. For purposes
of Sec. 205.20, the movie theatres and the restaurants would be
considered to be an affiliated group of merchants, and the cards would
be considered to be ``store gift cards.''
3. Mall gift cards. See comment 20(a)(3)-2.
Paragraph 20(a)(3)--General-Use Prepaid Card
1. Redeemable upon presentation at multiple, unaffiliated
merchants. A card, code, or other device is redeemable upon
presentation at multiple, unaffiliated merchants if, for example, such
merchants agree to honor the card, code, or device if it bears the
mark, logo, or brand of a payment network, pursuant to the rules of the
payment network.
2. Mall gift cards. Mall gift cards which are generally intended to
be used or redeemed for goods or services at participating retailers
within a shopping mall may be considered store gift cards or general-
use prepaid cards depending on the locations in which the cards may be
redeemed. For example, if a mall card may only be redeemed at merchants
within the mall itself, the card is more likely be considered a store
gift card. However, certain mall cards also carry the brand of a
payment network and can be used at any retailer that accepts that card
brand, including retailers located outside of the mall. Such cards
would be considered general-use prepaid cards.
Paragraph 20(a)(4)--Loyalty, Award, or Promotional Gift Card
1. Examples of loyalty, award, or promotional programs. Section
205.20(a)(4) defines a loyalty, award, or promotional gift card as a
card, code, or other device that is issued in connection with a
loyalty, award or promotional program. Such cards, codes, or other
devices are excluded from the definitions of ``gift certificate,''
``store gift card,'' and ``general-use prepaid card'' under Sec.
205.20(b)(3), provided that the disclosures specified in paragraphs
(d)(2), (e)(2), and (f) of this section are given to the consumer, on
or with the card, as specified in Sec. 205.20(a)(4)(iii). Examples of
loyalty, award or promotional programs include:
i. Loyalty or consumer retention programs operated or administered
by a merchant that provide to consumers cards redeemable for goods or
services or other monetary value as a reward for certain purchases at
or visits to the participating merchant;
ii. Rebate programs operated or administered by a merchant or
product manufacturer that provide cards redeemable for goods or
services or other monetary value to consumers in connection with the
consumer's purchase of a product or service and the consumer's
completion of the rebate submission process.
iii. Sweepstakes or contests that distribute cards redeemable for
goods or services or other monetary value to consumers as an invitation
to enter into the promotion for a chance to win a prize.
iv. Referral programs that may provide cards redeemable for goods
or services or other monetary value to consumers in exchange for
referring other potential consumers to a merchant.
v. Incentive programs through which an employer may provide cards
redeemable for goods or services or other monetary value to employees,
for example, to recognize job performance, such as increased sales.
Paragraph 20(a)(6)--Service Fee
1. Service fees. Under Sec. 205.20(a)(6), a service fee includes a
periodic fee for holding or use of a gift certificate, store gift card,
or general-use prepaid card. A periodic fee includes any fee that may
be imposed on a gift certificate, store gift card, or general-use
prepaid card from time to time for holding or using the certificate or
card, such as a monthly maintenance fee, a transaction fee, a reload
fee, or a balance inquiry fee, whether or not the fee is waived for a
certain period of time or is only imposed after a certain period of
time. A service fee does not include a one-time fee, such as an initial
issuance fee or a cash-out fee.
20(b) Exclusions
1. Application of exclusion. A card, code, or other device is
excluded from the definition of ``gift certificate,'' ``store gift
card,'' or ``general-use prepaid card'' if it meets any of the
exclusions in Sec. 205.20(b). An excluded card, code, or other device
generally is not subject to any of the requirements of this section.
(See, however, Sec. 205.20(a)(4)(iii), requiring certain disclosures
for loyalty, award, or promotional gift cards).
2. Eligibility for multiple exclusions. A card, code, or other
device may fall within more than one exclusion. If a card, code, or
other device falls within any exclusion, it generally is not covered by
Sec. 205.20, even if another exclusion may not apply. Thus, for
example, a corporation may award its employees with a gift card of a
type that can also be purchased directly from the merchant. While the
card may not qualify for the exclusion for cards, codes, or other
devices not marketed to the general public under Sec. 205.20(b)(4)
because the card can also be obtained through retail channels, it may
nevertheless be exempt from the substantive requirements of Sec.
205.20 because it is a loyalty, award, or promotional gift card. (See,
however, Sec. 205.20(a)(4)(iii), requiring certain disclosures for
loyalty, award, or promotional gift cards.).
Paragraph 20(b)(1)--Usable Solely for Telephone Services
1. Examples of excluded products. The exclusion for products usable
solely for telephone services applies to prepaid cards for long-
distance telephone service, prepaid cards for wireless telephone
service and prepaid cards for other services analogous in function to a
telephone, such as prepaid cards for voice over Internet protocol
(VoIP) access time.
Paragraph 20(b)(2)--Reloadable and Not Marketed or Labeled as a Gift
Card or Gift Certificate
1. Reloadable. A card, code, or other device is ``reloadable'' if
it has the capability of having more funds added by a cardholder after
the initial purchase or issuance.
2. Marketed or labeled as a gift card or gift certificate. The term
``marketed or labeled as a gift card or gift certificate'' means
directly or indirectly offering, advertising or otherwise suggesting
the potential use of a card, code or other device, as a gift for
another person. Whether the exclusion applies generally does not depend
on the type of entity that makes the promotional message. For example,
a card may be marketed or labeled as a gift card or gift certificate if
anyone (other than the purchaser of the card), including the issuer,
the retailer, the program manager that may distribute the card, or the
payment network on which a card is used, promotes the use of the card
as a gift card or gift certificate. A card or certificate, including a
general-purpose reloadable card, is marketed or labeled as a gift card
or gift certificate even if it is only occasionally marketed as a gift
card or gift certificate. For example, a reloadable network-branded
card would be marketed or labeled as a gift card or gift certificate if
the issuer principally advertises the card as a less costly alternative
to a bank account but promotes the card in a television, radio,
newspaper, or Internet advertisement, or
[[Page 61009]]
on signage as ``the perfect gift'' during the holiday season.
3. Examples of marketed or labeled as a gift card or gift
certificate. Examples of marketed or labeled as a gift card or gift
certificate include:
i. Displaying the word ``gift'' or ``present'' on a card,
certificate, or accompanying material, including documentation,
packaging and promotional displays;
ii. Representing or suggesting that a certificate or card can be
given to another person, for example, as a ``token of appreciation'' or
a ``stocking stuffer,'' or displaying a congratulatory message on the
card, certificate or accompanying material;
iii. Incorporating gift-giving or celebratory imagery or motifs,
such as a bow, ribbon, wrapped present, candle, or congratulatory
message, on a card, certificate, accompanying documentation, or
promotional material.
The term does not include:
i. Representing that a card or certificate can be used as a
substitute for a checking, savings, or deposit account;
ii. Representing that a card or certificate can be used to pay for
a consumer's health-related expenses--for example, a card tied to a
health savings account;
iii. Representing that a card or certificate can be used as a
substitute for travelers' checks or cash by the purchaser;
iv. Representing that a card or certificate can be used as a
budgetary tool or to cover emergency expenses.
4. Reasonable procedures regarding marketing. The exclusion for a
card, code, or other device is reloadable and is not marketed or
labeled as a gift card or gift certificate in Sec. 205.20(b)(2)
applies if an individual card, code, or other device is not marketed or
labeled as a gift card or gift certificate and if entities subject to
the rule maintain policies and procedures reasonably designed to avoid
such marketing. The following examples illustrate the application of
Sec. 205.20(b)(2):
i. An issuer or program manager of prepaid cards agrees to sell
general-purpose reloadable cards through a retailer. The contract
between the issuer or program manager and the retailer establishes the
terms and conditions under which the cards may be sold and marketed at
the retailer. The terms and conditions include restrictions prohibiting
the general-purpose reloadable cards from being marketed as a gift card
or gift certificate, and requirements for policies and procedures to
regularly monitor or otherwise verify that the cards are not being
marketed as such. The issuer or program manager sets up one promotional
display at the retailer for gift cards and another physically separated
display for excluded products under Sec. 205.20(b), including general-
purpose reloadable cards and wireless telephone cards, such that a
reasonable consumer would not believe that the excluded cards are gift
cards. The exclusion in Sec. 205.20(b)(2) applies even if a retail
clerk inadvertently stocks or places some of the general-purpose
reloadable cards on the gift card display notwithstanding the issuer or
program manager's maintenance of policies and procedures reasonably
designed to avoid the marketing of the general-purpose reloadable cards
as gift cards or gift certificates.
ii. Same facts as in i., except that the issuer or program manager
sets up a single promotional display at the retailer on which a variety
of prepaid cards are sold, including store gift cards, general-purpose
reloadable cards, and wireless telephone cards. A sign stating ``Gift
Cards'' appears prominently at the top of the display. The issuer or
program manager does not qualify for the exclusion in Sec.
205.20(b)(2) with respect to the general-purpose reloadable card
because the issuer or program manager does not maintain policies and
procedures reasonably designed to avoid the marketing of the general-
purpose reloadable cards as gift cards or gift certificates.
Paragraph 20(b)(4)--Not Marketed to the General Public
1. Marketed to the general public. A card, code, or other device is
marketed to the general public if the potential use of the card, code,
or other device is directly or indirectly offered, advertised, or
otherwise promoted to the general public. A card, code, or other device
may be marketed to the general public regardless of the advertising
medium, including television, radio, newspaper, the Internet, or
signage. In addition, the method of distribution by itself is not
dispositive in determining whether a card, code, or other device is
marketed to the general public. Factors that may be considered in
determining whether the exclusion applies to a particular card, code,
or other device include the means or channel through which the card,
code, or device may be obtained by a consumer, the subset of consumers
that are eligible to obtain the card, code or device, and whether the
availability of the card, code, or device is advertised or otherwise
promoted in the marketplace.
2. Examples illustrating exclusion for cards, codes, or other
devices ``not marketed to the general public.'' The following examples
illustrate application of the exclusion in Sec. 205.20(b)(4) for
cards, codes, or other devices not marketed to the general public.
i. A merchant sells its gift cards at a discount to a business
which may give them to employees or loyal consumers as incentives or
rewards. In determining whether the gift card falls within the
exclusion in Sec. 205.20(b)(4), the merchant must consider whether the
card is of a type that is advertised or made available to consumers
generally or can be obtained elsewhere. If the card can also be
purchased through retail channels, the exclusion in Sec. 205.20(b)(4)
does not apply, even if the consumer obtained the card from the
business as an incentive or reward. See, however, Sec. 205.20(b)(3).
ii. A national retail chain decides to market its gift cards only
to members of its frequent buyer program. If any member of the general
public may become a member of the program, the card does not fall
within the exclusion in Sec. 205.20(b)(4) because the general public
has the ability to obtain the cards.
iii. An issuer of prepaid cards advertises a reloadable card to
teenagers and their parents promoting the card for use by teenagers for
occasional expenses, schoolbooks and emergencies and by parents to
monitor spending. Because the card is marketed to and may be sold to
any member of the general public, the exclusion in Sec. 205.20(b)(4)
does not apply.
iv. An insurance company settles a policyholder's claim and
distributes the insurance proceeds to the consumer by means of a
prepaid card. Because the prepaid card is simply the means for
providing the insurance proceeds to the consumer and the availability
of the card is not advertised to the general public, the exclusion in
Sec. 205.20(b)(4) applies.
v. An employer provides a prepaid card to its employees to cover
travel expenses and per diem. Because the prepaid card is simply the
means for distributing travel expenses and per diem and the
availability of the card is not advertised or available to the general
public, the exclusion in Sec. 205.20(b)(4) applies.
vi. A merchant provides store credit to a consumer following a
merchandise return by issuing a prepaid card that clearly indicates
that the card contains funds for store credit. Because the prepaid card
is issued for the stated purpose of providing store credit to the
consumer and the ability to receive refunds by a prepaid card is not
[[Page 61010]]
advertised to the general public, the exclusion in Sec. 205.20(b)(4)
applies.
vii. A tax preparation company elects to distribute tax refunds to
its clients by issuing non-reloadable prepaid cards, but does not
advertise or otherwise promote the ability to receive proceeds in this
manner. Because the prepaid card is simply the mechanism for providing
the tax refund to the consumer, and the tax preparer does not advertise
the ability to obtain tax refunds by a prepaid card, the exclusion in
Sec. 205.20(b)(4) applies. However, if the tax preparer promotes the
ability to receive tax refund proceeds through a prepaid card as a way
to obtain ``faster'' access to the proceeds, the exclusion in Sec.
205.20(b)(4) does not apply.
Paragraph 20(b)(5)--Issued in Paper Form Only
1. Exclusion explained. To qualify for the exclusion in Sec.
205.20(b)(5), the sole means of issuing the card, code, or other device
must be in a paper form. Thus, the exclusion generally applies to
certificates issued in paper form where solely the paper itself may be
used to purchase goods or services. A card, code or other device is not
issued solely in paper form simply because it may be reproduced or
printed on paper. For example, a bar code or card or certificate number
sent electronically to a consumer and redeemable for goods and services
is not issued in paper form, even if it may be reproduced or otherwise
printed on paper by the consumer. Similarly, an on-line retailer may
electronically mail a certificate redeemable for goods or services to a
consumer, which the consumer could print out on a home printer. In
these circumstances, although the consumer might hold a paper facsimile
of the card, code, or other device, the exclusion does not apply
because the information necessary to redeem the value was initially
issued in electronic form. However, a paper certificate that bears a
bar code or account number may fall within the exclusion in Sec.
205.20(b)(5) if the bar code or account number is not issued in any
form other than on the paper. In addition, the exclusion in Sec.
205.20(b)(5) would continue to apply in circumstances where an issuer
replaces a gift certificate that was initially issued in paper form
with a card or electronic code (for example, to replace a lost paper
certificate).
Paragraph 20(b)(6)--Redeemable Solely for Admission to Events or Venues
1. Examples. The exclusion for payment cards, codes, or other
devices that are redeemable solely for admission to events or venues at
a particular location or group of affiliated locations generally
applies to cards, codes, or other devices that are not redeemed for a
specified monetary value, but rather for admission for entry to an
event or venue. The exclusion also covers a card, code, or other device
that is usable to purchase of goods or services purchased in addition
to entry into the event or the venue, either at the event or venue or
at an affiliated location or location in geographic proximity to the
event or venue. The following examples illustrate the scope of Sec.
205.20(b)(6):
i. A consumer purchases a prepaid card that entitles the holder to
a ticket for entry to an amusement park. The prepaid card does not
state a monetary value and may only be used for entry to the park. The
card qualifies for the exclusion in Sec. 205.20(b)(6) because it is
redeemable solely for admission or entry to an event or venue.
ii. Same facts as in i., except that the gift card also entitles
the holder of the gift card to a dollar amount that can be applied
towards the purchase of food and beverages or goods or services at the
park or at nearby affiliated locations. The card qualifies for the
exclusion in Sec. 205.20(b)(6) because it is redeemable for admission
or entry and for goods or services in conjunction with that admission.
iii. A consumer purchases a $25 gift card that the holder of the
gift card can use to make purchases at a merchant but alternatively can
also apply the value on the card towards the cost of admission to the
merchant's affiliated amusement park. The card is not eligible for the
exclusion in Sec. 205.20(b)(6) because it is not redeemable solely for
the admission or ticket itself (or for goods and services purchased in
conjunction with such admission). The card meets the definition of
``store gift card'' and is therefore subject to the substantive and
disclosure requirements of Sec. Sec. 205.20(d), (e), and (f), unless a
different exclusion applies.
iv. A consumer purchases a gift card that is redeemable for a
particular service such as a spa treatment or for a one-night hotel
stay. The card is not eligible for the exclusion in Sec. 205.20(b)(6)
because it is not redeemable for admission to an event or venue (in
this case, the spa or hotel), but instead for a specified service at
the spa or hotel. The card meets the definition of ``store gift card''
and is therefore subject to the substantive and disclosure requirements
of Sec. Sec. 205.20(d), (e), and (f), unless a different exclusion
applies.
v. A consumer purchases a gift card that is redeemable solely for a
one-year membership to a buyer's club or warehouse, or to a gym. The
card falls within the exclusion in Sec. 205.20(b)(6) because it is
redeemable solely for membership to the club or gym and the membership
is necessary for entry or admission to the club or gym. The exclusion
would not apply, however, if the card has value that could be applied
either to membership or for goods or services at the warehouse or gym.
20(c) Form of Disclosures
Paragraph 20(c)(1)--Clear and Conspicuous
1. Clear and conspicuous standard. All disclosures required by this
section must be clear and conspicuous. Disclosures are clear and
conspicuous for purposes of this section if they are readily
understandable and, in the case of written and electronic disclosures,
the location and type size are readily noticeable to consumers.
Disclosures need not be located on the front of the certificate or card
to be considered clear and conspicuous. Disclosures are clear and
conspicuous for the purposes of this section if they are in a print
that contrasts with and is otherwise not obstructed by the background
on which they are printed. For example, disclosures on a card or
computer screen are not likely to be conspicuous if obscured by a logo
printed in the background. Similarly, disclosures on the back of a card
that are printed on top of indentations from embossed type on the front
of the card are not likely to be conspicuous if it obstructs the
readability of the type. To the extent permitted, oral disclosures meet
the standard when they are given at a volume and speed sufficient for a
consumer to hear and comprehend them.
2. Abbreviations and symbols. Disclosures may contain commonly
accepted or readily understandable abbreviations or symbols, such as
``mo.'' for month or a ``/'' to indicate ``per.'' Under the clear and
conspicuous standard, it is sufficient to state, for example, that a
particular fee is charged ``$2.50/mo. after 12 mos.''
Paragraph 20(c)(2)--Format
1. Electronic disclosures. Disclosures provided electronically
pursuant to this section are not subject to compliance with the
consumer-consent and other applicable provisions of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.). Electronic disclosures may not be provided through a
hyperlink or in another manner by which the purchaser can bypass the
disclosure. An issuer or vendor is not required to
[[Page 61011]]
confirm that the consumer has read the electronic disclosures.
2. Non-physical certificates and cards. If no certificate or card
is issued, the disclosures must accompany the code, confirmation, or
other written or electronic document provided to the consumer.
Paragraph 20(c)(3)--Disclosure Prior to Purchase
1. Method of purchase. The disclosures must be provided before a
certificate or card is purchased regardless of whether the certificate
or card is purchased in person, on-line, by telephone, or by other
means.
20(d) Prohibition on Imposition of Fees or Charges
1. One-year period. Section 205.20(d) provides, in part, that a
person may not impose a dormancy, inactivity, or service fee with
respect to a gift certificate, store gift card, or general-use prepaid
card until there has been no activity with respect to the certificate
or card in the one-year period ending on the date on which the fee is
imposed. The following examples illustrate this rule:
i. A certificate or card is purchased on January 15 of year one. If
there has been no activity on the certificate or card since the
certificate or card was purchased, a dormancy, inactivity, or service
fee may not be imposed on the certificate or card until January 15 of
year two.
ii. A certificate or card is purchased on February 29 of a leap
year. If there has been no activity on the certificate or card since
the certificate or card was purchased, a dormancy, inactivity, or
service fee may not be imposed on the certificate or card until
February 28 of the following year.
iii. Same facts as i., and a fee was imposed on January 15 of year
two. Because no more than one dormancy, inactivity, or service fee may
be imposed in any given calendar month, the earliest date that another
dormancy, inactivity, or service fee may be imposed, assuming there
continues to be no activity on the certificate or card, is February 1
of year two. A dormancy, inactivity, or service fee is permitted to be
imposed on February 1 of year two because there has been no activity on
the certificate or card for the preceding year (February 1 of year one
through January 31 of year two), and February is a new calendar month.
iv. Same facts as i., and a fee was imposed on January 15 of year
two. On January 31 of year two, the consumer uses the card to make a
purchase. Under this circumstance, another dormancy, inactivity, or
service fee could not be imposed until January 31 of year three at the
earliest, assuming there has been no activity on the certificate or
card since January 31 of year two.
2. Activity. Any action by a consumer to increase, decrease, or
otherwise make use of the funds underlying a gift certificate, store
gift card, or general-use prepaid card constitutes activity for
purposes of Sec. 205.20(d). For example, the purchase and activation
of a certificate or card or the reloading of funds onto a store gift
card or general-use prepaid card constitutes activity. However, neither
the imposition of a fee, the replacement of an expired, lost, or stolen
certificate or card, nor a balance inquiry constitutes activity with
respect to a gift certificate, store gift card, or general-use prepaid
card.
3. Relationship between Sec. Sec. 205.20(d)(2) and (c)(3).
Sections 205.20(d)(2) and (c)(3) contain similar, but not identical,
disclosure requirements. Section 205.20(d)(2) requires the disclosure
of dormancy, inactivity, and service fees on a certificate or card.
Section 205.20(c)(3) requires that an issuer or vendor of such
certificate or card disclose to a consumer any dormancy, inactivity,
and service fees associated with the certificate or card before such
certificate or card may be purchased. Depending on the context, a
single disclosure that meets the clear and conspicuous requirements of
both Sec. Sec. 205.20(d)(2) and (c)(3) may be used to disclose a
dormancy, inactivity, or service fee. For example, if the disclosures
on a certificate or card, required by Sec. 205.20(d)(2), are visible
to the consumer without having to remove packaging or other materials
sold with the certificate or card, for a purchase made in person, the
disclosures also meet the requirements of Sec. 205.20(c)(3).
Otherwise, a dormancy, inactivity, or service fee may need to be
disclosed multiple times or in multiple locations to satisfy the
requirements of Sec. Sec. 205.20(d)(2) and (c)(3). For example, if the
disclosures on a certificate or card, required by Sec. 205.20(d)(2),
are obstructed by packaging or other materials sold with the
certificate or card, for a purchase made in person, they also must be
disclosed on the packaging sold with the certificate or card or in
other manner visible to the consumer to meet the requirements of Sec.
205.20(c)(3).
4. Relationship between Sec. Sec. 205.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required under Sec.
205.20(d)(2), any applicable disclosures under Sec. Sec. 205.20(e)(3)
and (f)(2) of this section must also be provided on the certificate or
card.
5. One fee per month. Under Sec. 205.20(d)(3), no more than one
dormancy, inactivity, or service fee may be imposed in any given
calendar month. For example, if a dormancy fee is imposed on January 1,
following a year of inactivity, and a consumer makes a balance inquiry
on January 15, a balance inquiry fee may not be imposed at that time
because a dormancy fee was already imposed earlier that month and a
balance inquiry fee is a type of service fee. If, however, the dormancy
fee could be imposed on January 1, following a year of inactivity, and
the consumer performs a balance inquiry on January 1, the person
assessing the fees may choose whether to impose the dormancy fee or the
balance inquiry fee on January 1. The restriction in Sec. 205.20(d)(3)
does not apply to any fee that is not a dormancy, inactivity, or
service fee. For example, assume a service fee is imposed on January 1,
following a year of inactivity. If a consumer cashes out the funds on a
general-use prepaid card on January 15, a cash-out fee may be imposed
at that time because a cash-out fee is not a dormancy, inactivity, or
service fee.
20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration
Dates
Alternative A
1. Disclosure of funds expiration--date not required. Section
205.20(e)(3)(i) does not require disclosure of the precise date the
funds will expire. It is sufficient to disclose, for example, ``Funds
expire 5 years from the date funds last loaded to the card.''; ``Funds
can be used 5 years from the date money was last added to the card.'';
or ``Funds do not expire.''
2. Disclosure not required if no expiration date. If the
certificate or card and underlying funds do not expire, the disclosure
required by Sec. 205.20(e)(3)(i) need not be stated on the certificate
or card.
3. Reference to toll-free telephone number and Web site. If a
certificate or card does not expire, or if the underlying funds are not
available after the certificate or card expires, the disclosure
required by Sec. 205.20(e)(3)(ii) need not be stated on the
certificate or card. See, however, Sec. 205.20(f)(2).
4. Relationship to Sec. 226.20(f)(2). The same toll-free telephone
number and Web site may be used to comply with Sec. Sec.
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web site
must be maintained or disclosed on a certificate or card if no fees are
imposed in
[[Page 61012]]
connection with the certificate or card, and the certificate or card
and underlying funds do not expire.
5. Distinguishing between certificate or card expiration and funds
expiration. If applicable, Sec. 205.20(e)(3)(iii) requires a
disclosure to be made on the certificate or card that notifies a
consumer that the certificate or card expires, but the underlying funds
either do not expire or expire later than the certificate or card, and
that the consumer may contact the issuer for a replacement card. The
disclosure must be made with equal prominence and in close proximity to
the certificate or card expiration date. In the case of a certificate
or card, close proximity means that the disclosure must be on the same
side as the certificate or card expiration date. If the disclosure is
the same type size and is located immediately next to or directly above
or below the certificate or card expiration date, without any
intervening text or graphical displays, the disclosures would be deemed
to be equally prominent and in close proximity. The disclosure need not
be embossed on the certificate or card to be deemed equally prominent,
even if the expiration date is embossed on the certificate or card. The
disclosure may state on the front of the card, for example, ``Valid
thru 09/2016. Call for new card.''; ``Active thru 09/2016. Call for
replacement card.''; or ``Call for new card after 09/2016.''
6. Relationship between Sec. Sec. 205.20(d)(2), (e)(3), and
(f)(2). In addition to disclosures required under Sec. 205.20(e)(3),
any applicable disclosures under Sec. Sec. 205.20(d)(2) and (f)(2) of
this section must also be provided on the certificate or card.
7. Replacement of a lost or stolen certificate or card not
required. Section 205.20 does not require the replacement of a
certificate or card that has been lost or stolen.
8. Date of issuance or loading. A certificate or card is not issued
or loaded with funds until the certificate or card is activated for
use.
Alternative B
1. Reasonable opportunity. Under Sec. 205.20(e)(1), no person may
sell or issue a gift certificate, store gift card, or general-use
prepaid card with an expiration date, unless there are policies or
procedures in place to ensure that a consumer has a reasonable
opportunity to purchase a certificate or card with at least five years
remaining until the certificate or card expiration date. The following
examples illustrate reasonable and unreasonable opportunities for
consumers to purchase a certificate or card with at least five years
remaining until the certificate or card expiration date:
i. A card would comply with Sec. 205.20(e)(1) if it is printed
with a card expiration date six years from the date it was produced and
is on a display rack of a retail store within six months of the date
the card was produced.
ii. A card would comply with Sec. 205.20(e)(1) if it is printed
with a card expiration date seven years from the date it was produced
and is on a display rack of a retail store within one year and six
months of the date the card was produced, the card would comply with
Sec. 205.20(e)(1).
iii. A card would not comply with Sec. 205.20(e)(1) if it is
printed with a card expiration date six years from the date it was
produced and is stored in a distribution warehouse for more than one
year after the date the card was produced.
2. Disclosure of funds expiration--date not required. Section
205.20(e)(3)(i) does not require disclosure of the precise date the
funds will expire. It is sufficient to disclose, for example, ``Funds
expire 5 years from the date funds last loaded to the card.''; ``Funds
can be used 5 years from the date money was last added to the card.'';
or ``Funds do not expire.''
3. Disclosure not required if no expiration date. If the
certificate or card and underlying funds do not expire, the disclosure
required by Sec. 205.20(e)(3)(i) need not be stated on the certificate
or card.
4. Reference to toll-free telephone number and Web site. If a
certificate or card does not expire, or if the underlying funds are not
available after the certificate or card expires, the disclosure
required by Sec. 205.20(e)(3)(ii) need not be stated on the
certificate or card. See, however, Sec. 205.20(f)(2).
5. Relationship to Sec. 226.20(f)(2). The same toll-free telephone
number and Web site may be used to comply with Sec. Sec.
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web site
must be maintained or disclosed if no fees are imposed in connection
with a certificate or card, and the certificate or card and underlying
funds do not expire.
6. Distinguishing between certificate or card expiration and funds
expiration. If applicable, a disclosure must be made on the certificate
or card that notifies a consumer that the certificate or card expires,
but the funds either do not expire or expire later than the certificate
or card, and that the consumer may contact the issuer for a replacement
card. The disclosure must be made with equal prominence and in close
proximity to the certificate or card expiration date. In the case of a
certificate or card, close proximity means that the disclosure must be
on the same side as the certificate or card expiration date. If the
disclosure is the same type size and is located immediately next to or
directly above or below the certificate or card expiration date,
without any intervening text or graphical displays, the disclosures
would be deemed to be equally prominent and in close proximity. The
disclosure need not be embossed on the certificate or card to be deemed
equally prominent, even if the expiration date is embossed on the
certificate or card. The disclosure may state on the front of the card,
for example, ``Valid thru 09/2016. Call for new card.''; ``Active thru
09/2016. Call for replacement card.''; or ``Call for new card after 09/
2016.''
7. Relationship between Sec. Sec. 205.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required to be made under Sec.
205.20(e)(3), any applicable disclosures under Sec. Sec. 205.20(d)(2)
and (f)(2) must also be provided on the certificate or card.
8. Replacement of a lost or stolen certificate or card not
required. Section 205.20 does not require the replacement of a
certificate or card that has been lost or stolen.
9. Date of issuance or loading. A certificate or card is not issued
or loaded with funds until the certificate or card is activated for
use.
20(f) Additional Disclosure Requirements for Gift Certificates or Cards
1. Reference to toll-free telephone number and Web site. If a
certificate or card does not have any fees, the disclosure required by
Sec. 205.20(f)(2) need not be stated on the certificate or card. See,
however, Sec. 205.20(e)(3)(ii).
2. Relationship to Sec. 226.20(e)(3)(ii). The same toll-free
telephone number and Web site may be used to fulfill Sec. Sec.
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web site
must be maintained or disclosed if no fees are imposed in connection
with a certificate or card, and the certificate or card and underlying
funds do not expire.
3. Relationship between Sec. Sec. 205.20(d)(2), (e)(3), and
(f)(2). In addition to any disclosures required to be made pursuant to
Sec. 205.20(f)(2), any applicable disclosures under Sec. Sec.
205.20(d)(2) and (e)(3) must also be provided on the certificate or
card.
By order of the Board of Governors of the Federal Reserve
System, November 13, 2009.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E9-27717 Filed 11-19-09; 8:45 am]
BILLING CODE 6210-01-P