Federal Gift Card Law Went Into Effect August 22, 2010

The federal regulations on gift cards, promulgated under the Credit Card Act of 2009, will go into effect on August 22, 2010. The federal law prohibits expiration dates on gift cards that are less than five years from the date on which the gift card was issued or when funds were last loaded to the card. The law also requires the terms of expiration to be clearly and conspicuously stated.  The law permits dormancy, inactivity, and service fees on gift cards only if (a) there has been no activity on the card in the 12-month period prior to which the charge is imposed, (b) not more than one fee is charged in any month, and (c) disclosure requirements are met. Gift cards must clearly and conspicuously state that a fee may be charged, the amount of the fee, how often the fee may be charged, and that an inactivity fee will be charged. Notably, the fee must be disclosed to consumers before the card is purchased, regardless of whether the card is purchased in person, over the Internet, or by telephone.

The law specifically regulates general-use prepaid cards, gift certificates, and store gift cards. The law excludes: (a) cards that are reloadable and not marketed or labeled as a "gift card" or "gift certificate," (b) cards not marketed to the general public, and (c) cards issued in paper form only.

Under regulations issued by the Federal Reserve, which also go into effect August 22, 2010, loyalty, awards, or promotional gift cards, while exempt from the general requirements of the federal law outlined above, must disclose on the front of the card that the card is issued for loyalty, award, or promotional purposes and the expiration date (if one exists). The gift card must also disclose, on the card itself or in information accompanying the card, the amount of any fees that may be imposed and the conditions under which they may be imposed (if any), and a toll-free number and Web site, if any, that the consumer can go to obtain fee information. A loyalty, award, or promotional gift card is defined as a card, code, or other device that is issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in connection with a loyalty, award, or promotional program and is redeemable at one or more merchants or at ATMs, and contains the required disclosures.

TIP: Issuers of gift cards should ensure that their gift cards meet the requirements of the federal law by August 22, 2010.  Namely, gift cards may not expire in less than five years, inactivity fees can only be charged after 12 months of inactivity, and the law's disclosure requirements must be met.  Gift cards issued subject to a loyalty, awards, or promotional program must adhere to the disclosure regulations set forth by the Federal Reserve, including disclosure of the expiration date on the front of the card and identification of the card as issued pursuant to a loyalty, awards, or promotional program.