New Federal Law Regulates Gift Certificates and Gift Cards

On May 25, 2009, President Obama signed the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009. The Act amends the Truth in Lending Act and imposes a number of new requirements on gift certificates, store gift cards, and general use prepaid cards by putting limits on expiration dates and fees that can be imposed, and setting forth new disclosure requirements. The new law will become effective on August 22, 2010.

Inactivity fees, service fees and dormancy fees will now be prohibited unless (1) there has been no activity with respect to the card or certificate for the preceding 12 months, (2) disclosure requirements are met, (3) not more than one fee per month is charged, and (4) any requirements to be imposed by new Federal Reserve Board regulations which are to be issued by February 22, 2010 in consultation with the Federal Trade Commission, are met. The law permits an exception to the prohibition on fees in the case of any gift certificate that is distributed pursuant to a defined award, loyalty or promotional program for which no money or other value is exchanged.

Under the new disclosure requirements, issuers or vendors of the gift certificates or cards must inform purchasers of the fees to be imposed, before purchase. The certificates and cards must themselves clearly and conspicuously disclose (a) that a dormancy, inactivity or service fee may be charged, (b) the amount to be charged, (c) how often the fee may be imposed, and (d) that the fee may be imposed for inactivity.

The new law prohibits the sale of gift certificates or cards that have an expiration date which is less than five years after the date it was issued, or the date that funds were last loaded on a store gift card or general use prepaid card. The expiration dates must be clearly and conspicuously stated.

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