An April 2010 webinar presented by Bryan Cave LLP mapped out the ground rules the prepaid card industry must follow to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). Members of the law firm's Payment Practice Team divulged the intricacies of the new rules and warned that it is only the beginning of regulatory action on the industry.
According to Judith Rinearson, Partner at Bryan Cave and webinar moderator, the Credit CARD Act's gift card rules represent the first major federal regulation of prepaid cards. The rules apply to prepaid cards designed or marketed as gift cards – both open-loop, network-branded cards as well as closed-loop, retailer-specific cards.
In the webinar, Gift Cards and Cards that are Not Gift Cards: Navigating Compliance with the Gift Card Provisions of the CARD Act, John ReVeal, Counselor at Bryan Cave, discussed the issue of fees that prepaid card providers can charge consumers.
The new rules set "severe" limits on dormancy, inactivity and other "periodic" service fees, ReVeal said. These periodic fees – such as balance inquiry, transaction, ATM and reload fees – can only be charged 12 months after gift cards have been inactive, he said.
But, once that 12-month period of inactivity has been reached, only one such periodic fee can be charged per month afterward, ReVeal noted; for example, providers can only charge a monthly ATM fee or balance inquiry fee, but not both.
In addition, if a service fee is charged when activity takes place on the card – such as a transaction being made with the card – the 12-month inactivity period starts anew, and no types of dormancy or service fees can be charged until the new 12 months of inactivity have passed. "So you are going to have to make difficult decisions in light of these rules about what fees to charge," ReVeal said.
The new regulations set forth guidelines that exempt rewards cards from the restrictions related to expiration dates and fees. Margo Strahlberg, Associate at Bryan Cave, said rewards cards means loyalty, award or promotional cards that are either consumer-based or employee to employer-based. To qualify for the exclusion, rewards cards must be issued in connection with some kind of promotional program.
Furthermore, the rewards cards must meet certain disclosure requirements, specifically what information – the type of card, expiration dates, toll-free phone numbers – is printed on the physical cards, front and back.
Then Bryan Cave Counsel Linda Odom detailed the five other types of cards that are exempted from the regulations. They are:
Strahlberg and ReVeal said the new federal rules preempt state laws generally. For example, the federal regulations place a five-year time frame on the escheatment of unused gift card funds. Therefore, states can only escheat (claim) unused funds five years after gift cards expire, even if state gift card laws impose shorter escheatment periods.
But, on the other hand, if a state law provides stricter requirements than the federal ones, it is incumbent on gift card providers to be mindful of that fact, the presenters said.
This web of regulatory complexity is likely to increase, according to Rinearson. A prepaid card consumer protection bill, three separate "cross-border" bills that would regulate prepaid cards as they are transported over national borders, the Consumer Financial Protection Act, the loss of federal preemption statutes and more new state laws are all in the works.
"You don't really have to be very afraid," she said. "But you do have to be very careful and monitor what's happening. We are still at the very beginning of what appears to be a tsunami of legislation affecting prepaid cards in general, not just gift cards."An April 2010 webinar presented by Bryan Cave LLP mapped out the ground rules the prepaid card industry must follow to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act). Members of the law firm's Payment Practice Team divulged the intricacies of the new rules and warned that it is only the beginning of regulatory action on the industry.
According to Judith Rinearson, Partner at Bryan Cave and webinar moderator, the Credit CARD Act's gift card rules represent the first major federal regulation of prepaid cards. The rules apply to prepaid cards designed or marketed as gift cards – both open-loop, network-branded cards as well as closed-loop, retailer-specific cards. 
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