Federal Reserve Issues Final Rules on Gift Cards
The Federal Reserve Board issued its Regulation E Final Rule on gift cards as required by the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009.
Highlights of the Final Gift Card Rule include enhanced disclosures and the prohibition of any dormancy, inactivity or service fees unless the card has been inactive for at least one year. Any such fee can be charged no more than once per month. The Rule extends the expiration date for gift cards to no less than five years after either date of issuance or the last date of loaded funds, whichever is later.
The Pew Safe Credit Cards Project submitted a letter to the Federal Reserve (PDF) during its proposed rule comment period requesting that the Fed consider limiting the amount of any such monthly fee. According to Bankrate's 2007 Gift Card Survey, the average amount loaded on a gift card was $53. Monthly service fees for dormancy or inactivity ranged from $2 to $3 with additional one-time inactivity fees of up to $10 so that certain gift cards could be stripped of value through these fees in a little over a year. The Credit CARD Act gave the Fed the express ability to regulate the amount of dormancy, inactivity or service fees and we believe Congressional intent was to prevent excessive fee abuse of gift card holders.
Unfortunately the Fed chose not to address gift card fee size stating a general downward trend based on the decision by American Express to end monthly fees on its gift cards. We hope that as the Fed continues to monitor other gift card issuers, it will consider Pew's comments about the dangers of substantial value stripping through monthly fees.
Update 12/21/2009 - The Pew Safe Credit Cards Project submitted comments to the Federal Reserve Board regarding the Board's latest proposed rulemaking under Regulation E (Docket No. R—1377). The rule covers statutory requirements to restrict dormancy or inactivity fees and prohibit the sale of gift cards with an expiration date of less than five years under the Credit CARD Act of 2009. The final rule is effective August 22, 2010. Pew's comments focused on the size of the dormancy or inactivity fee and provided supporting state level examples as references for the Federal Reserve Board in establishing its final rule.