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Credit CARD Act of 2009
Introduced by congressional Representative Carolyn Maloney as H.R. 5244 in February 2008, and reintroduced as H.R. 627 in January 2009, the "Credit Card Accountability Responsibility and Disclosure Act of 2009" became law in May of that year. Nine months later, in February 2010, most of its provisions went into effect. Although primarily focusing on credit card rules and regulations, it contained several gift card provisions as well. These new gift card rules became effective on August 22, 2010.
Prior to this federal regulation of gift cards, individual states took responsibility -- in varying measures -- for overseeing fair practices by vendors. As a result, business owners frequently set their own rules and had a lot of leeway with respect to the fees that they could charge. The business owner could make a tidy profit on these simple little cards. “Through dormancy fees and abandonment, unused funds will run about $8 billion,” the Consumer Affairs site quoted a Tower Group senior analyst in charge of bank cards back in 2006. This represented a 10 percent profit on an $80 billion annual industry. Due to the federal law, all this changed in the summer of 2010.
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FAQ covering new rules for gift cards
- Q: What types of cards does the law cover? A: The primary targets of the legislation are branded store cards, which are only valid at the vendor’s retail location.
- Q: Does the law also affect gift certificates? The Federal Reserve stipulates that the law governs “store gift cards” and those cards that carry a “MasterCard, Visa, American Express or Discover brand logo.” Please see the discussion on gift certificates below.
- Q: Is there a federally mandated expiration date? A: While the business does not have to let cards expire at all, those businesses that choose to do so must let at least five years elapse. If the card allows for recharging (meaning: the consumer may add more money to the card's balance), each new recharge starts a new five-year count.
- Q: A customer is requesting a replacement card after the stated five-year expiration date; do I have to give him one? A: Yes; you must issue a replacement card with a new expiration date to which the leftover funds transfer. You may not charge a fee for this service.
- Q: Do I have to disclose fees on the card? A: Yes, the fees must be clearly stated for the buyer to see. They must be on the gift card or its packaging as well, so that the recipient also knows what the rules are.
- Q: Can I charge an inactivity fee? A: Consumers have complained loud and vociferously about these charges. But yes, you can still levy them against the card. The drawback is the new 12-month rule: you may only charge the inactivity fee if there has been no charge made with the gift card for at least 12 consecutive months. Be also very careful with how many fees you charge to a card; the new law specifies that businesses can only charge one fee per month.
- Q: A customer threatened to take legal action against my business because the gift card he received did not have the fee schedule printed on it; is that right? A: Maybe. Congress exempted gift cards manufactured prior to April 1, 2010 from having to have this kind of fee schedule actually incorporated into the general design. This concession expired January 31, 2011. When the gift card was manufactured and purchased determines the consumer’s legal standing when filing a complaint.
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A word on gift certificate laws
Small businesses in particular do not go through the expense of buying branded gift cards. Entrepreneurs frequently buy a pack of gift certificates from the office supply store and sell them like other stores would offer gift cards. The card law specifically targets gift cards and it is therefore possible to argue that gift certificates do not fall under the auspices of the act. This can be a shaky position in court.
Gift certificate expiration rules were frequently set by the individual states. In California, for example, gift cards and gift certificates are treated identically under the law.
In short, the vendor who wants to abide by the state rules should contact a business attorney to find out if the state in which the business is registered still recognizes certificates as separate from gift cards. It is also a good idea to enlist the help of counsel if the law associated with gift certificates -- as outlined by the National Conference of State Legislatures -- is notably less favorable than the restrictions of the Credit CARD Act of 2009.
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The small business owner can look to the sale of gift cards -- new laws notwithstanding or perhaps especially because of the protective legislation -- as a great way make a profit. In addition, creatively presented gift cards introduce new consumers to venues that their friends frequent. What’s not to love?
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- Library of Congress, http://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.R.627:
- Consumer Affairs, http://www.consumeraffairs.com/news04/2006/12/gift_card_giveaways.html
- Federal Reserve, http://www.federalreserve.gov/consumerinfo/wyntk_giftcards.htm
- National Conference of State Legislatures, http://www.ncsl.org/default.aspx?tabid=12474
Please note that the aforementioned statements do not constitute legal advice. Only an attorney is legally able to offer specific legal advice based on a client’s individual situation.