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Reg
E Proposed Rule to Regulate Gift Cards
A
proposed rule (the Proposal) to amend Regulation E (Electronic Fund Transfer) and the staff commentary solicits comments
on the restrictions it will place on gift cards. The need for such a
proposal is a result of concerns regarding the amount of fees
associated with gift cards, the expiration dates on gift cards, and
the adequacy of disclosures. Consumers
have frequently been surprised to learn that a card not used within
a short period of time may have expired or that the dormancy or
service fees have reduced or eliminated the value of the card. Even
if those conditions were explained in the disclosures, they were
most likely unclear and certainly not conspicuous to the average
person.
Scope
The Proposal divides the covered gift cards into three basic
categories:
·
General-use
prepaid cards;
·
Store gift
cards; and
·
Gift
certificates.
The proposed rules are basically the same for
all three types of cards.
The
rule does
not include any card, code, or other device that is:
·
Usable
solely for telephone services;
·
Reloadable
and not marketed or labeled as a
gift card
or gift certificate;
·
A loyalty,
award, or promotional gift card;
·
Not marketed
to the general public;
·
Issued in
paper form only; or
·
Redeemable
solely for admission to events or
venues or for certain concessions and
services
available at those events or venues.
In
this proposed rule, as in other regulations, it is critical to
understand the definitions. It is important to note that the
Proposal covers gift certificates which are usually issued in paper
form. The three basic cards all mean a card, code, or other device
issued to a consumer in a specified amount and:
General-use
prepaid card
– may be increased or reloaded by the cardholder and is redeemable
at multiple, unaffiliated merchants or usable at ATMs.
Store
gift cards
–may be increased or reloaded and is redeemable at a single
merchant or a group of affiliated merchants.
Gift
Certificate --
may not
be increased or reloaded. The device is redeemable at a single
merchant or an affiliated group of merchants.
Disclosures
The disclosures provided must be clear and conspicuous. They may be
provided in paper form or electronically subject to the requirements
of the E-Sign Act. Before
the purchase of a gift certificate, store gift card, or general-use
prepaid card the issuer must disclose certain information to the
consumer. These are the only disclosures that may be provided
orally.
Certain
information must be disclosed on
the card or certificate. This includes the amount of any dormancy,
inactivity, or service fee that may be charged, how often the fee
may be assed, and the fact that such a fee may be assessed for
inactivity, if that is the case. Additionally, the disclosure
requirement includes information on the expiration date for the
underlying funds or, that the underlying funds do not expire, if
that is the case; a toll-free telephone number, and a web site
address, if there is one, that the consumer can use to get a
replacement certificate or card upon expiration if the underlying
funds are still available; and a statement that the certificate
expires, but that at the underlying funds either do not expire or
expire later than the certificate or card and the consumer may
contact the issuer for a replacement card. Finally, a toll-free
telephone number and, if one is maintained, a Web site that a
consumer may use to get information about the fees described above.
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