Prompted by Congress’s recent passage of the Credit Card Accountability and Responsibility Disclosure Act of 2009, the Federal Reserve Bank recently issued new federal regulations governing retail gift cards. Broadly speaking, the new regulations -- which take effect on Aug. 22 -- will require greater transparency for retailers seeking to impose fees or expiration dates on users of gift cards. The new regulation applies to two types of gift cards: Retail cards sold for store credit, and retail cards issued through loyalty, award or promotional programs. As described below, the former type of card will be regulated more stringently than the latter. Notably, gift certificates issued in purely paper form are not regulated under the new federal regulation (although they may be regulated under certain states’ laws).
For retail cards sold for store credit, a retailer’s ability to impose a fee associated with a gift card will be greatly restricted. Specifically, the new regulation prohibits a retailer from imposing a dormancy, inactivity or service fee unless (i) the consumer is provided clear and conspicuous disclosures about the fees in advance and (ii) no more than one such fee is charged per month. Service fees subject to the restrictions include monthly maintenance fees, service fees, balance inquiry fees and “reload” fees, which are fees assessed if a consumer adds additional money to a card after the initial purchase. A retailer is also prohibited from charging a dormancy or inactivity fee unless there has been at least one year of inactivity on the card prior to the imposition of the fee. The new regulation mandates that all gift cards must not expire sooner than five years after the date the card is purchased or when value was last added to the card.
For cards issued through loyalty, award or promotional programs, the new regulation simply requires advance discl