[Federal Register Volume 75, Number 62 (Thursday, April 1, 2010)]
[Rules and Regulations]
[Pages 16579-16621]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6759]



[[Page 16579]]

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Part II





Federal Reserve System





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12 CFR Part 205



Electronic Fund Transfers; Final Rule

Federal Register / Vol. 75 , No. 62 / Thursday, April 1, 2010 / Rules 
and Regulations

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FEDERAL RESERVE SYSTEM

12 CFR Part 205

[Regulation E; Docket No. R-1377]


Electronic Fund Transfers

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is amending Regulation E, which implements the 
Electronic Fund Transfer Act, and the official staff commentary to the 
regulation, which interprets the requirements of Regulation E. The 
final rule restricts a person's ability to impose dormancy, inactivity, 
or service fees for certain prepaid products, primarily gift cards. The 
final rule also, among other things, generally prohibits the sale or 
issuance of such products if they have an expiration date of less than 
five years. The amendments implement statutory requirements set forth 
in the Credit Card Accountability Responsibility and Disclosure Act of 
2009.

DATES: The rule is effective August 22, 2010.

FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Counsel, Vivian Wong or 
Dana Miller, Senior Attorneys, or Mandie Aubrey, Attorney, Division of 
Consumer and Community Affairs, Board of Governors of the Federal 
Reserve System, Washington, DC 20551, at (202) 452-2412 or (202) 452-
3667. For users of Telecommunications Device for the Deaf (TDD) only, 
contact (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Statutory Background

    The Electronic Fund Transfer Act (15 U.S.C. 1693 et seq.) (EFTA or 
Act), enacted in 1978, provides a basic framework establishing the 
rights, liabilities, and responsibilities of participants in electronic 
fund transfer (EFT) systems. The EFTA is implemented by the Board's 
Regulation E (12 CFR part 205). Examples of the types of transactions 
covered by the EFTA and Regulation E include transfers initiated 
through an automated teller machine (ATM), point-of-sale (POS) 
terminal, automated clearinghouse (ACH), telephone bill-payment plan, 
or remote banking service. The Act and regulation provide for the 
disclosure of terms and conditions of an EFT service; documentation of 
EFTs by means of terminal receipts and periodic statements; limitations 
on consumer liability for unauthorized transfers; procedures for error 
resolution; and certain rights related to preauthorized EFTs. Further, 
the Act and regulation restrict the unsolicited issuance of ATM cards 
and other access devices.
    The official staff commentary (12 CFR part 205 (Supp. I)) 
interprets the requirements of Regulation E to facilitate compliance 
and provides protection from liability under Sections 916 and 917 of 
the EFTA (as redesignated by the Credit Card Act) for financial 
institutions and other persons subject to the Act who act in conformity 
with the Board's commentary interpretations. 15 U.S.C. 1693n(d)(1). The 
commentary is updated periodically to address significant questions 
that arise.
    On May 22, 2009, the Credit Card Accountability Responsibility and 
Disclosure Act of 2009 (Credit Card Act) was signed into law.\1\ 
Section 401 of the Credit Card Act amends the EFTA and imposes certain 
restrictions on a person's ability to impose dormancy, inactivity, or 
service fees with respect to gift certificates, store gift cards, and 
general-use prepaid cards. In addition, the Credit Card Act generally 
prohibits the sale or issuance of such products if they are subject to 
an expiration date earlier than five years from the date of issuance of 
a gift certificate or the date on which funds were last loaded to a 
store gift card or general-use prepaid card.
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    \1\ Public Law 111-24, 123 Stat. 1734 (2009).
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    The Credit Card Act directs the Board to prescribe rules 
implementing EFTA Section 915 within nine months after enactment. The 
gift card and related provisions become effective 15 months after 
enactment, or on August 22, 2010. See EFTA Section 915(d)(3); Section 
403 of the Credit Card Act.

II. Background

    A gift card is a type of prepaid card that is designed to be 
purchased by one consumer and given to another consumer as a present or 
expression of appreciation or recognition. When provided in the form of 
a plastic card, a user of a gift card is able to access and spend the 
value associated with the device by swiping the card at a POS terminal, 
much as a person would use a debit card. Among the benefits of a gift 
card are the ease of purchase for the gift-giver and the recipient's 
ability to choose the item or items ultimately purchased using the 
card. According to one survey, over 95 percent of Americans have 
received or purchased a gift card.\2\
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    \2\ See Comdata, 2007 Adult Gift Card Study (available at: 
http://www.comdata.com/comdata/content/surveys/2007/adult_gift_card_study_2007.pdf).
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    There are two distinct types of gift cards: Closed-loop cards and 
open-loop cards. Closed-loop gift cards constitute the majority of the 
gift card market, both in terms of the number of cards issued and the 
dollar value of the amounts loaded onto or spent with gift cards.\3\ 
These cards generally are accepted or honored at a single merchant or a 
group of affiliated merchants (such as a chain of book stores or 
clothing retailers) as payment for goods or services. They have limited 
functionality and generally can only be used to make purchases at the 
merchant or group of merchants.
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    \3\ There are no consensus industry figures about the overall 
size of the prepaid card market. See Rachel Schneider, ``The 
Industry Forecast for Prepaid Cards, 2009,'' Center for Financial 
Services Innovation (March 2009) at 4 (available at: http://www.cfsinnovation.com/research-paper-detail.php?article_id=330539). 
According to the Federal Reserve's 2007 Electronic Payments Study, 
$36.6 billion was spent using closed-loop prepaid cards in 2006, 
compared to $13.3 billion spent using open-loop prepaid cards. See 
2007 Federal Reserve Electronic Payments Study 27-42 (March 2008). 
Industry studies using different methodologies suggest a larger 
prepaid card market, but nonetheless confirm that the closed-loop 
cards make up a substantial portion of the market. See, e.g., Tim 
Sloane, ``Sixth Annual Closed Loop Prepaid Market Assessment,'' 
Mercator Advisory Group (October 2009) (estimating that of the 
$247.7 billion total amount loaded across all prepaid segments in 
2008, 75 percent, or $187.24 billion, were loaded onto closed-loop 
cards, including closed-loop gift cards).
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    Closed-loop gift cards are typically issued by a merchant, or by a 
card program sponsor or service provider working with a merchant, and 
not by a financial institution. These cards may be sold in a 
predenominated or consumer-specified amount at the merchant itself or 
distributed through other retail outlets, such as at grocery stores or 
drug stores. Generally, closed-loop gift cards cannot be reloaded with 
additional value after card issuance. Further, the issuer typically 
does not collect any information regarding the identity of the gift 
card purchaser or the recipient.
    For merchant-issuers, gift cards have largely replaced paper-based 
gift certificates as a more cost-effective and efficient means of 
facilitating gift-giving by consumers. In addition to reducing costs 
associated with the issuance of paper certificates, electronic gift 
cards may also be less vulnerable to fraud or counterfeiting. Merchants 
benefit from the sale of items purchased with gift cards, as well as 
from additional spending by gift card recipients beyond the face amount 
on the card. Some merchants may also derive revenue from fees, such as 
from monthly maintenance or transaction-based fees. Nonetheless,

[[Page 16581]]

most merchant-issued closed-loop gift cards today do not charge any 
fees or carry expiration dates.\4\
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    \4\ See, e.g., Montgomery County Office of Consumer Protection, 
Gift Card Report 2007 (available at: http://www.montgomerycountymd.gov/content/ocp/giftcards2007final.pdf) 
(reporting that 18 out of 22 closed-loop gift cards surveyed do not 
impose fees or carry expiration dates). See also Retail Gift Card 
Association, Code of Principles (available at: http://www.thergca.org/uploads/Code_of_Principles_PDF.pdf) (recommending 
the elimination of dormancy or inactivity fees and of expiration 
dates as a best practice).
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    Open-loop gift cards differ in several respects from closed-loop 
gift cards. First, open-loop gift cards typically carry a card network 
brand logo (such as Visa, MasterCard, American Express, or Discover). 
Thus, they can be used at a wide variety of merchants that accept or 
honor cards displaying that brand. Second, open-loop gift cards are 
generally issued by financial institutions. Third, due in part to 
higher compliance and consumer service costs, open-loop gift cards are 
more likely to carry fees compared to closed-loop gift cards, including 
card issuance and transaction-based fees. Fourth, open-loop gift cards 
are more likely to offer the capability of being reloaded with 
additional value (reloadable) than are closed-loop gift cards.
    A consumer may obtain gift cards in several ways. Gift cards can be 
purchased at retail locations, by telephone, or on-line for the 
purchaser's own purposes or received from another consumer as a gift. 
In addition, gift cards can be received through a loyalty, award, or 
promotional program. For example, a merchant may distribute its own 
closed-loop gift card to encourage consumers to visit the store or for 
customer retention purposes, such as through a frequent buyer program. 
Merchants and product manufacturers may also provide gift cards to 
consumers as a means of issuing a rebate for the consumer's purchase of 
a particular product instead of sending paper rebate checks. Employers 
may provide gift cards to their employees as a reward for good job 
performance.
    Concerns have been raised regarding the amount of fees associated 
with gift cards, the expiration dates of gift cards, and the adequacy 
of disclosures. Consumers who do not use the value of the card within a 
short period of time may be surprised to find that the card has expired 
or that dormancy or service fees have reduced the value of the card. 
Even where fees or terms are disclosed on or with the card, the 
disclosures may not be clear and conspicuous.
    At the state level, more than 40 states have enacted laws 
applicable to gift cards in some fashion. Most commonly, state gift 
card laws may restrict the circumstances under which dormancy, 
inactivity, or service fees may be charged and/or restrict the 
circumstances under which the card or funds underlying the card may 
expire.\5\ Other state laws simply require the disclosure of fees or 
expiration dates. Many states have applied abandoned property or 
escheat laws to funds remaining on gift cards, and some states require 
that consumers have the option of receiving cash back when the 
underlying balance falls below a certain amount. However, while all 
state gift card laws address closed-loop gift cards in some manner, 
many state gift card laws do not apply to open-loop bank-issued 
cards.\6\
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    \5\ See, e.g., Consumers Union, State Gift Card Consumer 
Protection Laws (available at: http://www.consumersunion.org/pub/core_financial_services/003889.html); National Conference of State 
Legislatures, Gift Cards and Gift Certificates Statutes and Recent 
Legislation (available at: http://www.ncsl.org/programs/banking/GiftCardsandCerts.htm).
    \6\ See, e.g., Ark. Code section 4-88-704; Cal. Civ. Code 
section 1749.45; Fla. Stat. section 501.95; and Md. Comm. Code Ann. 
section 14-1320.
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III. The Board's Proposed Revisions to Regulation E

Summary of Proposal

    In November 2009, the Board published a proposal to amend 
Regulation E and the official staff commentary to implement the gift 
card provisions of the Credit Card Act (November 2009 Proposed 
Rule).\7\ The proposal applied to gift certificates, store gift cards, 
and general-use prepaid cards, as these terms were defined in the 
proposal. The proposal also implemented statutory exclusions for 
certain prepaid products that are not considered gift certificates, 
store gift cards, or general-use prepaid cards under the rule. The 
proposed exclusions applied to, among other things, cards, codes, or 
other devices that are reloadable and not marketed or labeled as a gift 
card or gift certificate and loyalty, award, and promotional gift 
cards.
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    \7\ 74 FR 60986 (Nov. 20, 2009).
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    Consistent with the statute, the proposal would have prohibited any 
person from imposing dormancy, inactivity, or service fees with respect 
to gift certificates, store gift cards, and general-use prepaid cards, 
unless certain conditions were satisfied. These conditions were that: 
(1) There must be at least a one-year period of inactivity with respect 
to the certificate or card prior to the imposition of the fee; (2) not 
more than one fee may be charged per month; and (3) disclosures 
regarding dormancy, inactivity, or service fees are stated clearly and 
conspicuously on the certificate or card and given prior to purchase. 
The Board also proposed to interpret the term ``service fee'' to 
include any fees that may be imposed from time to time, which would 
include transaction-based fees (such as ATM, balance inquiry, and card 
reload fees) as well as monthly maintenance fees.
    The November 2009 Proposed Rule provided that a gift certificate, 
store gift card, or general-use prepaid card may not be sold or issued 
unless the expiration date of the funds underlying the certificate or 
card is at least five years after the date of issuance (in the case of 
a gift certificate) or five years after the date of last load of funds 
(in the case of a store gift card or general-use prepaid card). In 
addition, the proposal would have required information regarding the 
terms of expiration to be stated clearly and conspicuously on the 
certificate or card and disclosed prior to purchase.
    The November 2009 Proposed Rule set forth two proposed alternative 
approaches regarding the sale of a certificate or card to minimize 
potential confusion for consumers in circumstances where the expiration 
date on a certificate or card and the expiration date for the 
underlying funds differ. The first alternative would have prohibited 
the sale or issuance of a certificate or card that has a printed 
expiration date that is less than five years from the date of purchase. 
The second alternative would have prohibited the sale or issuance of a 
certificate or card, unless a person has policies and procedures in 
place to ensure that a consumer has a reasonable opportunity to 
purchase a certificate or card that has an expiration date that is at 
least five years from the date of purchase. In addition, the proposed 
rule would have prohibited the imposition of any fees for replacing an 
expired certificate or card where the underlying funds remained valid, 
to ensure that consumers are able to access the underlying funds for 
the full five-year period.
    In addition to requiring the disclosure of dormancy, inactivity, or 
service fees, the proposed rule would have required the disclosure of 
all other fees imposed in connection with a gift certificate, store 
gift card, or general-use prepaid card. These disclosures would be 
provided on or with the certificate or card and disclosed prior to 
purchase. The proposed rule also would have required the disclosure on 
the certificate or card of a toll-free telephone number and, if one is 
maintained, a Web site,

[[Page 16582]]

that a consumer may use to obtain fee information or replacement 
certificates or cards.

Overview of Public Comments

    The Board received over 230 comment letters on the proposal. The 
majority of the comment letters were submitted by industry commenters, 
including card issuers, card networks, industry trade associations, 
retailers, and prepaid card program managers and distributors. In 
addition, letters were submitted by individual consumers, consumer 
groups, a city government entity, and one state attorney general.
    Many individual consumers urged the Board to prohibit any and all 
fees in connection with gift certificates, store gift cards, and 
general-use prepaid cards as well as the expiration of any funds added 
to such certificates or cards to ensure that consumers do not lose any 
value on certificates or cards they have purchased. The state attorney 
general commenter and city government entity commenter asserted that 
the final rule should include restrictions on the fees that may be 
imposed in connection with covered certificates or cards as well as 
stringent standards regarding the size and prominence of the prescribed 
disclosures. The state attorney general commenter also encouraged the 
Board to include rules to make clear that more stringent state 
protections are not preempted by Federal law.
    To minimize the fees that could be imposed on a gift certificate, 
store gift card, and general-use prepaid card, consumer group 
commenters urged the Board to adopt an expansive definition of 
``service fee'' and to broadly interpret ``activity'' for purposes of 
determining when a consumer's gift card has been used. Consumer group 
commenters also requested that the Board exercise its new authority 
under the Credit Card Act to set caps on dormancy, inactivity, and 
service fees and to set floor amounts above which fees could not be 
charged. Finally, consumer groups asked the Board to extend EFTA and 
Regulation E protections to all prepaid cards, including general-
purpose reloadable cards that may be used as account substitutes by the 
unbanked.
    Industry commenters asserted that the Board should limit its 
interpretation of the term ``service fee'' to monthly maintenance fees, 
and thus exempt activity-based fees, such as per transaction, ATM, 
balance inquiry, and reload fees, from the substantive restrictions 
regarding the imposition of service fees. In addition, industry 
commenters expressed concern that because of space constraints, the 
broad definition of ``service fee'' would make it impossible for 
issuers to comply with the requirement to disclose all such fees on the 
certificate or card itself.
    With respect to the expiration date restrictions, industry 
commenters generally supported the Board's decision to apply the five-
year expiration date requirement to the underlying funds, rather than 
the card itself. Industry commenters were divided on the appropriate 
alternative approach regarding the sale of certificates or cards 
subject to the rule. However, a slight majority favored the flexibility 
afforded by the proposed alternative approach that would allow 
certificates or cards to be sold so long as the consumer has a 
reasonable opportunity to purchase a certificate or card with at least 
five years remaining before expiration.
    Industry commenters also expressed concerns regarding the proposed 
guidance regarding the exclusion for cards, codes, or other devices 
that are reloadable and not marketed or labeled as a gift card or gift 
certificate. Industry commenters believed that the Board's proposed 
examples were overly restrictive in terms of whether and how general-
purpose reloadable cards could be sold in the same location as gift 
cards. Specifically, these commenters noted that the proposed examples 
requiring retailers to use separate displays for gift cards and 
excluded prepaid cards, including general-purpose reloadable cards, may 
lead some retailers to decide to stop selling general-purpose 
reloadable cards altogether. According to these commenters, this would 
limit consumer choice to the detriment of unbanked consumers who may 
use general-purpose reloadable cards as a substitute for a traditional 
debit card tied to a checking or savings account. Industry commenters 
also urged the Board to exclude from the final rule temporary cards 
issued in connection with general-purpose reloadable cards, even if the 
temporary card was issued as a non-reloadable card.
    Finally, industry commenters urged the Board to grandfather 
certificates or cards sold or issued prior to the effective date of the 
final rule of August 22, 2010 from all requirements under the rule, as 
well as to provide relief for certificates or cards that have been 
distributed, but not sold, as of August 22, 2010 to avoid significant 
costs associated with printing new cards and replacing old stock.

IV. Summary of Final Rule

Scope of Rule

    The final rule applies to gift certificates, store gift cards, and 
general-use prepaid cards, as those terms are generally defined in the 
Credit Card Act, with certain adjustments to the statutory definitions 
for consistency and clarity. The scope of the final rule is generally 
limited to gift certificates, store gift cards, or general-use prepaid 
cards sold or issued to consumers primarily for personal, family, or 
household purposes, consistent with the general scope of the EFTA and 
Regulation E.\8\ Thus, the rule does not apply to cards, codes, or 
other devices \9\ where the end use is for business purposes, such as 
to pay for business travel expenses or office supplies. However, the 
fact that a person may sell cards, codes, or other devices to a 
business does not by itself exclude the cards, codes, or other devices 
from the scope of the rule. Such cards, codes, or other devices are 
subject to the rule if the business purchaser resells or distributes 
the cards, codes, or other devices to consumers primarily for personal, 
family, or household purposes, unless the cards, codes, or other 
devices are otherwise excluded under Sec.  205.20(b).
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    \8\ Loyalty, award, and promotional gift cards, as defined in 
Sec.  205.20(a)(4) and discussed below, are subject to certain 
disclosure requirements under the final rule, but not to the 
substantive restrictions on imposing dormancy, inactivity, or 
service fees, or on expiration dates.
    \9\ The final rule and accompanying supplementary information 
generally use the term ``certificate or card'' to refer to a gift 
certificate, store gift card, or general-use prepaid card that is 
subject to the requirements under Sec.  205.20. In other places, the 
term ``card, code, or other device'' is generally used to refer more 
broadly both to covered certificates or cards as well as other 
prepaid products which may fall outside the rule under an exclusion 
in Sec.  205.20(b).
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Restrictions on Dormancy, Inactivity, or Service Fees

    Under the final rule, no person may impose a dormancy, inactivity, 
or service fee with respect to a gift certificate, store gift card, or 
general-use prepaid card, unless three conditions are satisfied. First, 
such fees may be imposed only if there has been no activity with 
respect to the certificate or card within the one-year period prior to 
the imposition of the fee. Second, only one such fee may be assessed in 
a given calendar month. Third, disclosures regarding dormancy, 
inactivity, or service fees must be clearly and conspicuously stated on 
the certificate or card, and the person issuing or selling the 
certificate or card must provide these disclosures to the

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purchaser before the certificate or card is purchased.
    As in the proposal, the final rule includes in the definition of 
``service fee'' both account maintenance fees that are charged on a 
recurring basis as well as activity-based fees which may occur from 
time to time, such as per transaction, balance inquiry, ATM, and reload 
fees.

Expiration Date Restrictions

    The final rule provides that a gift certificate, store gift card, 
or general-use prepaid card may not be sold or issued unless the 
expiration date of the funds underlying the certificate or card is no 
less than five years after the date of issuance (in the case of a gift 
certificate) or five years after the date of last load of funds (in the 
case of a store gift card or general-use prepaid card). In addition, 
information regarding whether funds underlying a certificate or card 
may expire must be clearly and conspicuously stated on the certificate 
or card and disclosed prior to purchase.
    Consumers may be confused if the expiration date on a certificate 
or card differs from the expiration date for the underlying funds. The 
final rule thus provides that no person may sell or issue a certificate 
or card unless the person has established policies and procedures to 
provide consumers with a reasonable opportunity to purchase a 
certificate or card that has an expiration date that is at least five 
years from the date of purchase. A person who has established policies 
and procedures to prevent the sale of a certificate or card with less 
than five years from the date of purchase also satisfies the 
requirement.
    The final rule also generally requires a certificate or card to 
include a disclosure alerting consumers to the difference between the 
certificate or card expiration date and the funds expiration date, if 
any, and that the consumer may contact the issuer for a replacement 
card. This disclosure must be stated with equal prominence and in close 
proximity to the certificate or card expiration date. Non-reloadable 
certificates or cards that bear an expiration date on the certificate 
or card that is at least seven years from the date of manufacture need 
not include this disclosure, however.
    The final rule further prohibits the imposition of any fees for 
replacing an expired certificate or card if the underlying funds remain 
valid, to ensure that consumers are able to access the underlying funds 
for the full five-year period. The final rule also provides, however, 
that in lieu of sending a replacement certificate or card, issuers may 
remit, without charge, the remaining balance of funds to the consumer.

Additional Disclosure Requirements Regarding Fees

    In addition to the statutory restrictions for dormancy, inactivity, 
or service fees, the final rule requires the disclosure of all other 
fees, such as initial issuance fees and cash-out fees, imposed in 
connection with a gift certificate, store gift card, or general-use 
prepaid card. These disclosures must be provided on or with the 
certificate or card and disclosed prior to purchase. The final rule 
also requires disclosure on the certificate or card of a toll-free 
telephone number and, if one is maintained, a Web site, that a consumer 
may use to obtain fee information or replacement certificates or cards.

Exclusions

    Consistent with the statute, the final rule excludes certain 
prepaid products from the definitions of gift certificate, store gift 
card, or general-use prepaid card. For example, cards, codes, or other 
devices that are issued in connection with a loyalty, award, or 
promotional program, or that are reloadable and not marketed or labeled 
as a gift card or gift certificate, are not subject to the substantive 
restrictions on imposing dormancy, inactivity, or service fees, or on 
expiration dates. The final rule provides that the exclusion for cards, 
codes, or other devices that are reloadable and not marketed or labeled 
as a gift card or gift certificate applies also to temporary cards 
issued solely in connection with a general-purpose reloadable card, 
even if the temporary card is initially non-reloadable.
    To mitigate potential consumer confusion, the final rule requires a 
loyalty, award, or promotional gift card to state on the front of the 
card both that it is issued for loyalty, award, or promotional purposes 
as well as any funds expiration date that may apply. In addition, all 
fees, including any dormancy, inactivity, or service fees, must be 
disclosed on or with the loyalty, award, or promotional gift card.

Mandatory Compliance Date

    The mandatory compliance date for the rule is August 22, 2010 as 
set forth in the Credit Card Act. Under the final rule, certificates or 
cards sold on or after August 22, 2010 must fully comply with the 
requirements of this section, including any disclosure requirements 
that apply. In addition, loyalty, award, or promotional gift cards will 
be subject to the disclosure requirements discussed above if they are 
issued pursuant to a loyalty, award, or promotional program that begins 
on or after August 22, 2010.

V. Legal Authority

    Section 401 of the Credit Card Act creates a new Section 915 of the 
EFTA. This provision prohibits any person from charging dormancy, 
inactivity, or service fees with respect to a gift certificate, store 
gift card, or general-use prepaid card, unless there have been at least 
12 months of inactivity with respect to the certificate or card, not 
more than one fee is charged in any given month, and certain 
disclosures regarding such fees are provided to the consumer. See EFTA 
Section 915(b); 15 USC 1693m(b). See also Sec.  205.20(d). In addition, 
Section 401 of the Credit Card Act makes it unlawful for any person to 
sell or issue a gift certificate, store gift card, or general-use 
prepaid card that is subject to an expiration date, unless the 
expiration date is at least five years after the date on which a gift 
certificate is issued or five years after funds are last loaded on a 
store gift card or general-use prepaid card, and the terms of 
expiration are clearly and conspicuously disclosed. See EFTA Section 
915(c); 15 U.S.C. 1693m(c). See also Sec.  205.20(e).
    Section 401(d)(1) of the Credit Card Act requires the Board to 
prescribe rules to carry out the new requirements. These requirements 
are implemented in new Sec.  205.20 in the final rule. Sections 
205.20(a) and (b) of the final rule define the products subject to the 
new requirements and implement statutory exclusions set forth in the 
Credit Card Act. The Board has also used the authority under EFTA 
Section 915(a)(2)(D)(iii) to adopt certain disclosure requirements for 
loyalty, award, and promotional gift cards in Sec.  205.20(a)(4)(iii). 
See 15 U.S.C. 1693m(a)(2)(D)(iii).
    Section 401(d)(1) of the Credit Card Act gives the Board the 
authority to prescribe rules addressing the amount of dormancy, 
inactivity, or service fees that may be imposed, and the balance below 
which such fees may be assessed. See EFTA Section 915(d)(1); 15 U.S.C. 
1693m(d)(1). In addition, Section 401(d)(2) of the Credit Card Act 
requires the Board to determine the extent to which the individual 
definitions and provisions of the EFTA and Regulation E should apply to 
gift certificates, store gift cards, and general-use prepaid cards. See 
EFTA Section 915(d)(2); 15 U.S.C. 1693m(d)(2). The Board has used this 
authority under Section 401(d)(2) of the Credit Card Act to require 
certain additional fee-related disclosures for covered certificates or 
cards. See

[[Page 16584]]

Sec.  205.20(f)(1). Lastly, Section 402 of the Credit Card Act amends 
EFTA Section 920 to provide that the EFTA does not preempt any state 
laws that address dormancy, inactivity, or service fees or expiration 
dates for gift certificates, store gift cards, or general-use prepaid 
cards if such state laws provide greater consumer protection than the 
new gift card provisions. See Sec.  205.12(b).
    In addition to the statutory mandates set forth in the Credit Card 
Act, Section 904(a) of the EFTA authorizes the Board to prescribe 
regulations necessary to carry out the purposes of the title. The 
express purposes of the EFTA are to establish ``the rights, 
liabilities, and responsibilities of participants in electronic fund 
transfer systems'' and to provide ``individual consumer rights.'' See 
EFTA Section 902(b); 15 U.S.C. 1693. Section 904(c) of the EFTA further 
provides that regulations prescribed by the Board may contain any 
classifications, differentiations, or other provisions, and may provide 
for such adjustments or exceptions for any class of electronic fund 
transfers that in the judgment of the Board are necessary or proper to 
effectuate the purposes of the title, to prevent circumvention or 
evasion, or to facilitate compliance. The Board has exercised its 
authority under EFTA Sections 904(a) and 904(c) to adopt additional 
requirements in Sec. Sec.  205.20(c), 205.20(e)(1), 205.20(e)(3)(ii)-
(iii), 205.20(e)(4) and 205.20(f)(2), to make conforming changes to 
Sec. Sec.  205.3(a) and 205.4(a)(1), and where otherwise specifically 
stated in the Section-by-Section analysis to effectuate the purposes of 
and facilitate compliance with the EFTA. The Section-by-Section 
analysis and Final Regulatory Flexibility Analysis serve as the 
economic impact analysis pursuant to EFTA Section 904(a)(2).

VI. Section-by-Section Analysis

Section 205.3 Coverage

3(a) General
    Section 205.3(a) is revised to provide that the new gift card 
provisions in Sec.  205.20 apply to any person. The revision reflects 
that the scope of the Credit Card Act's gift card provisions is not 
limited to financial institutions. For example, EFTA Section 915(b) 
prohibits ``any person'' from imposing a dormancy, inactivity, or 
service fee in connection with a gift certificate, store gift card, or 
general-use prepaid card unless certain conditions are met. See Sec.  
205.20(d). Similarly, EFTA Section 915(c) generally prohibits ``any 
person'' from selling or issuing a gift certificate, store gift card, 
or general-use prepaid card that is subject to an expiration date. See 
Sec.  205.20(e). Thus, Sec.  205.20 applies to any of the parties in a 
certificate or card distribution chain, including but not limited to a 
card issuer, a program manager, and a retailer of prepaid cards, to the 
extent they engage in any of the acts covered by that section with 
respect to gift certificates, store gift cards, or general-use prepaid 
cards, or to loyalty, award, or promotional gift cards.

Section 205.4 General Disclosure Requirements; Jointly Offered Services

    Section 205.4 contains the general disclosure requirements under 
Regulation E, including provisions relating to the form of disclosure. 
Section 205.4(a)(1) provides that disclosures required by the 
regulation shall be clear and readily understandable, in writing, and 
in a form that the consumer may keep. The Board proposed to revise 
Sec.  205.4(a)(1) to provide that for certain disclosures required by 
the regulation, different disclosure standards may apply. The revision 
to Sec.  205.4(a)(1) is adopted as proposed.
    As revised, Sec.  205.4(a)(1) clarifies that the requirement that 
disclosures be clear and readily understandable, in writing, and in a 
form the consumer may keep is one of general application, and that 
different requirements apply when specified in the rule. For example, 
as further discussed below, the disclosures for certain prepaid cards 
set forth in the final rule are subject to a ``clear and conspicuous'' 
standard, consistent with Section 915 of the EFTA, rather than the 
``clear and readily understandable'' standard that generally applies 
under Regulation E. See Sec.  205.20, discussed below. Similarly, under 
current Sec.  205.11(c), notices provided by financial institutions to 
satisfy the error investigation requirements of Regulation E may be 
provided orally or in writing. See comment 11(c)-1.
    Two industry commenters recommended that the Board revise Sec.  
205.4(a)(1) to explicitly provide that the consumer consent provisions 
of the Electronic Signatures in Global and National Commerce Act (the 
E-Sign Act) (15 U.S.C. 7001 et seq.) do not apply to gift card 
disclosures provided electronically. Section 205.4(a)(1) currently 
provides that disclosures required by the regulation may be provided 
electronically, subject to compliance with the consumer consent 
provisions of the E-Sign Act. The E-Sign Act consumer consent 
provisions only apply when a statute or regulation provide that the 
sole means of providing disclosures is in writing. The Board believes 
the current regulation is clear that a person need not obtain E-Sign 
consent to provide gift card disclosures electronically because the 
final rule permits gift card disclosures to be provided in writing, 
orally, or electronically.\10\ Thus, the final rule does not contain 
the suggested revisions.
---------------------------------------------------------------------------

    \10\ Of course, a person providing gift card disclosures 
electronically must continue to satisfy the requirements under 
Sec. Sec.  205.20(c)(3) and (c)(4).
---------------------------------------------------------------------------

Section 205.12 Relation to Other Laws

    EFTA Section 920 (as redesignated by the Credit Card Act) provides 
that the EFTA does not preempt any state laws relating to electronic 
fund transfers except to the extent that such laws are inconsistent 
with the EFTA's provisions. See 15 U.S.C. 1693r. Section 920 further 
clarifies that a state law is not inconsistent with the EFTA if the 
state law provides greater protection for the consumer than under the 
Act. Accordingly, Section 920 effectively creates a federal floor for 
the protections set forth in the Act (floor preemption). Section 
205.12(b) of Regulation E implements this provision.
    The Credit Card Act amended EFTA Section 920 to apply the EFTA's 
existing preemption provisions to state laws that address ``dormancy 
fees, inactivity charges or fees, service fees, or expiration dates of 
gift certificates, store gift cards, or general-use prepaid cards.'' 
See Section 402 of the Credit Card Act. Thus, state laws that provide 
greater protection for consumers than Title IV of the Credit Card Act 
as codified in the EFTA, are not preempted by the EFTA. The Board 
proposed to amend Sec.  205.12(b) of Regulation E and comment 12(b)-1 
to conform with the amendments to EFTA Section 920 made by the Credit 
Card Act. The final rule amends the regulation and commentary generally 
as proposed, with certain revisions for clarity.
    One state attorney general commenter urged the Board to include 
additional rules to clarify that more stringent state protections are 
not preempted by federal law with respect to gift cards. The Board 
believes, however, that Sec.  205.12(b)(1) already is clear that a 
state law is not preempted due to inconsistency with federal law if it 
is more protective of consumers.
    Industry commenters did not comment on the Board's proposed 
revisions to Sec.  205.12(b), but raised a separate issue relating to 
preemption in connection with state escheat laws. This issue is 
discussed later in the Section-by-Section analysis.

[[Page 16585]]

Section 205.20 Requirements for Gift Cards and Gift Certificates

20(a) Definitions
    EFTA Section 915(a)(2) generally defines the scope of gift cards 
and gift certificates that are subject to the Credit Card Act's 
restrictions on dormancy, inactivity, or service fees and the terms of 
expiration. Specifically, EFTA Section 915 applies to gift 
certificates, store gift cards, and general-use prepaid cards as those 
terms are defined in the statute. In addition, EFTA Section 915(a)(1) 
defines a dormancy fee, inactivity charge or fee, and EFTA Section 
915(a)(3) defines a service fee. See 15 U.S.C. 1693m(a).
    Section 205.20(a) of the final rule defines the following terms: 
Gift certificate; store gift card; general-use prepaid card; loyalty, 
award, or promotional gift card; dormancy or inactivity fee; service 
fee; and activity. Comments received regarding the definitions are 
generally discussed in connection with the relevant term below.
    The definitions of gift certificate, store gift card, and general-
use prepaid card generally track the definitions set forth in the 
statute. However, the final rule makes certain adjustments to the 
statutory definitions pursuant to the Board's authority under EFTA 
Section 904(c) to provide clarity and to harmonize key terms throughout 
the rule.
Card, Code, or Other Device
    As discussed in the November 2009 Proposed Rule, EFTA Section 915 
does not use consistent terminology to describe the payment devices 
covered by the statute. For example, the statutory definition of a 
general-use prepaid card refers to a ``card or other payment code or 
device,'' while the statutory definition of a store gift card refers to 
an ``electronic promise, plastic card, or other payment code or 
device.'' Distinguishing the types of products covered under the rule 
by, for instance, the material that is used to produce a payment card 
would not be consistent with the statute's overall purpose. The 
adoption of such distinctions would result in some gift card products 
being excluded from the rule altogether based on the type of material 
used to make the card. For example, if the definition of store gift 
card literally required a card to be made out of plastic, then a 
reloadable gift card that was made with a different material would 
neither be a store gift card nor fall under any of the other 
definitions of covered products.\11\
---------------------------------------------------------------------------

    \11\ Products issued in paper form only are excluded under EFTA 
Section 915(a)(2)(D)(v) and Sec.  205.20(b)(5), discussed below.
---------------------------------------------------------------------------

    In addition, the exclusions in EFTA Section 915(a)(2)(D) apply to 
an ``electronic promise, plastic card, or payment code or device'' that 
meets certain specified criteria. See 15 U.S.C. 1693m(a)(2)(D). The 
Board does not believe that an issuer that, for example, chooses to use 
non-plastic biodegradable materials to create a more environmentally-
friendly card product should be precluded from relying on an exclusion 
solely because its payment device is not made of plastic. Therefore, 
the proposed rule generally referred to ``cards, codes, or other 
devices'' to avoid such arbitrary distinctions and to provide 
consistency across the definitions. The Board did not receive any 
comments on this approach, and the final rule retains the proposed 
terminology.
    Proposed comment 20(a)-1 clarified that the requirements of Sec.  
205.20 generally apply to all cards, codes, or other devices that meet 
the general definition of gift certificate, store gift card, or 
general-use prepaid card, even if they are not issued in card form. 
That is, the rule applies even if a physical card or certificate is not 
issued. The Board did not receive any comments on the proposed comment. 
Accordingly, it is adopted generally as proposed, with certain 
revisions to provide additional guidance.
    Final comment 20(a)-1 clarifies that Sec.  205.20 covers products 
even if they are not issued in card form, such as account numbers or 
bar codes that enable a consumer to access underlying funds. Similarly, 
Sec.  205.20 applies to a device with a chip or other embedded 
mechanism that links the device to stored funds, such as a mobile phone 
or sticker containing a contactless chip that enables the consumer to 
access the stored funds. Section 205.20 also applies if a merchant 
issues a code that entitles a consumer to redeem the code for goods or 
services, regardless of the medium in which the code is issued, and 
whether or not it may be redeemed electronically or in the merchant's 
store. Thus, for example, if a merchant e-mails a code that a consumer 
may redeem in a specified amount either on-line or in the merchant's 
store, that code is covered under Sec.  205.20, unless one of the 
exclusions in Sec.  205.20(b) apply. See comment 20(a)-1.
    The final comment also provides that a card, code, or other device 
may meet the definition of gift certificate, store gift card, or 
general-use prepaid card in Sec.  205.20(a)(1) through (3), if it is an 
electronic promise, see comment 20(a)-2, discussed below, as well as a 
promise that is not electronic. But see Sec.  205.20(b)(5).
Electronic Promise
    The term ``electronic promise'' is used in several places in the 
statute to refer to a type of payment mechanism or device. See EFTA 
Sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D). As proposed, comment 
20(a)-2 clarified that the term ``electronic promise'' means ``a 
person's commitment or obligation communicated or stored in electronic 
form made to a consumer to provide payment for goods or services for 
transactions initiated by the consumer.'' \12\ The proposed comment 
reflected the Board's view that an electronic promise reflects a 
person's commitment to pay that is itself represented by a ``card, 
code, or other device,'' rather than a distinct payment mechanism. 
Commenters did not address the proposed comment, and it is adopted 
generally as proposed. Thus, for example, if a merchant issues a code 
that can be given as a gift and redeemed by the recipient in an on-line 
transaction for goods or services, that code represents an electronic 
promise by the merchant and is a card, code, or other device covered by 
Sec.  205.20. See comment 20(a)-2.
---------------------------------------------------------------------------

    \12\ See, e.g., UCC 3-103(a)(12) (defining ``promise'' as a 
``written undertaking to pay money signed by the person undertaking 
to pay. An acknowledgment of an obligation by the obligor is not a 
promise unless the obligor also undertakes to pay the 
obligation.'').
---------------------------------------------------------------------------

Specified Amount
    The statutory definitions of ``gift certificate'' and ``store gift 
card'' refer to products that are ``issued in a specified amount.'' In 
contrast, the statutory definition of a ``general-use prepaid card'' 
refers to products that are ``issued in a requested amount.'' See EFTA 
Sections 915(a)(2)(A), (a)(2)(B), and (a)(2)(C); 15 U.S.C. 
1693m(a)(2)(A), (a)(2)(B), and (a)(2)(C). One possible interpretation 
of the statute's use of different terms could suggest that gift 
certificates and store gift cards issued in a consumer-requested amount 
and general-use prepaid cards issued in a predenominated (or specified) 
amount would be excluded from the rule. The Board does not believe that 
such a result would be consistent with the statute's purpose.
    Accordingly, to ensure that consumers receive the same protections 
when purchasing gift cards or gift certificates regardless of whether 
the

[[Page 16586]]

amount on the gift card is determined by the issuer or the consumer, 
the Board proposed to interpret the statutory definitions of gift 
certificate, store gift card, and general-use prepaid card broadly to 
cover certificates or cards whether the amounts are predenominated or 
consumer-designated. Therefore, the proposed rule used the term 
``specified'' consistently across all three defined product terms to 
capture all certificates or cards whether they are issued in 
predenominated amounts or in an amount requested by a consumer in a 
particular transaction.
    Commenters generally supported the Board's proposed reconciliation 
of the statutory terms, and the final rule retains this approach. Two 
industry commenters, however, noted that both the statute and the 
proposed rule appear to limit the scope of coverage to certificates or 
cards issued with specific currency denominations (for example, a $50 
gift card or certificate). Accordingly, these commenters asked the 
Board to clarify that the rule does not apply to gift cards that 
entitle the cardholder to a specific ``experience,'' such as a hotel 
stay or a golf lesson, rather than a monetary value that may be applied 
towards goods or services. These commenters were particularly concerned 
that if ``experience'' cards were subject to the five-year minimum 
expiration requirements, issuers or sponsors of such cards may have to 
raise prices to adjust for anticipated cost increases over a five-year 
period for the specified experience.
    The Board agrees that such a clarification is appropriate in light 
of the statutory language referring to certificates or cards ``issued 
in a specified [or requested] amount.'' This language suggests that the 
statute is intended to cover certificates or cards that are issued in a 
specified currency denomination.
    Accordingly, new comment 20(a)-3 is added to clarify that cards, 
codes, or other devices redeemable for a specific good or service, or 
``experience,'' such as a spa treatment, hotel stay, or airline flight, 
generally are not subject to the requirements of Sec.  205.20 because 
they are not issued to a consumer ``in a specified amount.'' Similarly, 
a card, code, or other device that entitles the consumer to a certain 
percentage off the purchase of a good or service, such as a card 
offering 20% off of any purchase in a store, is not subject to the 
requirements of Sec.  205.20 because it is not issued to a consumer in 
a ``specified amount.'' Nonetheless, if the card, code, or other device 
is issued in a specified or predenominated amount that can be applied 
toward the specific good or service, or states a specific monetary 
value, such as ``a $50 value,'' comment 20(a)-3 clarifies that the 
card, code, or other device is subject to this section, unless one of 
the exceptions in Sec.  205.20(b) apply. See, e.g., Sec.  205.20(b)(3).
Personal, Family, or Household Purposes
    Although the EFTA generally applies only to consumer accounts, the 
gift card provisions of the Credit Card Act do not expressly limit the 
scope of the new restrictions to certificates or cards issued primarily 
for personal, family, or household purposes. Accordingly, the Board 
solicited comment on whether it would be appropriate to limit the scope 
of the final rule so that it does not apply to certificates or cards 
issued for business purposes. The Board noted, however, that any such 
limitation likely would not exclude certificates or cards that are 
purchased by a business for the purposes of redistribution or resale to 
consumers primarily for personal, family, or household purposes. Given 
that the rule could therefore require issuers to adopt controls and 
potentially monitor the distribution or sale of gift cards to ensure 
that the end use is for business purposes, the Board also solicited 
comment regarding whether the rule should cover cards, codes, or other 
devices issued for business purposes.
    Industry commenters urged the Board to exclude certificates or 
cards issued for business purposes from the rule, stating that such an 
approach would be consistent with the scope of the EFTA, which is 
generally limited to consumer-purpose products. Industry commenters 
also noted that the sophistication of commercial parties in a business-
to-business transaction alleviated the need to mandate the protections 
set forth in the Credit Card Act for business-purpose certificates or 
cards. Consumer groups did not address the issue.
    Industry commenters also asserted that the final rule should not 
require card issuers to adopt controls and monitor the distribution or 
sale of gift cards purchased by a business to ensure that the end use 
is for business purposes. Instead, industry commenters argued that it 
should be sufficient for issuers to rely on contractual provisions 
prohibiting the resale or redistribution of such products to the 
public. Industry commenters urged the Board to also grant a safe harbor 
from any liability if a certificate or card was sold or issued to 
consumers in violation of contractual provisions.
    The final rule limits the scope of the rule to cards, codes, or 
other devices issued primarily for personal, family, or household 
purposes. Limiting the rule to cards, codes, or other devices issued 
primarily for personal, family, or household purposes is consistent 
with the scope of the EFTA. In addition, the Board understands that 
Title IV of the Credit Card Act was primarily intended to enable 
consumers to spend the full value on their gift cards within a 
reasonable time frame without having that value reduced by associated 
fees and expiration dates.\13\ The Board is not aware of any similar 
concerns regarding business-purpose prepaid certificates or cards.
---------------------------------------------------------------------------

    \13\ See, e.g., ``Schumer, Mark Udall Introduce Bill to Protect 
Consumers from Hidden Gift Card Fees Secretly Draining Shoppers' 
Pockets'', Press Release, Mar. 27, 2009 (available at: http://schumer.senate.gov/new_website/record.cfm?id=310799).
---------------------------------------------------------------------------

    New comment 20(a)-4 clarifies that Sec.  205.20 only applies to 
cards, codes, or other devices that are sold or issued to consumers 
primarily for personal, family, or household purposes. The comment 
provides, however, that a card, code, or other device may continue to 
be subject to the rule even if it is initially purchased by a business, 
if the card, code, or other device is purchased for redistribution or 
resale to consumers primarily for personal, family, or household 
purposes. In addition, the new comment provides that the fact that a 
card, code, or other device may be primarily funded by a business, for 
example, in the case of certain rewards or incentive cards, does not by 
itself mean that the card, code, or other device is outside the scope 
of Sec.  205.20, if the card, code, or other device will be provided to 
a consumer primarily for personal, family, or household purposes. See, 
however, Sec. Sec.  205.20(a)(4) and (b)(3).
    New comment 20(a)-4 further states that whether a card, code, or 
other device is issued to a consumer primarily for personal, family, or 
household purposes will depend on the facts and circumstances. For 
example, if a program manager purchases store gift cards directly from 
an issuing merchant and sells those cards through the program manager's 
retail outlets, such gift cards are subject to the requirements of 
Sec.  205.20 because the store gift cards are sold to consumers 
primarily for personal, family, or household purposes.
    In contrast, a card, code, or other device generally would not be 
issued to consumers primarily for personal, family, or household 
purposes, and therefore would fall outside the scope of Sec.  205.20, 
if the purchaser of the card, code, or device is contractually

[[Page 16587]]

prohibited from reselling or redistributing the card, code, or device 
to consumers primarily for personal, family, or household purposes, and 
reasonable policies and procedures are maintained to avoid such sale or 
distribution for such purposes. However, if an entity that has 
purchased cards, codes, or other devices for business purposes sells or 
distributes such cards, codes, or other devices to consumers primarily 
for personal, family, or household purposes, that entity does not 
comply with Sec.  205.20 if it has not otherwise met the substantive 
and disclosure requirements of the rule or unless an exclusion in Sec.  
205.20(b) applies.
    New comment 20(a)-5 provides examples of cards issued for business 
purposes.
Issued on a Prepaid Basis
    The definitions of ``gift certificate,'' ``store gift card,'' and 
``general-use prepaid card'' have each been revised in the final rule 
to clarify that the card, code, or other device must be issued on a 
``prepaid basis'' to meet the particular definition, consistent with 
the statute. See, e.g., EFTA Section 915(a)(2)(A)(iii); See 15 U.S.C. 
1693m(a)(2)(A)(iii). For purposes of Sec.  205.20, a card, code, or 
other device may be issued on a prepaid basis whether the card, code, 
or other device is loaded in advance by a consumer or by another 
person.
20(a)(1) Gift Certificate
    Section 205.20(a)(1) defines the term ``gift certificate'' as a 
card, code, or other device that is: (a) Issued on a prepaid basis 
primarily for personal, family, or household purposes to a consumer in 
a specified amount that may not be increased or reloaded in exchange 
for payment; and (b) redeemable upon presentation at a single merchant 
or an affiliated group of merchants for goods or services. The 
definition generally tracks the definition set forth in the statute, 
with modifications to simplify and clarify the definition. See EFTA 
Section 915(a)(2)(B); 15 U.S.C. 1693m(a)(2)(B). The definition is 
adopted generally as proposed, except that, as discussed above, the 
scope of the definition is limited to cards, codes, or other devices 
issued to a consumer primarily for personal, family, or household 
purposes. In addition, the definition has been revised for consistency 
with the statute to clarify that the certificate must be issued on a 
``prepaid basis.''
    The term ``affiliated group of merchants''--as further discussed 
below under the definition of ``store gift card''--includes two or more 
merchants or other persons that are related by common ownership or 
common corporate control and share the same name, mark, or logo. The 
term also includes two or more merchants or other persons that agree 
among themselves to honor any card, code, or other device that bears 
the same name, mark, or logo (other than the mark or logo of a payment 
network) for the purchase of goods or services solely at such merchants 
or persons. See comment 20(a)(2)-2.
20(a)(2) Store Gift Card
    Section 205.20(a)(2) defines the term ``store gift card'' as a 
card, code, or other device that is: (a) Issued on a prepaid basis 
primarily for personal, family, or household purposes to a consumer in 
a specified amount, whether or not that amount may be increased or 
reloaded, in exchange for payment; and (b) redeemable upon presentation 
at a single merchant or an affiliated group of merchants for goods and 
services. The definition generally tracks the definition set forth in 
the statute, with modifications to simplify and clarify the definition. 
See EFTA Section 915(a)(2)(C); 15 U.S.C. 1693m(a)(2)(C). The definition 
is adopted generally as proposed, except that, as discussed above, the 
scope of the definition is limited to cards, codes, or other devices 
issued to a consumer primarily for personal, family, or household 
purposes. In addition, the definition has been revised for consistency 
with the statute to clarify that the card, code, or other device must 
be issued on a ``prepaid basis.'' Under the final rule, closed-loop 
cards generally are considered ``store gift cards'' or ``gift 
certificates,'' unless one of the exclusions in Sec.  205.20(b), 
discussed below, applies.
    A card, code, or other device that meets the requirements in Sec.  
205.20(a)(2) qualifies as a ``store gift card,'' whether or not more 
funds may be added to the card, code, or other device. As proposed, the 
term ``store gift card'' included a card, code, or other device issued 
in a specified amount, ``whether or not that amount may be increased or 
reloaded by a consumer.'' The final rule deletes the reference in 
proposed Sec.  205.20(a)(2)(i) to the increasing or reloading of a card 
``by a consumer'' to reflect that the amount on a card may be increased 
or reloaded by a person other than the consumer, such as the card 
issuer or a merchant. In addition, because ``store gift card'' includes 
non-reloadable cards, codes, or other devices that are redeemable at 
single merchants or affiliated groups of merchants, comment 20(a)(2)-1 
clarifies and illustrates by way of example that a gift certificate as 
defined in Sec.  205.20(a)(1) is a type of store gift card.
    Comment 20(a)(2)-2 provides guidance on the term ``affiliated group 
of merchants.'' Under EFTA Section 915(a)(2), both the definition of 
``gift certificate'' and ``store gift card'' refer to certificates or 
cards that are redeemable at a single merchant or ``an affiliated group 
of merchants that share the same name, mark, or logo.'' The term 
``affiliate'' is not defined in the statute. The Board proposed to 
interpret the term ``affiliate'' to include both a relationship between 
two or more companies that is defined by some form of common ownership 
or common corporate control by one of the companies, consistent with 
the use of that term in other contexts.\14\ The proposed term would 
also include an arrangement by which unrelated companies agree to 
operate a common gift card program in which cardholders may use the 
same certificate or card at any of the companies. No comments were 
received on the proposed comment, and it is adopted as proposed.
---------------------------------------------------------------------------

    \14\ See, e.g., 12 CFR 222.3(b) (defining ``affiliate'' under 
the Board's Regulation V (Fair Credit Reporting)); 12 CFR 223.2 
(defining ``affiliate'' under the Board's Regulation W (Transactions 
Between Member Banks and Their Affiliates)).
---------------------------------------------------------------------------

    Accordingly, comment 20(a)(2)-2 provides that the term ``affiliated 
group of merchants'' means two or more affiliated merchants or other 
persons that are related by common ownership or common corporate 
control, and that share the same name, mark, or logo. Thus, for 
example, the term covers franchisees because franchisees generally are 
subject to a common corporate set of policies or practices under the 
terms of their franchise licenses.
    Comment 20(a)(2)-2 also provides that the term ``affiliated group 
of merchants'' includes arrangements under which two or more merchants 
or other persons that agree among themselves, by contract or otherwise, 
to redeem cards, codes, or other devices bearing the same name, mark, 
or logo for purchases of goods or services solely at the establishments 
of such merchants or persons. See also comment 20(a)(3)-2 regarding 
mall cards, discussed below. For example, a movie theater chain and a 
restaurant chain may decide to operate a gift card program that enables 
cardholders to use the same gift card to pay for movie tickets or 
concessions at the theater, or for a meal at the restaurant. The Board 
believes that it is appropriate to treat such arrangements like gift 
card programs operated by retailers with the same parent company

[[Page 16588]]

or under common corporate control. Comment 20(a)(2)-2 clarifies, 
however, that merchants or other persons are not considered affiliated 
merely because they agree to accept a card that bears the mark, logo, 
or brand of a payment network. Thus, for example, a grocery store is 
not considered to be affiliated with a hardware store merely because 
they both agree to accept Visa or MasterCard-branded cards.
    Comment 20(a)(2)-3 addresses mall cards and cross-references 
comment 20(a)(3)-2, discussed below.
20(a)(3) General-Use Prepaid Card
    Section 205.20(a)(3) defines the term ``general-use prepaid card'' 
as a card, code, or other device that is: (a) Issued on a prepaid basis 
primarily for personal, family, or household purposes to a consumer in 
a specified amount, whether or not that amount may be increased or 
reloaded, in exchange for payment; and (b) redeemable upon presentation 
at multiple, unaffiliated merchants or service providers for goods or 
services, or usable at ATMs. The definition generally tracks the 
definition in the statute, with modifications to simplify and clarify 
the definition. See EFTA Section 915(a)(2)(A); 15 U.S.C. 
1693m(a)(2)(A). Under the final rule, open-loop cards generally are 
considered to be ``general-use prepaid cards,'' unless one of the 
exclusions in Sec.  205.20(b), discussed below, applies.
    The definition is adopted generally as proposed, except that, as 
discussed above, the scope of the definition is limited to cards, 
codes, or other devices issued to a consumer primarily for personal, 
family, or household purposes. In addition, consistent with the 
revision to the definition of ``store gift card,'' the definition of 
``general-use prepaid card'' is revised to delete the reference in 
proposed Sec.  205.20(a)(3)(i) to increasing or reloading of a card 
``by a consumer'' to reflect that the amount on a card may be increased 
or reloaded by a person other than the consumer, such as the card 
issuer or a merchant. The definition has also been revised for 
consistency with the statute to clarify that the card, code, or other 
device must be issued on a ``prepaid basis.''
    Comment 20(a)(3)-1 clarifies that a card, code, or other device is 
``redeemable upon presentation at multiple, unaffiliated merchants'' 
if, for example, the merchants agree to honor the card, code, or device 
if it bears the mark, logo, or brand of a payment network, pursuant to 
the rules of the payment network.
    One popular form of gift card is a mall gift card, which is 
intended to be used or redeemed at participating retailers located 
within the same shopping mall. In some cases, however, the mall card 
may also be network-branded, which permits the card to be used at any 
retailer that accepts that card brand, including retailers located 
outside the mall. Proposed comment 20(a)(3)-2 generally stated that 
whether a mall card is considered a store gift card or a general-use 
prepaid card depends on the locations in which the card may be 
redeemed. For example, if the use of the mall card is limited to the 
retailers located within the shopping mall, the card would be more 
likely to be considered a store gift card. In contrast, if the mall 
card was network-branded and could be used at any merchant that 
accepted that brand, the card would be considered a general-use prepaid 
card.
    One industry commenter argued that a mall gift card should be 
considered a ``general-use prepaid card'' even if it does not carry a 
network brand. This commenter noted that mall cards are generally 
issued by a financial institution or member of a card network, and not 
by the mall or program sponsor, and that transactions using the mall 
card are authorized and settled over the payment networks just like 
other general-use prepaid cards. The commenter also stated that cards 
issued in connection with other forms of limited open-loop programs 
that are intended to encourage local residents to support the 
participating merchants within a community should similarly be viewed 
as ``general-use prepaid cards'' because such cards are generally bank-
issued and carry similar costs as more traditional network-branded 
cards.
    Comment 20(a)(3)-2 is adopted substantively as proposed. The Board 
does not believe that the fact that the entity issuing a particular 
card is a bank should be dispositive of whether the card is a general-
use prepaid card. Instead, consistent with the statute, the 
determination turns on the degree of affiliation between the merchants 
honoring the card for goods or services. In general, a card, code, or 
other device is more likely to be considered to be a general-use 
prepaid card if the merchants honoring the card have no contractual 
relationship or agreement to redeem the card, code or other device 
except for the fact that they agree to honor any card, code, or other 
device carrying the brand of a payment network. See comments 20(a)(2)-
2, 20(a)(3)-1. Nonetheless, the substantive and disclosure requirements 
of Sec.  205.20 apply to mall cards whether they are considered store 
gift cards or general-use prepaid cards.
20(a)(4) Loyalty, Award, or Promotional Gift Card
    EFTA Section 915(a)(2)(D)(iii) excludes an electronic promise, 
plastic card, or payment code or device from the definitions of ``gift 
certificate,'' ``store gift card,'' or ``general-use prepaid card'' if 
it is a loyalty, award or promotional gift card, as such term is 
defined by the Board. See also Sec.  205.20(b)(3).
    Proposed Sec.  205.20(a)(4) generally defined the term ``loyalty, 
award, or promotional gift card'' as a card, code, or other device 
that: (a) Is issued in connection with a loyalty, award, or promotional 
program; (b) is redeemable upon presentation at one or more merchants 
for goods or services, or usable at ATMs; and (c) provides certain 
disclosures about any fees and expiration dates that may apply to the 
card, code, or other device. Proposed Sec.  205.20(b)(3), discussed 
below, implemented the exclusion for loyalty, award, or promotional 
gift cards. The final rule adopts the proposed definition of loyalty, 
award, or promotional gift card in Sec.  205.20(a)(4), substantially as 
proposed, but modifies the disclosure requirements, as discussed below. 
In addition, the scope of the definition is limited to cards, codes, or 
other devices issued on a prepaid basis primarily to a consumer for 
personal, family, or household purposes.
    In contrast to gift cards purchased at a store, loyalty, award, and 
promotional gift cards typically are not funded through direct payment 
from the consumer, but instead are funded by the entity sponsoring the 
card program, such as a merchant, an employer, or a company. Cards 
issued through such programs may serve as cost-effective substitutes 
for traditional means of distributing funds through a promotion, such 
as rebate checks, vouchers, or cash awards.
    Much like rebate checks, vouchers, and cash awards, gift cards 
distributed through a loyalty, award, or promotional program are 
typically redeemable for a limited period of time. Loyalty, award, or 
promotional gift cards thus generally carry shorter expiration dates 
compared to gift cards purchased by consumers through retail channels.
    Consumers who receive a gift card redeemable at one merchant as 
part of a loyalty, award, or promotional program may be surprised to 
find that the fees and expiration date on the card differ significantly 
from the fees and expiration date on a substantially similar card that 
they may have purchased directly from that same merchant. Improved 
disclosure of these terms for cards subject to the exclusion

[[Page 16589]]

may help reduce consumer surprise or confusion.
    The November 2009 Proposed Rule did not impose substantive 
restrictions on dormancy, inactivity, or service fees, or on expiration 
dates, with respect to loyalty, award, or promotional gift cards. To 
address potential consumer surprise or confusion, the Board proposed to 
impose additional disclosure requirements for loyalty, award, or 
promotional gift cards in Sec.  205.20(a)(4)(iii). Specifically, in 
order to be deemed a ``loyalty, award, or promotional gift card,'' and 
therefore qualify for the proposed exclusion in Sec.  205.20(b)(3), the 
proposed rule would have required that the card, code, or other device 
set forth disclosures regarding any fees and expiration dates that may 
apply. While disclosures regarding dormancy, inactivity, or service 
fees, expiration dates, and a toll-free number and Web site for 
additional information would have been required to be on the card, 
code, or other device, disclosures regarding other fees could accompany 
the card, code, or other device.\15\
---------------------------------------------------------------------------

    \15\ Proposed Sec.  205.20(a)(4)(iii) would have required a 
loyalty, award, or promotional card to set forth, among other 
things, ``the disclosures specified in paragraphs (d)(2), (e)(2), 
and (f)(2) of this section.'' Due to a scrivener's error, the 
proposal cross-referenced paragraph (e)(2) of the rule, rather than 
paragraph (e)(3) as was intended. In response to commenters' 
suggestions, however, the final rule states the specific disclosures 
that are applicable to loyalty, award, or promotional gift cards in 
Sec.  205.20(a)(4)(iii) for clarity, instead of cross-referencing 
other disclosure requirements elsewhere in the rule.
---------------------------------------------------------------------------

    Industry commenters generally agreed that disclosures regarding the 
fees and expiration dates associated with a loyalty, award, or 
promotional gift card were appropriate. However, many industry 
commenters urged the Board to provide flexibility in how those 
disclosures could be provided. In particular, industry commenters urged 
the Board to permit such disclosures to be provided in accompanying 
terms and conditions or on a sticker affixed to the card, rather than 
mandate that the disclosures appear on the card itself.
    A few industry commenters, however, believed that the proposed 
disclosures contravened Congressional intent to exclude loyalty, award, 
or promotional cards from all requirements of the gift card provisions 
of the Credit Card Act, including the disclosure requirements. These 
industry commenters also expressed concern that if loyalty, award, or 
promotional cards were required to carry the same or similar 
disclosures as those required for gift certificates, store gift cards, 
and general-purpose prepaid cards, consumers would be less able to 
clearly differentiate between the different prepaid products. Moreover, 
these industry commenters stated that in light of the proposed 
definition of ``service fee'' to broadly include fees other than 
monthly maintenance fees, requiring that such fees be stated on the 
card would effectively limit issuers' ability to charge such fees due 
to the space limitations on a card.
    Some retailers that offer closed-loop gift cards may use the same 
card design for the gift cards they sell to the general public and 
cards that they sell at a discount to businesses for distribution as 
rewards. Likewise, card providers that offer program development and 
card fulfillment services for reward, promotional, or incentive card 
programs may offer standardized card designs to their corporate 
clients. The ability to standardize card designs enables businesses to 
attain cost savings when ordering a large volume of the same card 
design, and enhances the ability of the card provider to quickly 
produce cards to fulfill prepaid card orders. However, the 
standardization of card designs may also lead to consumer confusion 
because cards that otherwise appear to be the same may carry terms and 
conditions, including fees and expiration terms, that vary to a 
significant degree. Accordingly, the Board continues to believe that 
clear and conspicuous disclosures regarding the terms and conditions 
that may apply to loyalty, award, or promotional gift cards are 
necessary to help consumers avoid surprise from unexpected dormancy, 
inactivity, or service fees or from short expiration dates.
    Based upon comments received and further analysis, the Board, 
pursuant to its authority under EFTA Section 915(a)(2)(D)(iii) to 
define ``loyalty, award, or promotional gift card,'' is revising the 
disclosure requirements that must be met in order for a card, code, or 
other device to meet the definition of a ``loyalty, award, or 
promotional gift card.''
    Specifically, the final rule in Sec.  205.20(a)(4)(iii)(A) requires 
a loyalty, award, or promotional gift card to state on the card, code, 
or other device itself that it is issued for loyalty, award, or 
promotional purposes. This statement must be on the front of the card, 
code, or other device to enable consumers to easily identify the type 
of card and avoid potential consumer confusion arising from the fact 
that a loyalty, award, or promotional gift card may otherwise look 
identical to a gift card that a consumer may purchase directly from a 
merchant.
    In addition, the final rule requires disclosure of the expiration 
date for the underlying funds to be stated on the front of a loyalty, 
award, or promotional gift card because such cards typically have 
shorter expiration dates than other certificates or cards subject to 
the rule. See Sec.  205.20(a)(4)(iii)(B). Where the card and funds 
expiration date are the same, a single disclosure regarding the 
expiration dates satisfies the requirement in Sec.  
205.20(a)(4)(iii)(B).
    As previously noted, loyalty, award, and promotional gift cards are 
intended to be usable for a limited amount of time to encourage 
consumers to use the card quickly, which enables the program sponsor to 
manage the costs of providing consumers gift cards in connection with 
loyalty, award, or promotional programs. In addition, loyalty, award, 
and promotional gift cards are typically used by the initial recipient 
and are not intended for gift-giving purposes. Therefore, loyalty, 
award, or promotional gift cards are less likely to be separated from 
the accompanying disclosures than a gift card or gift certificate that 
typically is given to and used by someone other than the original 
purchaser. The Board also understands that there tend to be fewer fees 
associated with loyalty, award, and promotional cards, because the 
costs associated with operating the card program are generally borne by 
the program sponsor. Therefore, the Board believes it is less critical 
that the fees imposed in connection with a loyalty, award, or 
promotional gift card be stated on the card itself.
    Accordingly, Sec.  205.20(a)(4)(iii)(C) in the final rule permits 
persons subject to the rule to disclose the amount of any fees that may 
be imposed in connection with the card, code, or other device, and the 
conditions under which they may be imposed, on or with the card, code, 
or device. For example, issuers and other persons subject to the rule 
may provide fee information in materials accompanying the card, code, 
or other device, such as a card carrier or a separate document 
containing applicable terms and conditions, or on a sticker affixed to 
the card. The revised disclosure requirements recognize that loyalty, 
award, or promotional cards are generally used by the person that 
initially obtained the card and are not intended to be given as a gift, 
thus increasing the likelihood that the user of the card can easily 
access the disclosures.
    Nonetheless, to ensure that consumers will have a means to access 
fee information in connection with a loyalty, award, or promotional 
gift card even if they do not retain the fee disclosures, Sec.  
205.20(a)(4)(iii)(D) requires the disclosure on the card of a

[[Page 16590]]

toll-free telephone number and, if one is maintained, a Web site. The 
final rule does not require that this contact information appear on the 
front of the card, however.\16\ Because many issuers already maintain 
toll-free telephone numbers and Web sites for consumers to use for 
further information and often provide this information on the cards 
they issue, this requirement in Sec.  205(a)(4)(iii)(D) should not 
impose significant additional burden on issuers. Overall, the Board 
believes the revised disclosures in the final rule strike an 
appropriate balance between the competing considerations of limiting 
potential consumer confusion or surprise arising from the different 
terms that may apply to loyalty, award, or promotional gift cards, and 
avoiding unnecessary costs and burdens on companies that support or 
administer loyalty, award, or promotional programs.
---------------------------------------------------------------------------

    \16\ The toll-free telephone number and Web site may also be the 
same toll-free telephone number and Web site provided for customer 
service issues or questions relating to the loyalty, award, or 
promotional program.
---------------------------------------------------------------------------

    Comment 20(a)(4)-1 provides examples of loyalty, award, or 
promotional programs. Under the November 2009 Proposed Rule, cards, 
codes, or other devices issued in connection with a loyalty, award, or 
promotional program would have included, for example, gift cards mailed 
to a consumer as a rebate on a product that a consumer has purchased in 
response to a sales promotion, and gift cards given by a merchant to 
reward frequent customers.
    Industry commenters generally agreed with the proposed examples, 
particularly because they would apply regardless of whether the 
consumer has paid or provided any other value to obtain the card, as in 
the case of rebate cards. Industry commenters also urged the Board to 
include additional examples in the comment.
    The final comment incorporates each of the proposed examples, with 
certain revisions in response to commenters' suggestions, and is 
amended to indicate that the list is not exclusive. Comment 20(a)(4)-1 
also includes two new examples to address cards, codes, or other 
devices that may be distributed in connection with a sales promotion, 
or provided by companies to a charity or community group for the 
charity or group's fundraising purposes (for example, as a reward for a 
donation or as a prize in a charitable event).
    Comment 20(a)(4)-2 provides examples of how a card, code, or other 
device may indicate that it is issued for loyalty, award, or 
promotional purposes for purposes of Sec.  205.20(a)(4)(iii)(A). For 
example, the disclosure on the front of the card, code, or other device 
may state ``Reward'' or ``Promotional.''
    Comment 20(a)(4)-3 provides that if no fees are imposed in 
connection with a loyalty, award, or promotional gift card, the 
disclosure on the card of a toll-free telephone number and Web site, if 
one is maintained, is not required.
20(a)(5) Dormancy or Inactivity Fee
    EFTA Section 915(a)(1) defines a ``dormancy fee,'' or an 
``inactivity charge or fee'' as a fee, charge, or penalty for non-use 
or inactivity of a gift certificate, store gift card, or general-use 
prepaid card. See 15 U.S.C. 1693m(a)(1). In the November 2009 Proposed 
Rule, the Board proposed Sec.  205.20(a)(5) to implement this 
definition with non-substantive wording modifications to improve 
readability. The Board did not receive any comments on proposed Sec.  
205.20(a)(5), which is adopted as proposed.
20(a)(6) Service Fee
    EFTA Section 915(a)(3)(A) defines a ``service fee'' as a periodic 
fee, charge, or penalty for holding or use of a gift certificate, store 
gift card, or general-use prepaid card. See 15 U.S.C. 1693m(a)(3)(A). 
In the November 2009 Proposed Rule, the Board proposed to implement 
this definition in Sec.  205.20(a)(6) using substantially the same 
language as the statute. Commenters did not oppose the language in 
Sec.  205.20(a)(6).
    The Board also proposed comment 20(a)(6)-1 to clarify that a 
periodic fee is a fee that may be imposed from time to time for holding 
or using a gift certificate, store gift card, or general-use prepaid 
card. The proposed comment also provided that such fees may include a 
monthly maintenance fee, a transaction fee, a reload fee, or a balance 
inquiry fee, whether or not the fee is waived for a certain period of 
time or is only imposed after a certain period of time. Proposed 
comment 20(a)(6)-1 also clarified that a one-time initial issuance fee 
is not a service fee, consistent with EFTA Section 915(a)(3)(B), and 
provided examples of other one-time fees that are not service fees, 
including cash-out fees.
    The Board received numerous comments on the clarification proposed 
in comment 20(a)(6)-1. Consumer group commenters and one state attorney 
general commenter agreed with the Board's interpretation of ``periodic 
fee.'' Several industry commenters, however, suggested that the Board's 
interpretation as set forth in the proposed definition of ``service 
fee'' is inconsistent with the statutory language, previous 
interpretations of the term ``periodic'' under other consumer financial 
services regulations, and state law interpretations of ``service'' 
fees. Industry commenters also noted that one consequence of the 
Board's interpretation is that issuers would be restricted from 
charging fees for certain transactions that carry network costs for the 
issuers, such as foreign transactions and reloads. These commenters 
argued that if issuers are generally not permitted to recoup the costs 
of providing these services, issuers may decide to limit the 
functionality of certificates or cards, such as by issuing domestic-use 
only cards or non-reloadable cards. Finally, industry commenters argued 
that the Board's interpretation would complicate disclosures because of 
the limited space on a certificate or card. Instead, industry 
commenters recommended that the Board interpret ``periodic fee'' to 
mean a fee that is imposed at regular intervals, which would include a 
monthly maintenance fee, but not transaction fees or reload fees that 
are triggered by consumer activity.
    The Board continues to believe that the proposed interpretation of 
``periodic fee'' as it applies to ``service fee'' is appropriate. As 
the Board noted in the November 2009 Proposed Rule, the statutory 
definition of ``service fee'' includes fees imposed for the ``use'' of 
a gift certificate, store gift card, or general-use prepaid card. See 
EFTA Section 915(a)(3)(A); 15 U.S.C. 1693m(a)(3)(A). Thus, under the 
statute, service fees are not limited to fees imposed for holding a 
certificate or card. The Board believes that the intent of the statute 
is to capture activity-based and other fees related to the use of the 
certificate or card, such as transaction fees, reload fees, and balance 
inquiry fees, in the definition of ``service fee.'' In addition, the 
Board is concerned that a narrow interpretation of ``service fee'' 
would result in a shift in fee structures from fees imposed at regular 
intervals to fees that are imposed for a transaction or service 
associated with the certificate or card.
    Industry commenters also argued that the Board's interpretation is 
contrary to the statute's intent because it effectively bans certain 
fees, instead of merely restricting how frequently such fees may be 
imposed. Specifically, these commenters suggested that because 
conducting a transaction constitutes activity, a transaction fee 
contingent on consumer activity could never be charged, and the Board's 
inclusion of such fees in the definition of ``service fee'' effectively 
prohibits such fees. See

[[Page 16591]]

EFTA Section 915(b)(2)(A); 15 U.S.C. 1693m(b)(2)(A).
    The Board does not agree that its interpretation compels this 
result. The statute and the regulation permit a fee to be charged after 
one year of inactivity. Therefore, a fee could be charged 
contemporaneously with the first consumer activity after the one-year 
period of inactivity. For example, if an issuer charges a reload fee on 
a general-use prepaid card and a consumer reloads the card after one 
year of inactivity, the reload fee could be imposed at that time 
assuming no other fees have been imposed during that month.
    As explained in the November 2009 Proposed Rule, the Board believes 
that interpreting the term ``service fee'' as proposed, and thus 
limiting when such fees may be imposed, will improve the transparency 
and predictability of costs to consumers. As a result, the 
interpretation of ``periodic fee'' as it applies to ``service fee'' is 
adopted as proposed, but has been moved from proposed comment 20(a)(6)-
1 to Sec.  205.20(a)(6) for clarity.
    The Board also received comments requesting that the Board provide 
a complete list of all fees that are included in the meaning of 
``service fee.'' The list of fees in comment 20(a)(6)-1 is not meant to 
be an exhaustive list. Comment 20(a)(6)-1 references the most common 
fees associated with certificates and cards. In response to commenters' 
suggestions, the Board is including some additional examples in comment 
20(a)(6)-1. In addition to providing that an ATM fee and a foreign 
currency transaction fee are included in the meaning of ``service 
fee,'' the Board is providing examples of other fees that are not 
considered ``service fees,'' as discussed below.
    The Board recognizes that certain fees are unlikely to be imposed 
more than once while underlying funds are still valid, such as a 
supplemental card fee or a lost or stolen certificate or card 
replacement fee. The Board believes such fees are akin to one-time fees 
and should not be considered ``periodic fees.'' Accordingly, the Board 
is amending comment 20(a)(6)-1 to clarify that these fees are not 
``service fees'' for purposes of Sec.  205.20.
20(a)(7) Activity
    Under Sec.  205.20(d), no person may impose a dormancy, inactivity, 
or service fee on a gift certificate, store gift card, or general-use 
prepaid card, unless there has been no ``activity'' with respect to the 
certificate or card, among other things. For clarity, the Board is 
adding a new Sec.  205.20(a)(7) to define the term ``activity'' for 
purposes of Sec.  205.20. Similar to the interpretation the Board 
previously proposed in comment 20(d)-2 in the November 2009 Proposed 
Rule, the Board is defining ``activity'' as any action that results in 
an increase or decrease of the funds underlying a certificate or card. 
The Board is also specifically providing that the imposition of a fee 
does not constitute activity. Furthermore, the Board is moving the 
guidance on ``activity'' from comment 20(d)-2 to new comment 20(a)(7)-
1. In proposing comment 20(d)-2, the Board solicited comment on whether 
there were any other actions taken by a consumer that should be 
considered ``activity.''
    Several industry commenters agreed that providing additional 
examples would be helpful. Based on the comments received, the Board is 
revising the language in proposed comment 20(d)-2, now comment 
20(a)(7)-1, to include an example clarifying that if a consumer 
attempts a transaction with a gift certificate, store gift card, or 
general-use prepaid card, but the transaction fails due to technical or 
other reasons, such attempt does not constitute activity with respect 
to the certificate or card. Also, in response to commenters' 
suggestions, Sec.  205.20(a)(7) provides that ``activity'' does not 
include an adjustment due to an error or a reversal of a prior 
transaction. Comment 20(a)(7)-1 further provides that if the funds 
underlying a gift certificate, store gift card, or general-use prepaid 
card are adjusted because there was an error or the consumer has 
returned a previously purchased good, the adjustment does not 
constitute activity with respect to the certificate or card.
20(b) Exclusions
    EFTA Section 915(a)(2)(D) states that the terms ``general-use 
prepaid card,'' ``gift certificate,'' and ``store gift card'' do not 
include an electronic promise, plastic card, or payment code or device 
that falls into one of six specified categories. See 15 U.S.C. 
1593m(a)(2)(D). For example, reloadable cards that are not marketed or 
labeled as a gift card or gift certificate are excluded from the 
statutory definitions. Similarly, prepaid cards that are not marketed 
to the general public are excluded from the statutory definitions. 
Thus, under the statute, an excluded product is not subject to the 
substantive restrictions regarding when a dormancy, inactivity, or 
service fee may be imposed, or on expiration dates. These excluded 
products also are not subject to the statute's disclosure requirements. 
See, however, Sec.  205.20(a)(4)(iii).
    Section 205.20(b) implements the statutory exclusions and provides 
that the terms ``gift certificate,'' ``store gift card,'' and 
``general-use prepaid card'' do not include any cards, codes, or other 
devices that fall under any of the six exclusions specified in the 
statute. As noted above, Sec.  205.20(b) of the final rule uses the 
term ``card, code, or other device,'' instead of the term ``electronic 
promise, plastic card, or payment code or device'' for clarity. No 
substantive difference is intended.
    Proposed comment 20(b)-1 provided guidance on the effect of 
qualifying for any of the specified exclusions. The comment stated that 
an excluded card, code, or other device generally is not subject to any 
of the substantive restrictions or disclosure requirements of the 
proposed rule. See, however, Sec.  205.20(a)(4)(iii) with respect to 
loyalty, award, or promotional gift cards. The Board did not receive 
any comments on the comment as proposed, and it is adopted without 
change.
    Proposed comment 20(b)-2 clarified that a card, code, or other 
device may qualify for one or more exclusions and that a card, code, or 
other device that falls within any of the exclusions generally is not 
covered by the rule. The comment is adopted generally as proposed, with 
modifications for clarity. For example, a corporation may give its 
employees a gift card that is marketed solely to businesses for 
incentive-related purposes, such as to reward job performance or 
promote employee safety. In this case, the card, code, or other device 
may qualify for the exclusion in Sec.  205.20(b)(3) for loyalty, award, 
or promotional gift cards, or for the exclusion in Sec.  205.20(b)(4) 
for cards, codes, or other devices not marketed to the general public.
    In addition, comment 20(b)-2 states that as long as any one of the 
exclusions apply, a card, code, or other device generally is not 
covered by Sec.  205.20, even if other exclusions do not apply. In the 
example, if the type of gift card given by the corporation can also be 
purchased by a consumer directly from a merchant, the card does not 
qualify as a card that is not marketed to the general public because it 
can also be obtained through retail channels. See Sec.  205.20(b)(4), 
discussed below. Nonetheless, the gift card would nevertheless be 
exempt from the substantive requirements of Sec.  205.20 because it is 
still a loyalty, award, or promotional gift card (provided that certain 
disclosures are provided on or with the card as required under Sec.  
205.20(a)(4)(iii)). For additional clarification, the final comment 
includes a second example addressing

[[Page 16592]]

reloadable spending cards that may be targeted to teenagers. Although 
such cards do not qualify for the exclusion for cards not marketed to 
the general public, they may nonetheless be excluded from the scope of 
the rule if they are not marketed as gift cards or gift certificates.
    The six specific exclusions are discussed below.
20(b)(1) Usable Solely for Telephone Services
    Section 205.20(b)(1) implements the exclusion for cards, codes, or 
other devices that are usable solely for telephone services. See EFTA 
Section 915(a)(2)(D)(i); 15 U.S.C. 1693m(a)(2)(D)(i). Proposed comment 
20(b)(1)-1 set forth examples of products that fall within this 
exclusion, such as prepaid cards for long-distance telephone services 
and prepaid cards for wireless telephone service. The proposed comment 
further clarified that this exclusion also includes prepaid products 
that may be used for other services analogous in function to a 
telephone, such as prepaid cards for voice over Internet protocol 
(VoIP) access time. Section 205.20(b)(1) and comment 20(b)(1)-1 are 
adopted substantially as proposed.
    Many mobile phones today are capable of a number of different 
functions in addition to voice communications, including sending text 
messages and accessing the Internet. Accordingly, the Board solicited 
comment on whether it should exercise its authority under EFTA Section 
904 to expand the exclusion to cover other prepaid cards that may be 
redeemed for similar or related technology services, such as prepaid 
cards used to obtain mobile broadband or Internet access time.\17\
---------------------------------------------------------------------------

    \17\ See, e.g., N.J. Rev. Stat. Sec.  56:8-110 (excluding 
prepaid telecommunications and technology cards from the definitions 
of ``gift card'' and ``gift certificate'').
---------------------------------------------------------------------------

    Industry commenters agreed that the Board should expand the 
exclusion as described to avoid restricting the types of prepaid 
products that may be offered today, as well as in the future. These 
commenters further urged the Board to expand the exclusion to cover 
prepaid cards that would enable cardholders to purchase applications 
that could be used on mobile telephones. The final rule does not 
incorporate the suggested revisions.
    The Board generally believes that statutory exclusions should be 
interpreted narrowly to ensure that consumers receive the full 
protections contemplated in the statute. By its terms, EFTA Section 
915(a)(2)(D)(i) excludes cards, codes, or other devices that are 
``usable solely for telephone services.'' See 15 U.S.C. 
1693m(a)(2)(D)(i). While a consumer that purchases a card that can be 
applied toward Internet access time may use that time for 
telecommunications-related applications, it may also be used for other 
applications or purposes. The Board believes that if Congress had 
intended to exclude cards that may be redeemed for prepaid Internet 
access and similar technology services from the statutory provisions, 
it would have specified that intent in the statute. The Board is not 
aware of, and commenters did not identify, any evidence that Congress 
meant for consumers who purchase cards that may used for other 
technology-related services to be denied protection against dormancy, 
inactivity, or service fees, and expiration dates, unlike consumers who 
purchase cards that may be used for other goods or services. Thus, the 
Board declines to expand the exclusion.\18\
---------------------------------------------------------------------------

    \18\ The Board notes, however, that the fee and expiration date 
restrictions may cease to apply once a certificate or card has been 
fully redeemed and the funds are deducted from the certificate or 
card, even if the underlying funds are not used to contemporaneously 
purchase a specific good or service. See, e.g., comment 20(e)-13, 
discussed below.
---------------------------------------------------------------------------

20(b)(2) Reloadable and Not Marketed or Labeled as a Gift Card or Gift 
Certificate
    Section 205.20(b)(2) implements the exclusion for cards, codes, or 
other devices that are reloadable and not marketed or labeled as a gift 
card or gift certificate. See EFTA Section 915(a)(2)(D)(ii); 15 U.S.C. 
1693m(a)(2)(D)(ii).
    Consistent with the statute, the card, code, or other device 
generally must be both reloadable and not marketed or labeled as a gift 
card or gift certificate to qualify for the exclusion. Thus, a non-
reloadable card generally is not excluded, even if it is not marketed 
or labeled as a gift card or gift certificate, unless a different 
exclusion applies.\19\ Similarly, a reloadable card that is marketed as 
a gift card or gift certificate does not qualify for the exclusion.
---------------------------------------------------------------------------

    \19\ As discussed below, a temporary non-reloadable card issued 
solely in connection with a general-purpose reloadable card still 
qualifies for the exclusion in Sec.  205.20(b)(2), so long as the 
card is not marketed as a gift card or gift certificate. See Sec.  
205.20(b)(2) and comment 20(b)(2)-6.
---------------------------------------------------------------------------

``Reloadable''
    Proposed comment 20(b)(2)-1 provided that a card, code, or other 
device is ``reloadable'' if it has the ``capability of having more 
funds added by a cardholder after the initial purchase or issuance.'' 
Several industry commenters noted, however, that the proposed comment 
was too narrow given that many non-gift prepaid cards are reloadable, 
but by persons other than the cardholder. For example, many payroll 
cards, health savings account cards, and flexible spending account 
cards are reloadable solely by the employer. Similarly, university 
cards, teen cards, and insurance cards may also be reloadable by 
persons other than the cardholder. Accordingly, these commenters 
observed that the language of proposed comment 20(b)(2)-1 could lead to 
the unintended consequence of covering certain non-gift prepaid 
products under rules primarily intended to cover consumer gift cards.
    The Board did not intend to limit the scope of the term 
``reloadable'' in the manner suggested by commenters. Accordingly, 
comment 20(b)(2)-1 has been revised in the final rule to remove the 
limitation ``by a cardholder'' to take into account the fact that a 
card, code, or other device may be reloaded by persons other than a 
consumer cardholder.\20\
---------------------------------------------------------------------------

    \20\ As discussed above, the Board has also revised the 
definitions of ``store gift card'' and ``general-use prepaid card'' 
in Sec. Sec.  205.20(a)(2) and (a)(3) to remove references to 
increasing or reloading a card ``by a consumer'' to reflect that the 
amount on a card may be increased or reloaded by a person other than 
a consumer.
---------------------------------------------------------------------------

    In addition, one industry commenter urged the Board to clarify that 
whether a card is reloadable should be determined by whether 
reloadability is permitted under the terms and conditions of the 
prepaid card, rather than by the technical ability of the issuer to add 
value to the card. This commenter was concerned that the proposed 
comment potentially implied that a card would be considered 
``reloadable'' if the issuer or the processor can add functionality to 
the card allowing a card to be reloaded regardless of the terms and 
conditions of the card. The Board agrees with this suggestion. The 
final comment clarifies that a card, code, or other device is 
``reloadable'' only if its terms and conditions allow for funds to be 
added after initial issuance or purchase, regardless of whether the 
card issuer or processor has the technical ability to add functionality 
to the card, code, or device that would permit the addition of funds.
``Marketed or Labeled as a Gift Card or Gift Certificate''
    Proposed comment 20(b)(2)-2 clarified the meaning of the term 
``marketed or labeled as a gift card or gift certificate.'' The 
proposed comment

[[Page 16593]]

provided that the term means directly or indirectly offering, 
advertising, or otherwise suggesting the potential use of a card, code, 
or other device as a gift for another person. The proposed comment also 
stated that whether the exclusion applies does not depend on the type 
of entity that is making the promotional message--for example, the 
actions of the issuer, the retailer, the program manager, or the 
payment network on which a card is used could each promote the use of a 
card as a gift card or gift certificate and thus nullify the exclusion. 
Finally, the proposed comment stated that a certificate or card could 
be deemed to be marketed or labeled as a gift card or gift certificate 
even if it is primarily marketed for another purpose. Thus, for 
example, a reloadable network-branded card would be marketed or labeled 
as a gift card or gift certificate if the issuer principally advertises 
the card as a less costly alternative to a bank account but promotes 
the card in a television, radio, newspaper, or Internet advertisement, 
or on signage as ``the perfect gift'' during the holiday season.
    Two industry trade associations urged the Board to use its 
exemption authority to limit the scope of the marketing provision to 
apply only to the actions of the issuer. Specifically, these commenters 
suggested that the Board clarify that the exclusion in Sec.  
205.20(b)(2) applies as long as a certificate or card was ``reloadable 
and not labeled or marketed by the issuer as a gift card or gift 
certificate.'' These commenters expressed concern that the proposed 
rule could frustrate the efforts of an issuer seeking to avoid the 
labeling and the marketing of their cards as gift cards if actions by 
other parties in the supply chain, including a retailer or a 
merchandiser, could nullify the application of the exception. For 
example, these commenters noted that a general-purpose reloadable card 
could be deemed to be marketed as a gift card notwithstanding the 
issuer's actions if a store clerk incorrectly stocked the issuer's 
cards in a display or combined distinctly labeled cards in a single 
display. Other industry commenters urged the Board to clarify that 
issuers would be protected from liability for improper marketing of 
cards if they maintained appropriate policies and procedures regarding 
marketing. These commenters expressed concern that access to general-
purpose reloadable cards for the unbanked and the underbanked could 
otherwise be restricted due to compliance concerns. One industry trade 
association commenter representing convenience stores urged the Board 
to exclude retailers from the rule altogether if they do not issue gift 
cards.
    Comment 20(b)(2)-2 is adopted generally as proposed, with certain 
revisions for clarity. Under the final comment, a card, code, or other 
device is deemed to be marketed or labeled as a gift card or gift 
certificate if anyone (other than the consumer-purchaser of the card 
\21\), including the issuer, the retailer, the program manager that may 
distribute the card, or the payment network on which a card is used, 
promotes the use of the card as a gift card or gift certificate. Thus, 
the final rule does not limit the scope of the exclusion in Sec.  
205.20(b)(2) to the actions of the card issuer. The Board notes that 
the gift card provisions of the Credit Card Act broadly encompass the 
actions of ``any person,'' and generally are not limited to the acts of 
the issuer, except in the case of disclosures that must be provided 
prior to purchase. See, e.g., EFTA Section 915(b)(3)(B); 15 U.S.C. 
1693m(b)(3)(B). Moreover, the Board believes that restricting 
application of the marketing provisions to issuer actions would 
undermine the consumer protection purposes of the statute. For example, 
even if an issuer of a general-purpose reloadable card were to avoid 
labeling or otherwise indicating on a certificate or card that it is 
intended for gift-giving purposes, the retailer or merchandiser may 
display the general-purpose reloadable card with store gift cards and 
gift certificates under a single sign that prominently indicated the 
availability of gift cards. Limiting the scope of the marketing 
provisions to issuer actions would not therefore sufficiently protect 
consumers acting reasonably under the circumstances from inadvertently 
purchasing the general-purpose reloadable card in the belief they were 
purchasing a gift card. Such consumers would then be surprised when the 
balance on the card is quickly drawn down by fees or short expiration 
dates which is contrary to the intent of the marketing provisions.
---------------------------------------------------------------------------

    \21\ Thus, a card would not be deemed to be marketed or labeled 
as a gift card or gift certificate as a result of actions by the 
consumer-purchaser. For example, if the purchaser gives the card to 
another consumer as a ``gift,'' or if the primary cardholder 
contacts the issuer and requests a secondary card to be given to 
another person for his or her use, such actions do not cause the 
card to be marketed as a gift card or gift certificate.
---------------------------------------------------------------------------

    Nonetheless, the Board understands that the broad scope of the rule 
to also cover the actions of any party that may be involved in the 
distribution or promotion of a certificate or card may pose substantial 
compliance risks for issuers. As further discussed under comment 
20(b)(2)-4, the exclusion in Sec.  205.20(b)(2) continues to apply so 
long as a certificate or card is not marketed or labeled as a gift card 
or gift certificate and if persons subject to the rule maintain 
policies and procedures reasonably designed to avoid such marketing.
    In addition, in response to some commenters' concerns, comment 
20(b)(2)-2 clarifies that the mere mention that gift cards or gift 
certificates are available in an advertisement or on a sign that also 
indicates the availability of other excluded prepaid cards does not by 
itself cause the excluded prepaid cards to be marketed as a gift card 
or a gift certificate. The key consideration is whether a consumer 
acting reasonably under the circumstances could be led to believe that 
all certificates or cards referenced in the advertisement or the sign 
are gift cards or gift certificates. For instance, a retailer could 
state in an advertisement ``Gift Cards and Prepaid Cards Sold Here'' to 
promote the availability of gift cards and general-purpose reloadable 
cards in the store without causing the general-purpose reloadable card 
to be marketed as a gift card or gift certificate, provided that a 
consumer acting reasonably under the circumstances would not be led to 
believe that all certificates or cards referenced in the advertisement 
are gift cards or gift certificates. Similarly, the posting of a sign 
in a store which communicates the general availability of gift cards 
does not by itself constitute the marketing of other excluded prepaid 
cards that may also be sold in the store as gift cards or gift 
certificates, provided that a consumer acting reasonably under the 
circumstances is not led to believe that the sign applies to all 
prepaid products sold in the store. (See, however, comment 20(b)(2)-
4.ii.) Such determinations would depend on the facts and circumstances 
of an individual sign or advertisement.
    Proposed comment 20(b)(2)-3 provided positive and negative examples 
of the term ``marketed or labeled as a gift card or gift certificate.'' 
The comment is adopted generally as proposed.
    Under the final comment, positive examples of marketing or labeling 
as a gift card or gift certificate include displaying the word ``gift'' 
or ``present,'' displaying a congratulatory message, and incorporating 
gift-giving or celebratory imagery or motifs on the card, certificate 
or accompanying material, such as documentation, packaging and 
promotional displays. See comment 20(b)(2)-3.i. In contrast, a card, 
code, or other device is not marketed or labeled as a gift card or gift

[[Page 16594]]

certificate if the issuer, seller, or other person represents that the 
card, code, or other device can be used as a substitute for a checking, 
savings, or deposit account, as a budgetary tool, or to cover emergency 
expenses. Similarly, a card, code, or other device is not marketed as a 
gift card or gift certificate if it is promoted as a substitute for 
travelers checks or cash for personal use, or promoted as a means of 
paying for a consumer's health-related expenses. See comment 20(b)(2)-
3.ii. The final rule removes the reference to use of a certificate or 
card as a substitute for a travelers check or cash ``by the card 
purchaser'' to reflect the fact that someone other than the purchaser 
may use the certificate or card for travel expenses. See comment 
20(b)(2)-3.ii.C.
Policies and Procedures To Avoid Marketing as a Gift Card or Gift 
Certificate
    As discussed above, a gift card usable at a particular merchant may 
be purchased by a consumer directly from the merchant at the merchant's 
store. In this type of arrangement, the merchant is typically the 
primary party involved in issuing the card and operating the card 
program. As such, the merchant-issuer can be expected to have 
substantial control over all facets of the card program, including how 
the card is sold or marketed.
    In other cases, a gift card may be sold to consumers through 
another merchant or retailer, such as a grocery store or a drug store, 
on display racks that may make retail gift cards available alongside 
gift cards usable at other merchants and other types of prepaid cards, 
including general-purpose reloadable cards and telephone cards. In this 
type of arrangement, multiple parties are generally involved in the 
card distribution process. These parties may include: an issuer 
(whether it is a merchant or a bank); a program manager who works with 
issuers to administer any or all aspects of a card program, including 
transaction processing, distribution, and marketing; and a seller or 
distributor of the card.\22\ A seller or distributor of the card can be 
an issuer, a program manager, or another party, such as a shopping mall 
or a retailer. In these arrangements, responsibilities for operating 
the program, including compliance with applicable laws or payment 
network rules, are generally allocated by contract.
---------------------------------------------------------------------------

    \22\ In addition to these parties, a processor may work with the 
issuer and the program manager to process card transactions, and in 
some cases provide Web site and telephone customer service. For 
open-loop card programs, the payment network operates the network 
and establishes operating rules for card issuers, processors, and 
merchants or ATMs that accept the card. The payment network may also 
review and approve a card program in order for the particular card 
to carry the network brand.
---------------------------------------------------------------------------

    When multiple parties are involved in a card program, the issuer 
may not play a significant role in the card distribution process and 
thus may have less control over how the card is displayed or marketed 
at the locations where the card is sold. A rule that depends upon how a 
card is marketed therefore may pose substantial compliance risks for an 
issuer that cannot fully control the venues and mediums in which its 
prepaid cards are marketed to consumers. For example, where a card is 
sold in a substantial number of retail outlets, the card issuer cannot 
verify in every instance how the card is displayed or marketed at each 
retail outlet to ensure that it is not being marketed as a gift card or 
gift certificate through signage, advertisements, or otherwise.
    To address this issue, proposed comment 20(b)(2)-4 provided that a 
reloadable card, code, or other device is not marketed or labeled as a 
gift card or gift certificate if entities subject to the rule maintain 
policies and procedures reasonably designed to avoid such marketing. 
Such policies and procedures would include contractual provisions 
prohibiting a general-purpose reloadable card from being marketed as a 
gift card and controls to regularly monitor or otherwise verify that 
the cards are not being marketed as such. The proposed comment also 
included positive and negative examples of the exclusion in Sec.  
205.20(b)(2).
    One example of procedures in which a card, code, or other device is 
not marketed as a gift card or gift certificate was where the issuer or 
program manager sets up two physically separated displays at a 
retailer, one for gift cards and another for excluded products, 
including general-purpose reloadable cards, such that a reasonable 
consumer would not believe that the excluded cards are gift cards. 
Under this example, the exclusion in Sec.  205.20(b)(2) applies even if 
a retail clerk inadvertently stocks or places some of the general-
purpose reloadable cards on the gift card display.
    In a second proposed example, the issuer or program manager sets up 
a single display that contains a variety of prepaid cards, including 
gift cards subject to the rule and otherwise excluded prepaid products, 
such as general-purpose reloadable cards. A sign stating ``Gift Cards'' 
appears prominently on top of the display. Under the second example, 
any general-purpose reloadable cards sold under those circumstances 
does not qualify for the exclusion in Sec.  205.20(b)(2) because the 
issuer or program manager does not maintain policies and procedures 
reasonably designed to avoid the marketing of the general purpose 
reloadable cards as gift cards or gift certificates.
    Several industry commenters urged the Board to include additional 
examples of the exclusion in Sec.  205.20(b)(2). These commenters 
included card issuers, program managers and distributors of prepaid 
cards, retailers, and industry trade associations. In particular, these 
commenters stated that requiring two separate displays as contemplated 
in the proposed examples would create significant difficulties for 
retailers because of space constraints. Industry commenters expressed 
concern that instead of providing space for additional displays, some 
retailers may choose to stop selling general-purpose reloadable cards 
altogether. As a result, industry commenters believed that access to 
such products for the unbanked and underbanked could be reduced.
    Industry commenters suggested various additional measures that 
could be undertaken to permit the sale of gift cards and otherwise 
excluded prepaid cards in the same retail display without causing the 
excluded cards to be marketed as a gift card or gift certificate. These 
measures included segregating general-purpose reloadable cards and gift 
cards on different sides of a display rack with a sign at the top of 
each side differentiating the products; using colors, design, and/or 
signage to differentiate between separate products on the same display 
(for example, signs indicating ``reloadable cards'' and ``gift cards,'' 
as applicable); or requiring the display to indicate a generic label 
such as ``prepaid cards.''
    Industry commenters also asserted that the final rule should expand 
the example of a retail clerk inadvertently stocking a general-purpose 
reloadable card inappropriately on a gift card display to apply to 
consumer actions as well. These commenters further stated that the 
final rule should permit inadvertent or bona fide errors in the 
placement of signage by a retail clerk or third-party merchandiser, 
such that the inadvertent placement of gift card advertising in the 
section of a display or portion of a rack for general-purpose 
reloadable cards does not nullify the exclusion in Sec.  205.20(b)(2) 
for the general-purpose reloadable cards.
    Comment 20(b)(2)-4 is adopted in the final rule generally as 
proposed with certain revisions for clarity. The final

[[Page 16595]]

comment provides that the exclusion in Sec.  205.20(b)(2) applies if a 
reloadable card, code, or other device is not marketed or labeled as a 
gift card or gift certificate and if persons subject to the rule, 
including issuers, program managers, and retailers, maintain policies 
and procedures reasonably designed to avoid such marketing. Such 
policies and procedures may include: contractual provisions prohibiting 
a card, code, or other device from being marketed or labeled as a gift 
card or gift certificate; merchandising guidelines or plans regarding 
how the product must be displayed in a retail outlet; and controls to 
regularly monitor or otherwise verify that the card, code, or other 
device is not being marketed as a gift card or gift certificate. The 
final comment further states that whether a person has marketed a 
reloadable card, code, or other device as a gift card or gift 
certificate will depend on the fact and circumstances, including 
whether a reasonable consumer would be led to believe that the card, 
code, or other device is a gift card or gift certificate.
    The final comment also includes the two proposed examples discussed 
above with minor revisions. The example in comment 20(b)(2)-4.i, which 
sets forth the scenario where separate displays have been set up for 
gift cards and for other excluded prepaid cards, including general-
purpose reloadable cards, has been revised to provide that the 
exclusion applies even if a consumer inadvertently places a general-
purpose reloadable card on the gift card display. However, comment 
20(b)(2)-4.i does not incorporate commenters' suggestions to apply the 
exclusion to circumstances where signage has been inadvertently placed 
on the wrong display (such as a sign stating ``Gift Cards'' placed on 
or near the general-purpose reloadable card display) because consumers 
acting reasonably under the circumstances would likely be led into 
believing that they are purchasing gift cards from the general-purpose 
reloadable card display.
    The final comment includes two new examples to illustrate 
additional circumstances where a reloadable card, code, or device is 
not marketed or labeled as a gift card or gift certificate. The 
additional examples seek to strike a balance between protecting 
consumers from being misled regarding the type of prepaid cards that 
they are purchasing and the possibility that overly restrictive 
marketing provisions may present significant compliance challenges in 
retail environments where there may not be sufficient space for 
separate displays for covered and non-covered products.
    The first new example is in comment 20(b)(2)-4.iii. In this 
example, the issuer or program manager sets up a single multi-sided 
display at the retailer on which a variety of prepaid card products, 
including store gift cards and general-purpose reloadable cards, are 
sold. Gift cards are segregated from excluded cards, with gift cards on 
one side of the display and excluded cards on a different side of a 
display. Signs of equal prominence at the top of each side of the 
display clearly differentiate between gift cards and the other types of 
prepaid cards that are available for sale. The retailer does not use 
any other more conspicuous signage suggesting the general availability 
of gift cards, such as a large sign stating ``Gift Cards'' at the top 
of the display or located near the display. The example illustrates 
that the exclusion in Sec.  205.20(b)(2) applies to the general-purpose 
reloadable cards because of the maintenance of policies and procedures 
reasonably designed to avoid the marketing of the reloadable cards as 
gift cards or gift certificates, even if a retail clerk inadvertently 
stocks or a consumer inadvertently places a general-purpose reloadable 
card in the gift card section of the display.
    Comment 20(b)(2)-4.iv., the second new example, addresses the sale 
of prepaid cards at a checkout lane where gift cards are sold side-by-
side in the same lane along with excluded cards. In the example, the 
retailer does not use any signage or other indicia suggesting the 
general availability of gift cards on the display. In this case, the 
retailer has not affirmatively indicated or represented at the checkout 
lane that only gift cards or gift certificates are available for 
purchase. Accordingly, there has been no marketing of the excluded 
products as gift cards or gift certificates, and the exclusion in Sec.  
205.20 applies to the non-gift cards.
    Several industry commenters stated that how the card and related 
card packaging is labeled and packaged should be the sole determining 
factor as to whether the card is marketed or labeled as a gift card or 
gift certificate. In this regard, these commenters stated that it 
should be sufficient to indicate clearly on packaging that an excluded 
card is ``Not a Gift Card,'' ``Not for Gift Giving Purposes,'' or 
similar words to that effect, to avoid marketing or labeling a prepaid 
product as a gift certificate or gift card. The Board believes, 
however, that merely labeling on outside packaging that a prepaid card 
product is ``not a gift card'' or that it is ``not intended for gift 
purposes,'' is not sufficient to alert consumers that they are not 
buying a gift card if other indicia, including the signage used at the 
point of purchase or the manner in which cards are displayed, are 
inconsistent with the messaging on the packaging.
    Given the various entities that may be involved in distributing or 
selling certificates or cards subject of the rule, the Board 
understands that several parties may be subject to the rule with 
respect to the same prepaid card program, including the issuer, the 
program manager, and the retailer. To the extent that more than one 
party may be liable under the final rule, those parties may contract 
among themselves to ensure compliance. See, e.g., Sec.  205.4(d) 
(stating that institutions providing EFT services jointly may contract 
among themselves to allocate requirements under the regulation). Thus, 
for example, disclosures required to be on a certificate or card by 
Sec.  205.20(d)(2) and (e)(3) may be satisfied by the issuer, while 
disclosures that must be provided prior to purchase under Sec.  
205.20(c)(3) may be satisfied by another party, such as the retailer 
(assuming the issuer does not also provide the requisite disclosures on 
the packaging). Similarly, marketing responsibilities may be allocated 
by contract. Compliance by one party would satisfy the compliance 
obligations for any other person with respect to that certificate or 
card. However, if the party that has contractually agreed to satisfy a 
compliance obligation fails to do so, each of the parties is 
potentially accountable under the EFTA and the final rule. These 
parties could also allocate among themselves the financial obligation 
for any liability resulting from the failure.
    A few industry commenters urged the Board to clarify that general-
use reloadable cards may be offered for sale on Web sites that also 
sell gift cards so long as the consumer is given appropriate disclosure 
prior to purchase that the general-purpose reloadable card is not a 
gift card. These commenters believed that such a clarification is 
appropriate even if the Web site advertises ``gift cards'' or 
``gifting,'' or if its Web address incorporates a reference to gift 
cards or gifting.
    The Board is not persuaded that the exclusion in Sec.  205.20(b)(2) 
should apply in these circumstances. The Board believes that a Web 
site's display of a banner advertisement or a graphic on its home page 
that prominently displays ``Gift Cards,'' ``Gift Giving,'' or similar 
language without mention of other available products, or inclusion of 
the terms ``gift card'' or ``gift certificate'' in its Web address, 
creates the same potential for consumer confusion as a sign stating

[[Page 16596]]

``Gift Cards'' at the top of a prepaid card display. A consumer acting 
reasonably under the circumstances may be led to believe that all 
prepaid products sold on the Web site are gift cards or gift 
certificates. Thus, under these facts, the Web site has marketed all 
such products, including any general-purpose reloadable cards that may 
be sold on the Web site, as gift cards or gift certificates, and the 
exclusion in Sec.  205.20(b)(2) does not apply. New comment 20(b)(2)-5 
provides this guidance.
Temporary Cards Issued in Connection With a General-Purpose Reloadable 
Card
    Some general-purpose reloadable cards that are not intended to be 
marketed as a gift card, but rather as an alternative to a bank account 
(or account substitute), such as for the unbanked, may be sold 
initially as a temporary non-reloadable card. After the card is 
purchased, the cardholder may call the issuer to register the card. 
Once the issuer has obtained the cardholder's personal information, a 
new personalized, reloadable card is sent to the cardholder to replace 
the temporary card.
    Under one model, the cardholder may use the temporary non-
reloadable card to engage in transactions immediately after card 
purchase and up until the card is registered by the consumer and 
replaced with the personalized, reloadable card. Under another model, 
the temporary non-reloadable card may not be used by the consumer for 
purchases until the consumer calls to register the card. Under the 
second model, the temporary card can be used after registration until 
the personalized, reloadable card is received and activated by the 
consumer.
    The Board solicited comment on the appropriate treatment of such 
temporary non-reloadable cards in light of the fact that the statute 
appears to cover all non-reloadable cards without exception. Under one 
proposed approach, the restrictions limiting fees and expiration dates 
would not apply either to the temporary non-reloadable card or to the 
reloadable replacement card. Under a second approach, the restrictions 
would apply during the full account relationship if the card is 
initially issued as a non-reloadable card. Under a third approach, the 
restrictions limiting fees and expiration dates would apply solely to 
the temporary non-reloadable card, but not to the reloadable 
replacement card.
    The majority of industry commenters urged the Board to exclude 
temporary non-reloadable cards from the scope of the rule altogether 
because such cards are issued only in conjunction with general-purpose 
reloadable cards and are never marketed or sold as anything other than 
as a reloadable product. Several industry commenters also asserted that 
these cards are initially issued as non-reloadable cards to control 
fraud and to reduce the risk of money laundering. Thus, they argued 
that applying the rule to the card if it was initially non-reloadable, 
but not if the temporary card was reloadable, would unnecessarily limit 
issuers' ability to control for risks as issuers would shift to issuing 
the temporary card as a reloadable product to avoid application of the 
rule. Industry commenters and one nonprofit organization commenter 
focused on serving the unbanked also noted that covering the temporary 
non-reloadable card, but not the reloadable replacement card, could 
lead to consumer confusion because different fee and expiration date 
terms would apply to the different cards depending on whether or not 
the card was reloadable. The nonprofit organization commenter urged the 
Board not to cover temporary non-reloadable cards to avoid adversely 
impacting the business model for general-purpose reloadable cards and 
thereby restricting the availability of the product for the growing 
number of consumers that use these cards in place of bank accounts.
    In contrast, consumer groups urged the Board to cover temporary 
non-reloadable cards issued in conjunction with reloadable cards that 
serve as account substitutes. Consumer groups cited consumer confusion 
caused by the fact that many of these products are sold on the same 
racks as gift cards.
    One industry marketer and distributor of prepaid products and 
services also expressed concern about consumer confusion associated 
with the marketing of general-purpose reloadable cards. In particular, 
this industry commenter cited its own experience and industry data 
indicating that more than 60% of all consumers that purchase general-
purpose reloadable cards in an unassisted environment (such as from a 
supermarket display) subsequently either never register or reload the 
card. In this commenter's view, the high rate of failure for 
registering or reloading the card suggests a high degree of consumer 
confusion with many consumers who intend to purchase a gift card 
inadvertently purchasing a general-purpose reloadable card instead. 
This commenter urged the Board to adopt the third approach and cover 
any temporary non-reloadable card issued in conjunction with a general-
purpose reloadable card until the card is registered and replaced with 
a reloadable card. Under this approach, a consumer that inadvertently 
bought a general-purpose reloadable card thinking it was a gift card 
would be able to avoid most fees.
    The final rule does not cover temporary non-reloadable cards issued 
solely in connection with a general-purpose reloadable card. Section 
205.20(b)(2) has been revised in the final rule to provide that for 
purposes of the exclusion, the term ``reloadable'' also includes a 
temporary non-reloadable card if it is issued solely in connection with 
a reloadable card, code, or other device. New comment 20(b)(2)-6 
provides additional guidance regarding temporary non-reloadable cards 
issued solely in connection with a general-purpose reloadable card.
    The Board is persuaded that excluding temporary non-reloadable 
cards as a general-purpose reloadable card under Sec.  205.20(b)(2) is 
appropriate to avoid consumer confusion if they are not marketed or 
labeled as a gift card or gift certificate. The Board believes that 
consumers likely will be confused if terms of the temporary non-
reloadable card differ substantially from the terms of the replacement 
reloadable card. The Board also believes that any consumer confusion 
resulting from consumers inadvertently purchasing general-purpose 
reloadable cards instead of gift cards is more effectively addressed 
through policies and procedures designed to avoid the marketing of 
general-purpose reloadable cards as gift cards or gift certificates, 
see, e.g., comment 20(b)(2)-4, rather than by covering temporary non-
reloadable cards under the rule.
    In addition, the Board is concerned that covering the temporary 
non-reloadable card may create regulatory incentives that would unduly 
restrict issuers' ability to address potential fraud. The Board 
understands that some issuers today issue temporary cards in non-
reloadable form to encourage consumers to register the card and provide 
customer identification information for Bank Secrecy Act purposes and 
to enable the issuer to track which cards have been registered. A rule 
that would apply only if the temporary card was non-reloadable would 
therefore limit issuers' options without significant consumer benefit 
because issuers would likely shift to issuing reloadable temporary 
cards to avoid the rule's restrictions on dormancy, inactivity, and 
service fees and on expiration dates.

[[Page 16597]]

20(b)(3) Loyalty, Award, or Promotional Gift Card
    Section 205.20(b)(3) implements the exclusion for cards, codes, or 
other devices for loyalty, award, or promotional gift cards. See EFTA 
Section 915(a)(2)(D)(iii); 15 U.S.C. 1693m(a)(2)(D)(iii). The Board did 
not receive comment on the exclusion as proposed and it is adopted 
without change.
    As discussed above, the term ``loyalty, award, or promotional gift 
card'' is defined in Sec.  205.20(a)(4). While certain disclosures must 
be provided to meet the definition, a loyalty, award, or promotional 
gift card is not subject to the substantive restrictions in Sec.  
205.20, including the restrictions on imposing dormancy, inactivity, or 
service fees, or on expiration dates. A loyalty, award, or promotional 
gift card also is not subject to the prohibition on charging fees to 
replace an expired card if funds remain valid under Sec.  
205.20(e)(4).\23\
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    \23\ A card, code, or other device that qualifies for the 
exclusion in Sec.  205.20(b)(3) as a loyalty, award, or promotional 
gift card remains exempt from the substantive restrictions of Sec.  
205.20 even if it also bears celebratory motifs or terms that would 
cause it to be marketed or labeled as a gift card or gift 
certificate under Sec.  205.20(b)(2). See also comment 20(b)-2.
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20(b)(4) Not Marketed to the General Public
    Section 205.20(b)(4) implements the exclusion for cards, codes, or 
other devices that are not marketed to the general public. See EFTA 
Section 915(a)(2)(D)(iv); 15 U.S.C. 1693m(a)(2)(D)(iv). As explained in 
proposed comment 20(b)(4)-1, whether a card is ``marketed to the 
general public'' depends on the facts and circumstances, but the term 
generally describes cards, codes, or other devices that are offered, 
advertised or otherwise promoted to the general public. The proposed 
rule and commentary provided guidance on factors to be considered in 
determining whether a card, code or device is marketed to the general 
public.
    Commenters generally supported the proposed rule and commentary, 
although some industry commenters disagreed with or requested 
modifications to the commentary, including to certain of the examples, 
as discussed below. The final rule adopts Sec.  205.20(b)(4) and the 
related commentary substantially as proposed, with an additional 
clarification regarding the posting of policies that funds will be 
disbursed through prepaid cards.
    In the final rule, comment 20(b)(4)-1 states that a card, code, or 
other device may be marketed to the general public through any 
advertising medium, including television, radio, newspaper, the 
Internet, or signage. In determining whether the exclusion applies to a 
particular card, code, or other device, comment 20(b)(4)-1 identifies a 
number of factors that should be considered, including the means or 
channel through which the card, code, or device may be obtained by a 
consumer, the subset of consumers that are eligible to obtain the card, 
code, or other device, and whether the availability of the card, code, 
or device is advertised or otherwise promoted in the marketplace. The 
comment also makes clear that the method of distribution by itself is 
not dispositive in determining whether a card, code, or other device is 
marketed to the general public.
    One commenter requested clarification that the posting of a company 
policy that funds may be disbursed by prepaid card (such as a sign 
posted at a cash register or customer service center that store credit 
will be issued by prepaid card) does not constitute the marketing of a 
card, code, or other device to the general public. Comment 20(b)(4)-1 
has been modified accordingly. The Board believes such postings do not 
constitute marketing to the general public because they are not 
intended to advertise or promote the availability of prepaid cards. 
Rather, they are intended to disclose company policy to consumers who 
might otherwise expect cash refunds.
    Comment 20(b)(4)-2, which is adopted substantively as proposed 
except as noted below, provides six examples illustrating the 
application of the exclusion. For instance, a merchant may sell its 
gift cards at a discount to a business, either directly or indirectly 
through a third party. The business that purchases the cards may give 
them to employees or loyal consumers as incentives or rewards. In 
determining whether the gift card is marketed to the general public, 
the merchant-issuer must consider whether the card is of a type that is 
advertised or made available to consumers generally or can be easily 
obtained elsewhere. If the card may also be purchased through retail 
channels, the exclusion in Sec.  205.20(b)(4) does not apply, even if 
the consumer obtained the card as an incentive or reward. See comment 
20(b)(4)-2.i. Some industry commenters requested that the Board clarify 
that marketing to the general public does not include business-to-
business advertisement of gift cards, where the business purchaser of 
the cards may in turn distribute such cards to consumers. The Board 
declines to make this revision. Consumers could be confused if they 
receive gift cards that appear substantially similar to those that they 
could have purchased directly from a merchant, but contain different 
terms and conditions, such as a shorter expiration date.\24\
---------------------------------------------------------------------------

    \24\ Such cards may, however, qualify for the exclusion in Sec.  
205.20(b)(3) for loyalty, award, or promotional gift cards.
---------------------------------------------------------------------------

    Similarly, the Board also considered whether cards issued or sold 
pursuant to a marketing campaign that targets a specific subset of 
consumers should fall within the exclusion. Some industry commenters 
urged the Board to view sales of gift cards that are limited to 
existing customers as falling within the exclusion for cards not 
marketed to the general public because of the steps required to become 
a customer, and therefore, to become eligible to purchase a gift card 
from the merchant. However, the Board believes that such a broad 
interpretation of the exclusion for cards not marketed to the general 
public would create a loophole and undermine the protections afforded 
to consumers under the rule. Therefore, the example in comment 
20(b)(4)-2.ii states that a national retail chain could decide to 
market its gift cards only to members of its frequent buyers' program. 
Similarly, a bank may decide to sell gift cards only to its customers. 
However, if any member of the general public may become a member of the 
program or a customer of the bank, the general public would still be 
able to obtain the cards and such cards are covered by the rule, unless 
another exclusion applies. See comment 20(b)(4)-2.ii.
    Likewise, proposed comment 20(b)(4)-2.iii included reloadable cards 
advertised to teenagers to help them manage their everyday expenses and 
for emergencies, or marketed to parents to enable them to monitor their 
teenager's spending, as a card marketed to the general public. Some 
institutions argued that the example should be limited to ``gift 
cards'' advertised to teenagers in recognition that other types of 
cards, such as reloadable cards, marketed to teens may qualify for a 
different exclusion under the rule. The Board declines to so limit the 
example because a card's status as a gift card does not affect whether 
the card is marketed to the general public. However, as noted above, 
certificates or cards that do not qualify for one exclusion may 
nonetheless qualify for another exclusion. Comment 20(b)-2 has been 
revised, as discussed above, to address the application of other 
exclusions to teen cards.
    In contrast to the above examples, where the availability of the 
certificate

[[Page 16598]]

or card itself is not advertised or otherwise promoted, but rather, is 
merely used as the means through which funds are delivered to a 
consumer, the Board believes the certificate or card is not marketed to 
the general public. Proposed comment 20(b)(4)-2 included four 
additional examples of cards that may fall within the exclusion 
depending on the circumstances: (a) A card containing insurance 
proceeds provided by an insurance company to a customer to settle a 
claim; (b) a card containing travel expenses or per diem funds provided 
by a business to an employee; (c) a card containing store credit 
provided by a retailer to a customer following a merchandise return if 
the card states that it is issued for store credit; and (d) a card 
containing tax refunds provided by a tax preparer to a customer. See 
proposed comments 20(b)(4)-2.iv.-vii.
    The final comment adopts three of the four proposed examples 
substantively as proposed. However, the Board is not adopting the 
proposed example regarding travel expense or per diem cards. 
Specifically, the Board had proposed as an example of a card not 
marketed to the general public a prepaid card provided by an employer 
to its employees to cover travel expenses and per diem. See proposed 
comment 20(b)(4)-2.v. These cards are intended to be used for business 
purposes. In light of the clarification in comment 20(a)-4 that the 
rule's scope is limited to cards, codes or other devices sold or issued 
to consumers primarily for personal, family, or household purposes, 
these cards would not be subject to the rule. Thus, to eliminate 
redundancies, the proposed per diem and travel expense example is not 
adopted.
    While commenters generally supported the proposed examples, some 
industry commenters argued that the tax refund card example should be 
modified to specifically exclude tax refund cards that are available 
only by becoming a customer of the tax preparer. The Board does not 
believe that this fact is relevant because, although the card would 
only be available to consumers who become customers of a tax preparer, 
any member of the general public typically may become a customer. Such 
a scenario would be indistinguishable from the national retail chain 
example described in comment 20(b)(4)-2.ii. Instead, the Board believes 
that whether a tax refund card is marketed to the general public 
depends upon other facts and circumstances. For example, if a tax 
preparer merely provides the prepaid card as a mechanism for providing 
a tax refund to a consumer, and does not advertise or otherwise promote 
the ability to receive a tax refund through a prepaid card, the card is 
excluded because it is not marketed to the general public. However, if 
the tax preparer engages in a marketing campaign that touts the ability 
of a consumer to receive a prepaid card for ``faster'' access to their 
tax refund proceeds, the tax refund card is not exempt under this 
exclusion. See comment 20(b)(4)-2.vi.
20(b)(5) Issued in Paper Form Only
    Section 205.20(b)(5) sets forth the exclusion for cards, codes, or 
other devices that are issued in paper form only. See EFTA Section 
915(a)(2)(D)(v); 15 U.S.C. 1693m(a)(2)(D)(v). Proposed comment 
20(b)(5)-1 explained that the exclusion applies where the sole means of 
issuing the card, code, or other device is in paper form. Examples of 
excluded paper gift certificates or cards included paper certificates 
or vouchers distributed by a merchant that are redeemable for a 
specified dollar amount.
    A few industry commenters urged the Board to remove the proposed 
exclusion stating that the exclusion could adversely impact the gift 
card industry as some merchants may elect to revert back to using paper 
gift certificates to avoid the fee and expiration date restrictions set 
forth in the rule. Other industry commenters believed that, given the 
cost savings and enhanced features offered by electronic gift cards 
compared to paper certificates, retailers and gift card issuers would 
be unlikely to return to paper simply to avoid application of the rule.
    The exclusion for cards, codes, or other devices that are issued in 
paper form only is statutory, and accordingly, Sec.  205.20(b)(5) is 
adopted as proposed. Comment 20(b)(5)-1 is also adopted generally as 
proposed. The comment explains that the exclusion does not apply simply 
because a card, code, or other device is reproduced or otherwise 
printed on paper. For example, a bar code, card or certificate number, 
or certificate or coupon provided to a consumer electronically and 
redeemable for goods or services is not issued in paper form, even 
though it may be reproduced or otherwise printed on paper by the 
consumer.\25\ In this circumstance, although the consumer might hold a 
paper facsimile of the card, code, or other device, the exclusion does 
not apply because the information necessary to redeem the value was 
issued to the consumer in electronic form.
---------------------------------------------------------------------------

    \25\ An issuer may, however, replace a gift certificate that was 
initially issued in paper form only with a plastic card or 
electronic code (for example, to replace a lost paper certificate) 
without falling outside the exclusion in Sec.  205.20(b)(5).
---------------------------------------------------------------------------

    The comment does not, however, preclude a paper certificate bearing 
a bar code or account number from qualifying for the exclusion. For 
example, a retailer may generate a bar code on a paper certificate at 
the time of purchase that enables the retailer to scan the certificate 
and maintain a record of the certificate electronically, rather than 
enter the information in a ledger. Because the bar code is issued to 
the consumer solely in paper form, the certificate qualifies for the 
exclusion. Similarly, a consumer may prepay for an item or service and 
receive a paper receipt with a numerical code that can for example, be 
used to access a car wash or entered into an electronic parking meter. 
The receipt bearing the code qualifies for the exclusion for cards, 
codes, or other devices issued in paper form only.
    New comment 20(b)(5)-2 contains positive and negative examples 
illustrating the exclusion for cards, codes, or other devices issued in 
paper form only.
20(b)(6) Redeemable Solely for Admission to Events or Venues
    Section 205.20(b)(6) excludes cards, codes, or other devices that 
are redeemable solely for admission to events or venues at a particular 
location or group of affiliated locations, or to obtain goods or 
services, in conjunction with such admission, at the event or venue, or 
at specific locations affiliated with and in geographic proximity to 
the event or venue. See EFTA Section 915(a)(2)(D)(vi); 15 U.S.C. 
1693m(a)(2)(D)(vi). The Board did not receive any comments on this 
exclusion, and it is adopted as proposed.
    As clarified in comment 20(b)(6)-1, the exclusion in Sec.  
205.20(b)(6) is generally limited to cards, codes, or other devices 
that do not state a specific monetary value but instead are redeemable 
for an admission to an event or venue, such as a ticket to a sporting 
event or a pass to enter an amusement park.\26\ In addition, the 
exclusion applies to cards, codes, or other devices that entitle the 
consumer to obtain goods or services, in conjunction with admission to 
an event or venue. See EFTA Section 915(a)(2)(D)(vi); 15 U.S.C. 
1693m(a)(2)(D)(vi). For example, the consumer might purchase a 
certificate or card that entitles the recipient to one

[[Page 16599]]

ticket to an amusement park plus a dollar amount that can be spent on 
concessions at the park. Consistent with the statute, the exclusion in 
Sec.  205.20(b)(6) also covers circumstances where the consumer may 
obtain goods or services at specific locations affiliated with and in 
geographic proximity to the event or venue in conjunction with 
admission. For example, a certificate or card may enable the consumer 
to gain admission to an amusement park and to obtain a souvenir of the 
occasion at a retailer affiliated with the park located within or near 
the park.
---------------------------------------------------------------------------

    \26\ Such cards, codes, or other devices are also not covered by 
the rule because they are not issued in a specified amount. See 
comment 20(a)-3.
---------------------------------------------------------------------------

    While the exclusion applies to cards, codes, or other devices that 
are redeemable for admission to an event or venue, and for goods or 
services purchased in conjunction with that admission, the exclusion 
does not cover cards, codes, or other devices issued in a specified 
monetary value that could be applied toward such admission. For 
example, a merchant affiliated with an amusement park could issue a $25 
gift card to a consumer that can be redeemed by the recipient to 
purchase goods at any of the merchant's retail outlets and its on-line 
store. Under the terms of the prepaid card program, however, the 
merchant could also allow the card to be provided as a form of payment 
to purchase tickets at the amusement park.
    Permitting the exclusion to apply in these circumstances would 
create opportunities for circumvention because an issuer could simply 
list the purchase of tickets at the amusement park as one of several 
permitted uses of a gift card to avoid the consumer protections 
provided by the Credit Card Act. Accordingly, the final rule does not 
apply the exclusion to a card that can be redeemed in a specified 
amount towards admission to an event or venue. This approach is 
consistent with the statutory exclusion, which refers to cards, codes, 
or other devices that are redeemable solely for admission to events or 
venues at a particular location or group of affiliated locations. See 
EFTA Section 915(a)(2)(D)(vi); 15 U.S.C. 1693m(a)(2)(D)(vi).\27\
---------------------------------------------------------------------------

    \27\ While the exclusion in Sec.  205.20(b)(6) does not apply to 
other payment devices that are redeemable for a specified product or 
service, other than admission to an event or venue, such as a 
certificate or card that is redeemable for a spa treatment or hotel 
stay, the devices may nevertheless fall outside the scope of Sec.  
205.20 if they are not issued in a specified dollar amount. See 
comment 20(b)-3. Other exclusions in the rule may also apply to such 
devices. See, e.g., Sec.  205.20(b)(3).
---------------------------------------------------------------------------

    Comment 20(b)(6)-1 explains the exclusion in Sec.  205.20(b)(6). 
Comment 20(b)(6)-2 (proposed as comment 20(b)(6)-1) provides examples 
to illustrate the exclusion. The comment and examples contained therein 
have been revised to reflect changes or additions elsewhere in the 
final rule. In addition, the examples in proposed comment 20(b)(6)-2.iv 
and .v have been deleted in light of the prior discussion regarding 
cards, codes, or other devices that are not issued in a specified 
amount. See, e.g., comment 20(b)-3.
20(c) Form of Disclosures
    Section 205.20(c) sets forth the general disclosure requirements 
that apply to gift certificates, store gift cards, and general-use 
prepaid cards, including provisions relating to the form of 
disclosures.
20(c)(1) Clear and Conspicuous
    Proposed Sec.  205.20(c)(1) implemented the clear and conspicuous 
standard required by EFTA Sections 915(b)(3)(A) and (c)(2)(B). See 15 
U.S.C. 1693m(b)(2)(A) and (c)(2)(B). These statutory provisions require 
that a dormancy fee, inactivity charge or fee, or service fee and the 
terms of expiration, discussed in proposed Sec. Sec.  205.20(d) and 
(e), must be disclosed clearly and conspicuously. In addition, the 
Board proposed that the clear and conspicuous standard would also apply 
to the disclosures in proposed Sec.  205.20(f). Commenters agreed with 
the requirement to apply the clear and conspicuous standard to all 
disclosures required under Sec.  205.20. Accordingly, section Sec.  
205.20(c)(1) is adopted substantially as proposed.\28\
---------------------------------------------------------------------------

    \28\ Because the clear and conspicuous requirement applies to 
all disclosures provided under this section, disclosures provided in 
connection with loyalty, award, or promotional gift cards under 
Sec.  205.20(a)(4)(iii) must also be clear and conspicuous.
---------------------------------------------------------------------------

    Proposed comment 20(c)(1)-1 clarified the meaning of the term 
``clear and conspicuous.'' Specifically the proposed comment explained 
that disclosures would be clear and conspicuous for the purposes of 
this section if they are readily understandable and, in the case of 
written and electronic disclosures, the location and type size are 
readily noticeable to consumers. Except as otherwise required, 
disclosures would not need to be located on the front of the 
certificate or card to be considered clear and conspicuous. Under the 
proposed comment, disclosures would be clear and conspicuous if they 
are in a print that contrasts with and is otherwise not obstructed by 
the background on which they are printed. For example, disclosures on a 
card or computer screen would not likely be conspicuous if obscured by 
a logo printed in the background. Similarly, a disclosure on the back 
of a card that is printed on top of indentations from embossed type on 
the front of the card would not likely be conspicuous if the 
indentations obstruct the readability of the disclosure. The proposed 
comment clarified that oral disclosures, to the extent permitted, would 
meet the clear and conspicuous standard when they are given at a volume 
and speed sufficient for a consumer to hear and comprehend them. 
Commenters generally agreed that the proposed clear and conspicuous 
requirements were appropriate.
    The November 2009 Proposed Rule did not include a specific type 
size or prominence requirement, except where otherwise noted. See 
proposed Sec.  205.20(e)(3)(iii). The Board requested comment on 
whether a description of the clear and conspicuous standard in the 
final rule should include a type size or prominence requirement for all 
disclosures and, if so, what standard would be appropriate. The Board 
also requested comment on whether there were alternatives to a type 
size or prominence requirement that could ensure that disclosures on a 
card are clear and conspicuous to a consumer.
    One commenter, a city government entity, believed the Board should 
require on-card disclosures in a 10-point type size and also impose 
font and type size requirements for on-line disclosures. Industry 
commenters, however, objected to adding a font or type size 
requirement. These commenters believed that issuers should have 
flexibility to tailor disclosures to specific certificates or cards and 
that it was not necessary to impose font or type size requirements to 
provide clear and conspicuous disclosures.
    The Board believes that applying a prominence requirement or a 
minimum type size standard to every disclosure on a certificate or card 
is impractical. The Board believes it would be difficult to determine a 
type size standard that would be appropriate for all certificate or 
card programs, because the required disclosures on a certificate or 
card will vary depending upon the terms of the certificate or card. 
Moreover, particular features of a certificate or card, and perhaps the 
size of the certificate or card, may affect the type size of 
disclosures that could fit within the limited amount of space on the 
certificate or card. For example, a person making disclosures on a card 
with embossed type on the front of the card may need to adjust the type 
size to prevent the indentations from obstructing the readability of 
the disclosures. Thus, the final rule does not include a specific type 
size or

[[Page 16600]]

prominence requirement. Comment 20(c)(1)-1 is adopted substantively as 
proposed.
    Proposed Sec.  205.20(c)(1) stated that the disclosures required by 
this section could contain commonly accepted or readily understandable 
abbreviations or symbols. Proposed comment 20(c)(1)-2 provided 
illustrative examples, stating that the use of abbreviations and 
symbols such as ``mo.'' for month or a ``/'' to indicate ``per'' would 
be permissible. The proposed comment noted that it is sufficient under 
the clear and conspicuous standard to state, for example, that a 
particular fee is charged ``$2.50/mo. after 12 mos.'' Commenters 
generally agreed with proposed comment 20(c)(1)-2. Accordingly, comment 
20(c)(1)-2 is adopted as proposed.
20(c)(2) Format
    Proposed Sec.  205.20(c)(2) stated that disclosures required by 
this section generally would be required to be provided to the consumer 
in written or electronic form. Because the disclosures would not be 
required to be in written form, proposed comment 20(c)(2)-1 clarified 
that electronic disclosures made under this section would not be 
subject to compliance with the consumer consent and other applicable 
provisions of the Electronic Signatures in Global and National Commerce 
Act (E-Sign Act) (15 U.S.C. 7001 et seq.), which only applies when 
information is required to be provided to a consumer in writing. The 
proposed comment clarified that electronic disclosures could not be 
provided through a hyperlink or in another manner by which the 
purchaser can bypass the disclosure. Under the proposed rule, the Board 
stated that an issuer or vendor would not be required to confirm that 
the consumer has read the electronic disclosures.
    Several industry commenters agreed with the clarification that 
electronic disclosures provided under Sec.  205.20 would not be subject 
to compliance with the consumer consent and other applicable provisions 
of the E-Sign Act. One city government entity commenter believed the 
Board should require the issuer to confirm that the consumer has read 
the electronic disclosures. The Board believes requiring confirmation 
that a consumer has read the disclosures would be impractical. For 
example, it would be difficult to confirm that a consumer has read 
disclosures on a code or confirmation that is electronically mailed to 
a consumer because the transaction has already been completed.
    Section 205.20(c)(2) and comment 20(c)(2)-1 are generally adopted 
as proposed, with revisions. Upon the Board's further analysis, the 
final rule requires that certain disclosures must also be in a form 
that a consumer could keep so consumers can retain them for later 
review if necessary. Therefore, section 205.20(c)(2) in the final rule 
provides that written and electronic disclosures must be in a 
retainable form. Comment 20(c)(2)-1 provides an example that clarifies 
how a person could fulfill this requirement in the context of 
electronic disclosures. The comment provides that a person may satisfy 
the requirement if it provides an on-line disclosure in a format that 
is capable of being printed. Comment 20(c)(2)-1 in the final rule also 
makes non-substantive wording modifications, for consistency.
    Proposed Sec.  205.20(c)(2) stated that only disclosures provided 
under Sec.  205.20(c)(3) may be provided orally. The Board stated in 
the supplementary information to the proposal that permitting oral 
disclosures is necessary in limited circumstances where disclosures 
cannot be made prior to purchase unless made orally, such as when a 
certificate or card is purchased by telephone. Though disclosures 
required to be made prior to purchase could be made orally, the 
proposed rule would still require written or electronic disclosures to 
be provided on or with the certificate or card. See proposed Sec. Sec.  
205.20(d)(2), (e)(3), and (f).\29\ Commenters generally agreed with 
this provision in proposed Sec.  205.20(c)(2), and it is adopted as 
proposed.
---------------------------------------------------------------------------

    \29\ Because the requirement applies to all disclosures under 
this section other than those provided under Sec.  205.20(c)(3), 
disclosures provided in connection with loyalty, award, or 
promotional gift cards under Sec.  205.20(a)(4)(iii) must also be 
written or electronic.
---------------------------------------------------------------------------

    Some industry commenters asked the Board to clarify how a person 
could fulfill the requirement in Sec.  205.20(e)(3)(iii) to make 
clarifying statements regarding funds expiration ``in close proximity'' 
to the card expiration date, if such disclosures are made orally. As 
discussed below, the Board has clarified in comment 20(e)-7 that the 
``close proximity'' requirement does not apply to oral disclosures made 
pursuant to this section.
    Proposed comment 20(c)(2)-2 addressed disclosure requirements in 
circumstances where no physical certificate or card is issued. This 
comment has been removed in the final rule. Instead, the disclosure 
requirements applicable to non-physical certificates or cards are 
discussed under Sec. Sec.  205.20(c)(3) and (c)(4) and their respective 
commentaries.
20(c)(3) Disclosures Prior to Purchase
    Proposed Sec.  205.20(c)(3) provided that disclosures for dormancy, 
inactivity, or service fees required under Sec.  205.20(d)(2) must be 
made prior to the purchase of the certificate or card. See EFTA Section 
915(b)(3)(B); 15 U.S.C. 1693m(b)(3)(B). The Board also proposed in 
Sec.  205.20(c)(3) to apply the requirement that disclosures be made 
prior to purchase of the certificate or card to the disclosure of 
additional fees imposed in connection with a certificate or card and 
the terms and conditions of expiration of the funds, using its 
authority under EFTA Section 904. See proposed Sec. Sec.  205.20(e)(3) 
and (f)(1), discussed below. Proposed comment 20(c)(3)-1 clarified that 
the disclosures required under this paragraph must be provided 
regardless of whether the certificate or card is purchased in person, 
on-line, by telephone, or by other means.
    Some industry commenters believed that those disclosures required 
to be made prior to purchase would be redundant, because the same 
disclosures also would be required to be made on or with the card. 
However, a consumer group commenter and a city government entity 
commenter supported the requirement to provide these disclosures to 
consumers prior to purchase. The city government entity commenter 
believed that merchants that sell gift cards should also be required to 
post signage at the point of sale with gift cards' terms and 
conditions.
    The Board believes that consumers contemplating the purchase of a 
certificate or card should be provided information about all fees and 
the terms and conditions of expiration before purchasing a certificate 
or card. Even if the purchaser is not the ultimate user of the 
certificate or card, a purchaser should be aware of any potential costs 
to the recipient and the amount of time the recipient has to use the 
funds underlying the certificate or card. The final rule does not 
separately require signage with gift cards' terms and conditions at the 
point of sale in addition to the disclosures provided on or with the 
certificate or card itself. Such a requirement could be impractical 
because a merchant may sell many different certificates or cards that 
each have different terms. Posting signage that discloses different 
terms for different cards could confuse consumers who may not know 
which disclosures apply to the certificate or card that they want to 
purchase.

[[Page 16601]]

    For the foregoing reasons, Sec.  205.20(c)(3) is adopted as 
proposed, with some revisions. One industry commenter requested that 
the Board clarify in the final rule that an issuer may modify the terms 
of the certificate or card after purchase, so long as the modifications 
are disclosed to the consumer. The Board believes permitting the 
modification of fees and terms and conditions of expiration for 
certificates or cards would be problematic because many certificates or 
cards are issued without obtaining the name or other information about 
the consumer. Moreover, the certificate or card may be given to another 
consumer after purchase. In such cases, it would be difficult to inform 
consumers that fees and terms and conditions of expiration for a 
certificate or card have changed, because the issuer would not have the 
consumer's contact information. Moreover, permitting an issuer to 
change the fees and terms and conditions of expiration for a 
certificate or card after purchase would undermine the purpose of 
disclosing those fees and terms of expiration prior to purchase. 
Consumers would be unable to rely on the fees and terms and conditions 
of expiration disclosed on different certificates or cards when 
comparing products. Therefore, Sec.  205.20(c)(3) provides that fees 
and terms and conditions of expiration that are required to be 
disclosed prior to purchase may not be changed after purchase. The 
Board has also modified Sec.  205.20(c)(3) to clarify that an issuer or 
vendor, as referenced in EFTA Section 915(b)(3)(B), is a person that 
issues or sells a certificate or card to a consumer.
    Comment 20(c)(3)-1 is adopted substantively as proposed. The Board 
also added two comments in the final rule to clarify Sec.  
205.20(c)(3). Comment 20(c)(3)-2 clarifies how disclosures required 
under Sec.  205.20(c)(3) may be provided electronically to the consumer 
prior to purchase. For certificates or cards purchased electronically, 
disclosures made to a consumer after the consumer has initiated an on-
line purchase of a certificate or card, but prior to completing the 
purchase of the certificate or card, would satisfy the prior-to-
purchase requirement. However, electronic disclosures made available on 
a person's Web site that may or may not be accessed by the consumer are 
not provided to the consumer and therefore would not satisfy the prior-
to-purchase requirement.
    Comment 20(c)(3)-3 clarifies how disclosures for non-physical 
certificates and cards may be provided prior to purchase. If no 
physical certificate or card is issued, the disclosures must be 
provided to the consumer before the certificate or card is purchased. 
For example, where a gift certificate or card is a code that is 
provided by telephone, the required disclosures may be provided orally 
prior to purchase.
20(c)(4) Disclosures on the Certificate or Card
    The Board proposed that certain disclosures regarding dormancy, 
inactivity, or service fees be provided on the certificate or card, 
consistent with the requirements of EFTA Section 915(b)(3)(A). See 
proposed Sec.  205.20(d)(2). The Board also proposed that the terms and 
conditions of expiration of the funds must be on the certificate or 
card itself. See proposed Sec.  205.20(e)(3)(i). In addition, the Board 
proposed that certain additional disclosures not specified in the 
statute must also be on the certificate or card itself. Specifically, 
under the proposal, the following disclosures would have to be on the 
certificate or card itself: a toll-free telephone number a consumer may 
call for fee information or replacement certificates or cards 
(Sec. Sec.  205.20(e)(3)(ii) and (f)(2)); a Web site a consumer may 
access for fee information or replacement certificates or cards, if one 
is maintained (Sec. Sec.  205.20(e)(3)(ii) and (f)(2)); a disclosure 
that the certificate or card expires, but the underlying funds either 
do not expire or expire later than the certificate or card (Sec.  
205.20(e)(3)(iii)); and the fact that the consumer may contact the 
issuer for a replacement card, if applicable (Sec.  205.20(e)(3)(iii)).
    Proposed Sec.  205.20(c)(4) implemented the requirement that 
certain disclosures under Sec.  205.20 be provided on the certificate 
or card itself. Proposed Sec.  205.20(c)(4) stated that a disclosure 
made in an accompanying terms and conditions document, on packaging, or 
on a sticker or other label affixed to the certificate or card does not 
constitute a disclosure on the certificate or card.
    Some industry commenters urged the Board to limit the number of 
disclosures required to be on the certificate or card itself. These 
commenters argued that requiring additional disclosures to be on the 
certificate or card itself would impede consumer comprehension because 
there may be numerous disclosures required to fit within a limited 
amount of space on the certificate or card. Some commenters suggested 
that the Board only require contact information where a consumer could 
obtain fee and other information. Commenters also suggested permitting 
disclosures on packaging, on a disclosure that accompanies the card, or 
on a sticker affixed to the certificate or card, instead of on the 
certificate or card itself. Several commenters requested that the Board 
issue model forms in card size that illustrate compliance with the ``on 
the card'' disclosure requirement.
    The Board recognizes that the amount of space in which to make 
disclosures on a standard sized certificate or card is limited. 
However, the Credit Card Act requires that certain disclosures 
regarding dormancy, inactivity, or service fees must be provided on the 
certificate or card. See EFTA Section 915(b)(3)(A); 15 U.S.C. 
1693m(b)(3)(A). In addition, the Board believes that it is necessary to 
make the disclosures set forth in Sec. Sec.  205.20(e)(3) and (f)(2) on 
the certificate or card itself to provide adequate and effective 
disclosure of key terms. Such disclosures would not be sufficient on 
packaging or a sticker affixed to the certificate or card, because the 
purchaser of the certificate or card may not be the user of the 
certificate or card and packaging or a sticker may be removed before a 
certificate or card is given to the user. The Board believes requiring 
the disclosures on the certificate or card itself ensures that the gift 
recipient receives these additional disclosures and will always have 
access to them, because they cannot be separated from the certificate 
or card.
    The Board has provided issuers flexibility to tailor disclosures so 
that they fit on a particular certificate or card. Issuers may comply 
with the requirement to make disclosures on the certificate or card in 
a manner appropriate to a product, so long as the disclosures are clear 
and conspicuous. For example, issuers may be able to adjust type size 
and placement of disclosures to fulfill the disclosure requirements 
without disrupting the placement of an existing logo or magnetic 
stripe. Because the type and number of required disclosures will vary 
depending on a particular certificate or card, the Board believes it is 
not possible to provide a model certificate or card that would apply to 
every certificate and card subject to the final rule.
    Therefore, Sec.  205.20(c)(4) is adopted as proposed, with some 
revisions. The Board has added language to Sec.  205.20(c)(4) to 
reflect the fact that the provision also applies to disclosures that 
must appear on a loyalty, award, or promotional gift card under Sec.  
205.20(a)(4)(iii). The paragraph also clarifies how disclosures 
required on the certificate or card may be provided for certificates 
and cards provided electronically or orally. The final rule provides 
that, for an electronic certificate or card, disclosures must be

[[Page 16602]]

provided electronically on the certificate or card provided to the 
consumer. An issuer that provides a code or confirmation to a consumer 
orally must provide to the consumer a written or electronic copy of the 
code or confirmation promptly, and the applicable disclosures must be 
provided on the written copy of the code or confirmation. The final 
rule further clarifies the treatment of non-physical certificates and 
cards by adding comment 20(c)(4)-1. The comment clarifies that if no 
physical certificate or card is issued, the disclosures required by 
Sec.  205.20(c)(4) must be disclosed on the code, confirmation, or 
other written or electronic document provided to the consumer. For 
example, where a gift certificate or card is a code or confirmation 
that is provided to a consumer on-line or sent to a consumer's e-mail 
address, the required disclosures may be provided electronically on the 
same document as the code or confirmation.
    Some industry commenters also suggested that the Board exclude any 
non-plastic cards, codes, or devices from the requirement to provide 
disclosures on the certificate or card. These commenters believed that 
disclosure on such devices, such as contactless stickers that can be 
placed on objects such as mobile phones, would be impossible and that 
the Board should instead permit the disclosures to be made on the 
packaging. Other industry commenters believed that the required 
disclosures could not fit on certain small form devices, such as 
plastic cards that are smaller than the standard gift card.
    The Board believes that consumers of gift certificates, store gift 
cards or general-use prepaid cards should be given the protections 
provided under the Act, regardless of the form of the certificate or 
card. The Board agrees that certain devices may be issued in a form 
that is not conducive to providing fully compliant disclosures. 
Therefore, in the final rule, the Board has added comment 20(c)(4)-2 to 
clarify that a person may issue or sell a supplemental gift card that 
is smaller than a standard size and that does not bear the applicable 
disclosures if it is accompanied by a fully compliant certificate or 
card.
20(d) Prohibition on Imposition of Fees or Charges
    Section 205.20(d) implements the statute's restrictions on imposing 
dormancy, inactivity, or service fees. See EFTA Sections 915(b)(1), 
(b)(2), and (b)(3); 15 U.S.C. 1693m(b)(1), (2), and (3). Proposed Sec.  
205.20(d) generally followed the statutory language with non-
substantive wording and organizational changes, and is adopted as 
proposed.
    Proposed Sec.  205.20(d) prohibited the imposition of a dormancy, 
inactivity, or service fee with respect to a gift certificate, store 
gift card or general-use prepaid card unless: (a) There has been no 
activity for the one-year period ending on the day the charge is 
imposed; (b) certain disclosure requirements have been met; and (c) 
only one such fee is charged in any given calendar month. Regarding 
disclosures, proposed Sec.  205.20(d) provided that before a dormancy, 
inactivity, or service fee may be imposed, a certificate or card must 
clearly and conspicuously disclose: (a) That a dormancy, inactivity, or 
service fee may be charged; (b) the amount of the fee; (c) how often 
such fee or charge may be assessed; and (d) that such fee or charge may 
be assessed for inactivity.
    Most commenters did not object to the text of proposed Sec.  
205.20(d). A few industry commenters suggested, however, that the 
restriction in Sec.  205.20(d)(3) should apply to one type of fee per 
month. These commenters argued that this interpretation would be 
consistent with the legislative history of the Credit Card Act and 
certain state laws. The Board disagrees. The statute specifically 
provides that ``not more than one [dormancy, inactivity, or service] 
fee may be charged in any given month.'' See EFTA Section 915(b)(2)(C); 
15 U.S.C. 1693m(b)(2)(C). The Board believes that the better reading of 
this statutory provision is that only one fee may be charged in a given 
month and not that only one of each type of fee may be charged in a 
given month.
    Some industry commenters recommended that the Board provide 
alternatives for disclosing service fees on a gift certificate, store 
gift card, or general-use prepaid card under Sec.  205.20(d)(2). For 
example, one industry commenter suggested that the Board permit 
disclosure of a range of all fees that could be imposed, rather than 
listing the amounts for each fee. However, the Board believes that 
permitting such alternative disclosures would not be consistent with 
the statute and would not provide clear disclosures to consumers. 
Accordingly, Sec.  205.20(d) is adopted as proposed.\30\
---------------------------------------------------------------------------

    \30\ As discussed in the November 2009 Proposed Rule, the Board 
did not propose to separately implement the statutory exclusion from 
the dormancy, inactivity, or service fee restrictions for gift 
certificates distributed pursuant to an award, loyalty, or 
promotional program and with respect to which there is no money or 
other value exchanged. See EFTA Section 915(b)(4). The Board 
believes this exclusion is effectively implemented through the 
definition of ``gift certificate'' in Sec.  205.20(a)(1)(i) and the 
exclusion in Sec.  205.20(b)(3) for loyalty, award, or promotional 
gift cards.
---------------------------------------------------------------------------

    The Board proposed several comments to clarify the provisions in 
Sec.  205.20(d). Proposed comment 20(d)-1 provided examples of how to 
determine when a dormancy, inactivity, or service fee may be imposed. 
The Board did not receive any comments on proposed comment 20(d)-1, and 
the comment is adopted largely as proposed, with minor clarifying 
amendments. The Board has also eliminated the proposed example 
concerning the determination of a one-year period when a fee is charged 
on February 29 of a leap year. The Board believes the other examples 
are sufficient to provide guidance to issuers.
    Proposed comment 20(d)-2 elaborated on the meaning of ``activity'' 
for purposes of proposed Sec.  205.20(d)(1). For organizational 
purposes, the Board has moved the substance of this comment to Sec.  
205.20(a)(7) and comment 20(a)(7)-1, discussed above. Consequently, the 
Board is renumbering proposed comments 20(d)-3 through 20(d)-5.
    Proposed comment 20(d)-3 clarified the interaction between the 
disclosure requirements of proposed Sec. Sec.  205.20(d)(2) and (c)(3). 
Specifically, the proposed comment provided that depending on the 
context, a single disclosure regarding dormancy, inactivity, or service 
fees that meets the clear and conspicuous requirement may satisfy both 
the requirement in Sec.  205.20(d)(2) that the disclosures be provided 
on the certificate or card and the requirement in Sec.  205.20(c)(3) 
that the disclosures be provided prior to purchase. For example, if the 
disclosures on a certificate or card, required by Sec.  205.20(d)(2), 
are visible to the consumer without having to remove packaging or other 
materials sold with the certificate or card for a purchase made in 
person, the disclosures would also meet the requirements of Sec.  
205.20(c)(3). If, however, the disclosure would not meet the 
requirements of both Sec. Sec.  205.20(d)(2) and (c)(3), proposed 
comment 20(d)-3 stated that a dormancy, inactivity, or service fee may 
need to be disclosed multiple times to satisfy the requirements of 
proposed Sec. Sec.  205.20(d)(2) and (c)(3). For example, if the 
disclosures on a certificate or card, required by Sec.  205.20(d)(2), 
are obstructed by packaging sold with the certificate or card for a 
purchase made in person, they would also be required to be disclosed on 
the packaging sold with the certificate or card to meet the 
requirements of Sec.  205.20(c)(3).

[[Page 16603]]

    The city government entity commenter asserted that disclosures on a 
certificate or card that are visible to the consumer prior to purchase 
should not be deemed disclosed prior to purchase, because disclosures 
on a card may be smaller than disclosures displayed on signage or 
packaging. The Board continues to believe that so long as disclosures 
on a certificate or card are clear and conspicuous, the requirement to 
make disclosures prior to purchase is satisfied if the disclosures are 
visible to the consumer. Therefore, proposed comment 20(d)-3, 
renumbered as comment 20(d)-2 in the final rule, is adopted 
substantively as proposed, with minor revisions for clarity.
    Proposed comment 20(d)-4 clarified that in addition to the 
disclosures required under Sec.  205.20(d)(2), any applicable 
disclosures under Sec. Sec.  205.20(e)(3) and (f)(2) of this section 
must also be provided on the certificate or card. As discussed above, 
the Board believes that it is appropriate to require fee disclosures on 
the certificate or card itself, in addition to other applicable 
disclosures. Proposed comment 20(d)-4, renumbered as comment 20(d)-3 in 
the final rule, is therefore adopted as proposed.
    Proposed comment 20(d)-5 clarified the prohibition in Sec.  
205.20(d)(3) against charging more than one dormancy, inactivity, or 
service fee in any given calendar month, with examples. The Board did 
not receive comment on proposed comment 20(d)-5, which is adopted as 
comment 20(d)-4 in the final rule with minor clarifying amendments.
    Finally, the Board is adding a new comment 20(d)-5 to clarify that 
Sec.  205.20(d) prohibits any person from accumulating or combining 
dormancy, inactivity, or service fees for previous periods into a 
single fee because such a practice would circumvent the limitation in 
Sec.  205.20(d)(3) that only one fee may be charged per month. 
Specifically, this comment provides that an issuer may not 
retroactively impose fees on a consumer for prior months through a 
single fee assessed following a one-year period of inactivity. See, 
e.g., U.S. Federal Trade Commission Complaint, In the Matter of Kmart 
Corporation, et al., Docket No. C-4197. (Aug. 14, 2007). Comment 20(d)-
5 contains an example to illustrate this prohibition.
20(e) Prohibition on Sale of Gift Certificates or Cards With Expiration 
Dates
    EFTA Section 915(c) prohibits the sale of a gift certificate, store 
gift card, or general-use prepaid card subject to an expiration date 
unless: (a) the expiration date is not earlier than five years after 
the date on which a gift certificate was issued, or the date on which 
card funds were last loaded to a store gift card or general-use prepaid 
card; and (b) the terms of expiration are clearly and conspicuously 
stated. See 15 U.S.C. 1693m(c). The Board proposed Sec.  205.20(e) to 
implement EFTA Section 915(c).
Application of EFTA Section 915(c) to Funds Expiration
    As the Board discussed in the November 2009 Proposed Rule, EFTA 
Section 915(c) does not specify whether the restrictions apply to the 
expiration of the certificate or card itself or the underlying funds. 
See 15 U.S.C. 1693m(c). Proposed Sec.  205.20(e)(2) would have required 
that the expiration date of the underlying funds be at least the later 
of: (a) Five years from the date the gift certificate was issued, or 
the date on which funds were last loaded to a store gift card or 
general-use prepaid card; or (b) the certificate or card expiration 
date.
    Both consumer group and industry commenters agreed that the Board 
should apply the protections of EFTA Section 915(c) to the underlying 
funds. One industry commenter noted that if a certificate or card were 
replaced because the certificate or card had expired but the underlying 
funds were still valid, the funds should not be required to be valid 
from the date the replacement certificate or card is issued. Instead, 
the commenter believed that the five years should be measured from the 
date the certificate was first issued or the card was last loaded. The 
Board believes that this commenter's observation is consistent with the 
statute.
    Accordingly, the Board is amending Sec.  205.20(e)(2) with respect 
to gift certificates to state that the expiration date of the 
underlying funds must be at least the later of: (a) Five years from the 
date the gift certificate was initially issued, or (b) the certificate 
expiration date. In addition, with respect to store gift cards and 
general-use prepaid cards, the Board is adding a new comment 20(e)-2 in 
part to clarify that for purposes of determining the minimum expiration 
date under Sec.  205.20(e)(2), funds are not considered to be loaded to 
a store gift card or general-use prepaid card solely because a 
replacement card has been issued or activated for use. As a result, 
issuers are not required to restart the five-year period in Sec.  
205.20(e)(2) when a replacement card is issued or activated.
Certificate or Card Expiration
    Consumers may be confused about expiration dates because the 
expiration date for the certificate or card will differ from the 
expiration date for the underlying funds for many general-use prepaid 
cards, and perhaps some gift certificates and store gift cards. The 
Board proposed two alternative approaches in Sec.  205.20(e)(1) to 
address potential consumer confusion about the certificate or card 
expiration date and the funds expiration date.
    Under proposed Alternative A, a person could not sell a gift 
certificate, store gift card, or general-use prepaid card subject to an 
expiration date unless the certificate or card expiration date is at 
least five years after the date the certificate or card is sold or 
issued to a consumer. Under proposed Alternative B, persons that issue 
or sell a certificate or card would be required to adopt policies and 
procedures to ensure that a consumer will have a reasonable opportunity 
to purchase a certificate or card with at least five years remaining 
until the certificate or card expiration date. The Board solicited 
comment on whether it should consider adopting Alternative B for a 
transitional period and adopt Alternative A as of a subsequent date in 
order to provide more time to implement Alternative A.
    Commenters were divided on whether the Board should adopt 
Alternative A or Alternative B. Consumer group commenters and some 
industry commenters recommended that the Board adopt Alternative A 
because it is a precise and straightforward rule with less risk of 
misinterpretation or misapplication than Alternative B. Some of these 
commenters further suggested that if Alternative A were adopted, the 
need for disclosures to distinguish the certificate or card expiration 
date from the funds expiration date would no longer be necessary.
    Several industry commenters supported Alternative B either as a 
transitional rule or as a permanent solution. Other industry commenters 
suggested that Alternative B should be provided as an option in 
addition to Alternative A. Commenters that generally favored 
Alternative B believed that Alternative B would provide for greater 
flexibility. In addition, several issuers commented that because the 
ability to comply with Alternative A relies almost exclusively on the 
sellers' ability to prevent the sale of a certificate or card that has 
less than five years remaining on the certificate or card expiration 
date, issuers may not have any control over these procedures.

[[Page 16604]]

Furthermore, commenters noted that the costs of implementing a more 
precise rule under Alternative A may not be warranted given that the 
vast majority of certificate and card users fully expend the underlying 
funds within a few years.
    The Board believes that given the various entities involved in 
distributing a gift certificate, store gift card, or general-use 
prepaid card for sale and the operational challenges associated with 
implementing Alternative A, flexibility is warranted with respect to 
making certificates and cards available for sale with expiration dates 
that are closely aligned with, but not necessarily identical to, the 
funds expiration date. Therefore, the Board is adopting Alternative B 
of Sec.  205.20(e)(1) substantively as proposed, with minor wording 
changes. However, persons that follow Alternative A are deemed to have 
adopted policies and procedures consistent with Alternative B. See 
comment 20(e)-1.i.
    In adopting Alternative B, the Board recognizes that not all 
sellers, issuers, and distributors may be in a position to implement 
Alternative A without considerable costs and systems changes. For 
example, Alternative A may require programming and perhaps hardware 
changes at point-of-sale, to prevent a certificate or card from being 
sold with less than five years remaining before the certificate or card 
expiration date. Furthermore, the Board understands that a significant 
number of consumers spend down the funds underlying gift certificates, 
store gift cards, and general-use prepaid cards within a few years. 
Therefore, the Board believes that Alternative A is not necessary to 
ensure that the vast majority of certificate or cards will not be 
prematurely discarded while funds still remain valid. For the small 
number of consumers who retain certificates or cards that expire before 
their funds, the Board believes the other requirements in Sec.  
205.20(e) will be sufficient to ensure these consumers have the benefit 
of the funds for the minimum time the statute requires.
    Proposed comment 20(e)-1 under Alternative B set forth both 
positive and negative examples of providing consumers a reasonable 
opportunity to purchase a certificate or card with at least five years 
remaining until the certificate or card expiration date. The Board did 
not receive any significant comment on these examples. However, the 
Board is amending comment 20(e)-1 for clarity by eliminating the 
examples and by specifying two ways in which the reasonable opportunity 
standard may be met. Specifically, comment 20(e)-1 provides that 
consumers are deemed to have a reasonable opportunity to purchase a 
certificate or card with at least five years remaining until the 
certificate or card expiration date if the certificate or card is 
available for purchase by a consumer with at least five years and six 
months before the certificate or card expiration date. Furthermore, as 
discussed above, the Board believes that compliance with Alternative A 
is a means of complying with Alternative B. Therefore, comment 20(e)-1 
states that consumers are deemed to have a reasonable opportunity to 
purchase a certificate or card with at least five years remaining until 
the certificate or card expiration date if there are policies and 
procedures in place to prevent the sale of a certificate or card unless 
the certificate or card expiration date is at least five years after 
the date the certificate or card was sold or issued to a consumer.
    Although Alternative B may adequately address potential consumer 
confusion regarding expiration dates with respect to non-reloadable 
cards, such protections may not be sufficient for reloadable cards 
where the funds expiration date changes each time the card is reloaded. 
The Board is addressing this issue by requiring certain disclosures 
related to the expiration of the underlying funds, as discussed more 
fully below in the supplementary information to Sec.  205.20(e)(3). 
However, the Board requested comment on whether it should require 
issuers to automatically issue a replacement card to consumers prior to 
the card expiration date of a reloadable card if the underlying funds 
will not expire until after the card expiration date.
    Several industry commenters opposed such a requirement, noting that 
since the rule is intended to cover gift cards, the person that 
purchases the card often is not the person ultimately using the card. 
Therefore, it may not be practical for issuers or sellers of reloadable 
cards to collect the name and address of the ultimate user at point of 
sale because the purchaser may not be in a position to provide this 
information. Furthermore, commenters stated that if a consumer does not 
notify the gift card issuer of a change in address, the issuer may not 
have a reliable current address to which it could send a replacement 
card. Given these operational complexities, the final rule does not 
require issuers to automatically replace expired reloadable cards.
    Finally, the Board is adopting new comment 20(e)-2, in part, to 
incorporate a suggestion from an industry commenter regarding 
replacement certificates or cards, which are generally subject to all 
provisions in Sec.  205.20, including disclosure requirements. This 
comment explains that because Sec.  205.20(e)(1) requires issuers and 
sellers to have reasonable policies and procedures in place to provide 
a reasonable opportunity for a consumer to purchase a certificate or 
card with at least five years before the certificate or card expiration 
date, the provision does not apply to the issuance of a replacement 
certificate or card. Replacement certificates or cards may therefore 
have shorter expiration dates. If the certificate or card expiration 
date for a replacement certificate or card is later than the date set 
forth in Sec.  205.20(e)(2)(i), then pursuant to Sec.  205.20(e)(2), 
the expiration date for the underlying funds at the time the 
replacement certificate or card is issued must be no earlier than the 
expiration date for the replacement certificate or card.
    For example, if a consumer purchases a non-reloadable general-use 
prepaid card with five years before the card expires and seven years 
before the underlying funds expire, the replacement card may have a 
card expiration date that is less than five years to correspond to the 
expiration date of the underlying funds. However, if the replacement 
card expiration date is later than the original seven-year expiration 
date of the underlying funds, the underlying funds expiration date must 
at a minimum match the replacement card expiration date.
Disclosures Related to Certificate or Card Expiration and Funds 
Expiration
    Proposed Sec.  205.20(e)(3) provided that three disclosures were 
required to be stated on the certificate or card, as applicable. First, 
proposed Sec.  205.20(e)(3)(i) provided that the disclosures must state 
the expiration date for the underlying funds or, if the underlying 
funds do not expire, that fact. In some instances, the exact expiration 
date of the underlying funds may not be able to be determined. For 
example, in the case of reloadable cards, the funds expiration date is 
determined by the date the consumer last loaded funds onto the card. As 
a result, the funds expiration date adjusts each time the consumer 
reloads the card. For example, if a consumer purchases a reloadable 
card on January 15, 2012, the funds may expire on or after January 15, 
2017. However, if a consumer loads more funds onto the card on July 15, 
2014, the funds may not expire until on or after July 15, 2019. To 
accommodate this circumstance, proposed comment 20(e)-2 under 
Alternative B clarified that Sec.  205.20(e) does not require 
disclosure of the precise date the funds

[[Page 16605]]

will expire. Under the proposed comment, it would be sufficient to 
disclose, for example, ``Funds expire 5 years from the date funds last 
loaded to the card.''; ``Funds can be used 5 years from the date money 
was last added to the card.''; or ``Funds do not expire.''
    The Board continues to believe that a consumer should be informed 
when the funds on a certificate or card expire. Therefore, Sec.  
205.20(e)(3)(i) is adopted as proposed, and proposed comment 20(e)-2 
under Alternative B is adopted as comment 20(e)-3 in the final rule.
    Proposed comment 20(e)-3 under Alternative B clarified that if the 
certificate or card and the underlying funds do not expire, that fact 
need not be disclosed. The Board explained in the proposal that 
disclosing the fact that the underlying funds do not expire was not 
necessary in these situations because there is no risk of consumers 
confusing the expiration date of the certificate or card with that of 
the underlying funds.
    The Board did not receive comments on the proposed comment. 
However, upon further analysis, the Board has added one further 
clarification to the comment to provide that if the certificate or card 
and the underlying funds expire at the same time, only one expiration 
date must be disclosed on the certificate or card. Because there is no 
risk that consumers would confuse the expiration date of the 
certificate or card with the expiration date of the underlying funds 
when those two dates are the same, distinguishing between the funds 
expiration date and the expiration date of the certificate or card is 
not necessary. Therefore, proposed comment 20(e)-3 under Alternative B 
is adopted as comment 20(e)-4, with the additional clarification.
    Second, proposed Sec.  205.20(e)(3)(ii) provided that the 
disclosures must include a toll-free telephone number and, if one is 
maintained, a Web site that a consumer may use to obtain a replacement 
certificate or card after the certificate or card expires, if the 
underlying funds may still be available. The Board believed that 
requiring maintenance of a toll-free telephone number for purposes of 
obtaining a replacement card would be appropriate because, as discussed 
above, a certificate or card expiration date may be earlier than the 
funds expiration date.\31\ Although the proposed rule did not similarly 
require maintenance of a Web site for such purposes, if one is 
maintained, that Web site would also have to be disclosed under Sec.  
205.20(e)(3)(ii). By requiring contact information to be on the 
certificate or card itself, the Board believed that consumers would be 
able to obtain a replacement certificate or card more easily if the 
certificate or card expires before the underlying funds.
---------------------------------------------------------------------------

    \31\ As discussed below under Sec.  205.20(f), the requirement 
that the telephone number be toll-free recognizes that the end user 
of a certificate or card may not reside in the area where the 
certificate or card was initially purchased.
---------------------------------------------------------------------------

    Commenters did not object to the proposed paragraph. Thus, Sec.  
205.20(e)(3)(ii) is adopted as proposed, pursuant to the Board's 
authority under EFTA Section 904.
    Proposed comment 20(e)-4 under Alternative B clarified that if a 
certificate or card does not expire, or if the underlying funds are not 
available after the certificate or card expires, a toll-free telephone 
number and, if maintained, a Web site address would not need to be 
stated on the certificate or card. However, a toll-free telephone 
number and a Web site would still be required to be disclosed if the 
certificate or card has fees. See proposed Sec.  205.20(f)(2). Proposed 
comment 20(e)-5 under Alternative B clarified that the same toll-free 
telephone number and Web site could be used to comply with the 
requirements of proposed Sec. Sec.  205.20(e)(3)(ii) and (f)(2).\32\ In 
addition, proposed comment 20(e)-5 provided that neither a toll-free 
number nor a Web site must be maintained or disclosed on a certificate 
or card if no fees are imposed in connection with the certificate or 
card, and the certificate or card and underlying funds do not expire. 
The Board received no comments on the proposed comments 20(e)-4 and 
20(e)-5 under Alternative B, which are adopted as comments 20(e)-5 and 
20(e)-6, respectively, in the final rule.
---------------------------------------------------------------------------

    \32\ The toll-free telephone number and Web site may also be the 
same toll-free telephone number and Web site provided for customer 
service issues or questions relating to the certificate or card.
---------------------------------------------------------------------------

    Finally, proposed Sec.  205.20(e)(3)(iii) would have required, if 
applicable, a statement that the certificate or card expires, but the 
underlying funds either do not expire or expire later than the 
certificate or card, and that the consumer may contact the issuer for a 
replacement card. This requirement was designed to alert consumers to 
any difference between the certificate or card expiration date and the 
funds expiration date so that they would not mistakenly believe the 
funds were no longer available if the certificate or card expired 
during the minimum five-year period set forth in the statute.
    Proposed Sec.  205.20(e)(3)(iii) also provided that the statement 
must be disclosed with equal prominence and in close proximity to the 
certificate or card expiration date. Typically, the expiration date for 
a certificate or card is printed on the certificate or card in a 
prominent location and type size. Thus, the Board was concerned that 
the prominence of the expiration date on the certificate or card, 
without any additional disclosures, could lead consumers to assume that 
once the certificate or card itself expires, the underlying funds would 
be unavailable.
    Proposed comment 20(e)-6 under Alternative B clarified the meaning 
of close proximity in this context. Under the proposed rule, close 
proximity meant that the disclosure must appear on the same side as the 
certificate or card expiration date so that consumers would not 
automatically assume funds are not available after the certificate or 
card expiration date. The proposed comment also clarified in an example 
that if the disclosure is the same type size and is located immediately 
next to or directly above or below the certificate or card expiration 
date, without any intervening text or graphical displays, the 
disclosures would be deemed to be equally prominent and in close 
proximity. Under the proposal, the disclosure did not need to be 
embossed on the certificate or card to be deemed equally prominent, 
even if the expiration date was embossed on the certificate or card. 
The Board believed these format standards would sufficiently ensure 
that most consumers could determine whether an expiration date for a 
certificate or card is different from the funds expiration date.
    One consumer group commenter agreed that consumers should be made 
aware of the distinction between the funds expiration date and the 
certificate or card expiration date, even if the Board adopted 
Alternative A and required that a certificate or card must not expire 
prior to five years from the date it was sold or issued to a consumer. 
This commenter noted that consumers still needed to be made aware of 
the discrepancy in instances, for example, where the funds expiration 
date changes when a consumer reloads a card. The city government entity 
commenter believed that the Board should prohibit certificates or cards 
from expiring before the funds, so that only one expiration date would 
be provided.
    Many industry commenters believed that requiring the disclosures 
under proposed Sec.  205.20(e)(3)(iii) would be burdensome. These 
commenters asserted that even the Board's proposed short disclosures 
would take up too much space on the front of the card, where expiration 
dates are typically printed. They believed that the

[[Page 16606]]

disclosures would have to be in a small font size to fit with equal 
prominence and in close proximity to the expiration date. Industry 
commenters thus urged the Board to eliminate the prominence and 
proximity requirement and to permit the disclosures to be made on the 
back of the card or with materials that accompany the card. Some 
industry commenters stated that changing the ``Valid thru'' verbiage on 
the front of the card to read ``Expiration date'' would sufficiently 
alert consumers the distinction between the funds expiration date and 
the date that the certificate or card expires. Other industry 
commenters stated that the requirement was unnecessary for most 
consumers of certificates or cards because most consumers use the 
entire balance of a gift card long before the funds expire.
    The Board continues to believe that the prominence and proximity 
requirements are appropriate and necessary for the disclosures required 
under proposed Sec.  205.20(e)(3)(iii). The disclosures are intended 
not only to inform consumers of their rights, but also to reduce 
potential consumer confusion that may occur if an expiration date for a 
certificate or card differs from the funds expiration date. The Board 
believes disclosures regarding the expiration of the funds require more 
specific format requirements than other disclosures that are required 
to be on the certificate or card, because they must counteract the 
disclosure of the certificate or card expiration date that a consumer 
may mistake for a funds expiration date. If the disclosure is in close 
proximity to the card expiration date, the consumer may be more likely 
to notice it and seek additional information regarding how the consumer 
could continue to use the card after the card expiration date. 
Moreover, the Board does not believe that the subtle changes to 
verbiage suggested by some commenters is sufficient for consumers to 
distinguish between the funds expiration date and the expiration date 
of the certificate or card.
    For the foregoing reasons, the general format requirements are 
retained in the final rule, pursuant to the Board's authority under 
EFTA Section 904. Proposed comment 20(e)-6 is adopted substantially as 
proposed in comment 20(e)-7. Comment 20(e)-7 in the final rule 
clarifies, however, that the close proximity requirement does not apply 
to oral disclosures. See Sec.  205.20(c)(3).
    Proposed comment 20(e)-6 under Alternative B provided examples 
regarding how a disclosure may inform a consumer of the distinction 
between the certificate or card expiration and the funds expiration 
under proposed Sec.  205.20(e)(3)(iii). Under the proposed comment, the 
disclosure could state on the front of the card, for example, ``Valid 
thru 09/2016. Call for new card.''; ``Active thru 09/2016. Call for 
replacement card.''; or ``Call for new card after 09/2016.'' The Board 
believed these disclosures, in conjunction with other disclosures 
required to be on the card, such as a toll-free number that a consumer 
could call for a replacement card, would provide sufficient information 
to inform consumers that they may be able to continue using their funds 
after the certificate or card itself has expired.
    The Board received no comments regarding the proposed sample 
disclosures, other than general concerns regarding how the disclosures 
would fit on the card if required to be made with equal prominence and 
in close proximity to the certificate or card expiration date. Upon 
further analysis, the Board has determined that some of the proposed 
sample disclosures may not sufficiently alert consumers to the 
distinction between the funds expiration date and the certificate or 
card expiration date. Therefore, in the final rule, comment 20(e)-7 has 
been revised to provide different sample disclosure language that more 
explicitly alerts consumers to the reason that they should contact the 
issuer for a new card. The disclosure may state, for example, ``Funds 
expire after card. Call for replacement card.'' or ``Funds do not 
expire. Call for new card after 09/2016.''
    Comment 20(e)-7 also clarifies that disclosures made pursuant to 
Sec.  205.20(e)(3)(iii)(A) may also fulfill the requirements of Sec.  
205.20(e)(3)(i). For example, making a disclosure that ``Funds do not 
expire.'' to comply with Sec.  205.20(e)(3)(iii) would also fulfill the 
requirements of Sec.  205.20(e)(3)(i).
    The Board recognizes that the amount of space available for 
disclosures near the certificate or card expiration date is limited. 
The Board also understands that some disclosures could be difficult to 
provide clearly and conspicuously, if the disclosures are required to 
be in close proximity to the certificate or card expiration date. To 
address this concern, Sec.  205.20(e)(3)(iii) has been revised to 
provide relief from these disclosures for a non-reloadable certificate 
or card that bears an expiration date that is at least seven years from 
the date of manufacture. The Board believes that the seven-year safe 
harbor for the disclosures under Sec.  205.20(e)(3)(iii) for non-
reloadable certificates and cards will provide the vast majority of 
consumers ample time to use the funds available on the certificate or 
card, thus making the disclosures under Sec.  205.20(e)(3)(iii) 
unnecessary. For purposes of this safe harbor, new comment 20(e)-8 
states that the date of manufacture is the date on which the 
certificate or card expiration date is printed on the certificate or 
card.
    Notwithstanding this safe harbor provision with respect to the 
disclosures in Sec.  205.20(e)(3)(iii), Sec.  205.20(e)(1) would still 
prohibit the sale or issuance of such certificate or card unless there 
are policies and procedures in place to provide consumers with a 
reasonable opportunity to purchase the certificate or card with at 
least five years remaining until the certificate or card expiration 
date. In addition, under Sec.  205.20(e)(2), the funds may not expire 
before the certificate or card expiration date, even if the expiration 
date of the certificate or card bears an expiration date that is more 
than five years at the date of purchase. See comment 20(e)-8.
    In the event that a certificate or card bearing an expiration date 
of seven years or more at the time the certificate or card was 
manufactured is purchased with a certificate or card expiration date 
with less than five years remaining, the consumer would still have 
access to the funds for at least five years from the date of purchase, 
and the certificate or card would state the disclosures required under 
Sec.  205.20(e)(3)(i) and (ii) alerting the consumer to the funds 
expiration date and contact information for obtaining a replacement 
card. Nonetheless, the Board expects that, based on its understanding 
of current industry practice, most consumers will purchase certificates 
or cards with more than five years remaining before the certificate or 
card expires.
    Finally, the Board noted in proposed comment 20(e)-7 under 
Alternative B that proposed Sec. Sec.  205.20(d)(2), (e)(3), and (f)(2) 
(as discussed below) would require certain disclosures to be made on 
the certificate or card itself, as applicable. The proposed comment 
thus clarified that in addition to any disclosures required under Sec.  
205.20(e)(3), any applicable disclosures under Sec. Sec.  205.20(d)(2) 
and (f)(2) of this section must also be provided on the certificate or 
card. The Board received no comments on the proposed comment, which is 
adopted as comment 20(e)-9 in the final rule.
Other Protections and Clarifications
    In the November 2009 Proposed Rule, the Board proposed Sec.  
205.20(e)(4) to prohibit the imposition of fees to replace an expired 
certificate or card if the funds loaded on the certificate or card have 
not expired. Proposed

[[Page 16607]]

Sec.  205.20(e)(4), however, contained an exception for certificates or 
cards that have been lost or stolen. Proposed comment 20(e)-8 under 
Alternative B clarified that although a fee would be permitted to be 
charged to replace a lost or stolen certificate or card under proposed 
Sec.  205.20(e)(4), the rule did not create a substantive requirement 
that issuers replace a lost or stolen certificate or card.
    Several commenters supported the Board's proposal to prohibit fees 
to replace an expired certificate or card if the underlying funds have 
not expired. Some industry commenters, however, opposed the Board's 
proposal, noting that the Credit Card Act did not specifically provide 
for this right. The Board believes that EFTA Section 904(c) provides 
the Board with the authority to enact regulations to carry out the 
purposes of the statutory protections. See 15 U.S.C. 1693b(c). Proposed 
Sec.  205.20(e)(4) was meant to ensure that consumers would have full 
use of the funds loaded on a certificate or card for the minimum five-
year period set forth in the statute by providing consumers with a 
cost-free means to access funds if a certificate or card expired before 
the underlying funds. The Board continues to believe this provision is 
integral to effectuating the protections afforded by the statute.
    Consumer group commenters also suggested that the Board provide 
consumers with the right to one cost-free replacement for a lost or 
stolen certificate or card. Imposing a fee restriction for the 
replacement of a lost or stolen certificate or card goes beyond the 
protections afforded by the statute, and is not related to the 
expiration date of the card or certificate. Furthermore, the Board 
recognizes that there are costs to issuing a replacement certificate or 
card. Therefore, the final rule does not prohibit issuers from charging 
fees to replace a lost or stolen certificate or card.
    Other industry commenters suggested that if a certificate or card 
expires but the underlying funds have not yet expired, an issuer should 
be permitted to return the balance of funds to the consumer instead of 
providing a replacement certificate or card. If the remaining amount on 
a certificate or card is small or if there is little time remaining 
before the expiration of the funds, an issuer may find it more cost-
effective to return the balance of funds to the consumer, for example, 
by check, rather than issuing another certificate or card. Furthermore, 
certain state laws require an issuer to return the balance of funds to 
a consumer upon the occurrence of a triggering event with a certain 
remaining amount.
    The Board notes that neither the statute nor the regulation 
specifically requires that a replacement certificate or card be issued. 
Therefore, issuers may, at their option in accordance with applicable 
state law, return the balance of funds to a consumer instead of issuing 
a replacement for an expired certificate or card. However, the Board 
believes that just as a fee may not be charged for replacing the 
certificate or card, similarly, no fee may be charged for refunding the 
balance of the funds. Consequently, the Board is amending Sec.  
205.20(e)(4) to provide that no fee may be charged for providing a 
certificate or card holder with the remaining balance prior to the 
funds expiration date, unless such certificate or card has been lost or 
stolen. A new comment 20(e)-10 is adopted to clarify this point. In 
addition, proposed comment 20(e)-8 under Alternative B is adopted in 
final as comment 20(e)-11.
    Proposed comment 20(e)-9 under Alternative B clarified that a 
certificate or card is not considered to be issued or loaded with funds 
until it has been activated for use. As explained in the November 2009 
Proposed Rule, issuers often produce gift cards for display on retail 
shelves and racks or for mailing to consumers, but, for security 
reasons, these cards cannot be used until the card has been activated 
by a retail employee or by telephone. The proposed comment was meant to 
clarify that although a certificate or card may have been produced, it 
is not considered to have been ``issued'' or to have had funds 
``loaded'' for purposes of Sec.  205.20(e) until that card has been 
activated for use. The Board did not receive comment on this issue. 
Therefore, proposed comment 20(e)-9 under Alternative B has been 
adopted in final, with one minor clarifying amendment, as comment 
20(e)-12.
    Finally, some industry commenters asked the Board to clarify how 
the expiration date restrictions may apply to certain gift cards that 
are redeemable for songs, media, or virtual goods.\33\ The Board 
understands that for these types of cards, it is a common practice that 
once a consumer redeems the card, the full value is debited from the 
card and credited to another ``account'' \34\ that is used specifically 
to buy such goods or services, even if the consumer does not purchase 
the goods or services at that time. The Board concludes that once a 
certificate or card has been fully redeemed, the five-year minimum 
expiration term no longer applies to the underlying funds. New comment 
20(e)-13 sets forth this clarification. In addition, the comment 
provides that if the consumer only partially redeems the value of a 
certificate or card, the five-year minimum expiration term requirement 
continues to apply to the funds remaining on the certificate or card.
---------------------------------------------------------------------------

    \33\ Virtual goods are intangible digital items that can be 
purchased for use in on-line communities or on-line games. See 
Claire Cain Miller & Brad Stone, ``Virtual Goods Start Bringing Real 
Paydays,'' New York Times, November 7, 2009, at A1.
    \34\ An ``account'' established by a merchant to purchase 
virtual goods would not be an account for purposes of Regulation E.
---------------------------------------------------------------------------

20(f) Additional Disclosure Requirements for Gift Certificates or Cards
    EFTA Section 905(a)(4) and Sec.  205.7(b)(5) of Regulation E 
require the disclosure of any fees imposed by a financial institution 
for electronic fund transfers or for the right to make such transfers. 
See 15 U.S.C. 1693c(a)(4). The Board has the authority under EFTA 
Section 915(d)(2) to apply the requirements of Regulation E to gift 
cards, store gift cards, and general-use prepaid cards. See 15 U.S.C. 
1693m(d)(2). Using this authority, the Board proposed Sec.  205.20(f) 
to require additional fee-related disclosures for gift certificates, 
store gift cards, and general-use prepaid cards.
20(f)(1) Fee Disclosures
    Proposed Sec.  205.20(f)(1) would have required certain disclosures 
to be provided on or with the certificate or card for each type of fee 
(other than dormancy, inactivity, or service fees) that may be imposed 
in connection with a gift certificate, store gift card, or general-use 
prepaid card. Specifically, the type of fee, the amount of the fee (or 
an explanation of how the fee will be determined), and the conditions 
under which the fee may be imposed would be required to be disclosed 
under the proposal. The proposed provision did not apply to dormancy, 
inactivity, and service fees because those fees were required to be 
disclosed under proposed Sec.  205.20(d)(2). Therefore, proposed Sec.  
205.20(f)(1) would have required the disclosure of fees such as a one-
time initial issuance fee and cash-out fee. The proposal permitted 
these fee disclosures to be provided either on or with the certificate 
or card in light of the limited space availability on a certificate or 
card and other disclosure requirements. In addition, the Board proposed 
to require the disclosure of these fees prior to purchase, as discussed 
above in the supplementary information to Sec.  205.20(c)(3).

[[Page 16608]]

    Commenters generally agreed that any fees that may be imposed 
should be disclosed to consumers. Industry commenters agreed that the 
fee disclosures under Sec.  205.20(f)(1) should be permitted to be 
provided along with, rather than on, a certificate or card due to the 
limited amount of space on certificates and cards. Accordingly, Sec.  
205.20(f)(1) is adopted as proposed.
20(f)(2) Telephone Number for Fee Information
    The Board also proposed Sec.  205.20(f)(2) to require the clear and 
conspicuous disclosure of a toll-free telephone number and, if one is 
maintained, a Web site, for consumers to obtain information about fees. 
This disclosure had to be provided on a gift certificate, store gift 
card, or general-use prepaid card. Proposed Sec.  205.20(f)(2) also 
required maintenance of a toll-free telephone number to provide 
information on the fees required to be disclosed under proposed 
Sec. Sec.  205.20(d)(2) and (f)(1). The proposed rule did not require 
that a Web site be maintained for such purposes. However, if a Web site 
that provides information about fees is already maintained, proposed 
Sec.  205.20(f)(2) would have required that the Web site must also be 
disclosed.
    Given the limited space on a certificate or card, the Board 
anticipated that issuers would opt to disclose some fee information on 
materials accompanying the certificate or card, as opposed to on the 
certificate or card itself. In such cases, the disclosures accompanying 
the certificate or card could become separated from the actual 
certificate or card. By requiring the reference to the toll-free 
telephone number and, if one is maintained, the Web site, on the 
certificate or card, the Board sought to ensure that consumers would 
have an easy and cost-free means of obtaining fee information related 
to the certificate or card, even if the consumer no longer has the 
original disclosure.
    One consumer group commenter agreed that a telephone number where 
consumers could obtain fee and other information should be available to 
consumers. This commenter believed that information should not be 
provided solely through a Web site because some consumers may not have 
access to the Internet.
    Pursuant to the Board's authority under EFTA Sections 915(c)(2) and 
915(d)(1)(A) and EFTA Section 904, Sec.  205.20(f)(2) is adopted 
substantially as proposed. The Board believes it is appropriate to 
require maintenance of a toll-free telephone number, because it will 
provide consumers with a means to access important information about 
the certificate or card at no cost no matter where in the United States 
the consumer may use the certificate or card. Moreover, the Board 
understands that many issuers already maintain toll-free telephone 
numbers and Web sites for consumers to contact for further information 
and often provide this information directly on the certificates or 
cards they issue. As a result, the requirement should not impose 
additional burdens on many issuers.
    The proposal contained several comments to clarify proposed Sec.  
205.20(f). The Board received no comments on the proposed comments to 
Sec.  205.20(f), each of which is adopted substantially as proposed.
    Comment 20(f)-1 clarifies that if a certificate or card does not 
have any fees, the Sec.  205.20(f)(2) disclosure is not required on the 
certificate or card. However, a telephone number and a Web site may 
still have to be disclosed pursuant to Sec.  205.20(e)(3)(ii) if funds 
underlying a certificate or card may be available after the certificate 
or card expires.
    Comment 20(f)-2 clarifies that the same toll-free number and Web 
site may be used to fulfill the requirements of Sec. Sec.  
205.20(e)(3)(ii) and (f)(2).\35\ The comment also clarifies that 
neither a toll-free number nor a Web site must be maintained or 
disclosed if no fees are imposed in connection with a certificate or 
card, and the certificate or card and underlying funds do not expire.
---------------------------------------------------------------------------

    \35\ The toll-free telephone number and Web site may also be the 
same toll-free telephone number and Web site provided for customer 
service issues or questions relating to the certificate or card.
---------------------------------------------------------------------------

    Sections 205.20(d)(2), (e)(3), and (f)(2) require certain 
disclosures to be provided on the certificate or card itself, as 
applicable. Comment 20(f)-3 clarifies that in addition to any 
disclosures required pursuant to Sec.  205.20(f)(2), any applicable 
disclosures under Sec. Sec.  205.20(d)(2) and (e)(3) of this section 
must be provided on the certificate or card.
20(g) Compliance Dates
    As discussed above, the Credit Card Act provides that the final 
rules implementing the statutory gift card provisions must become 
effective August 22, 2010. Section 205.20(g) has been added to the 
final rule to address transition issues associated with implementing 
the rule by the August 22, 2010 effective date.
    The Board solicited comment on the potential costs that would be 
incurred if issuers and other persons subject to the rule were required 
to remove and replace card stock, including cards that have already 
been placed into store inventory, to ensure that all products sold on 
or after August 22, 2010 fully comply with the new requirements. The 
Board also solicited comment on whether it should consider rules to 
provide relief for gift certificates, store gift cards, and general-use 
prepaid cards in distribution as of August 22, 2010 from some or all of 
the new requirements. For example, the final rule could require all 
such certificates or cards to comply with the substantive restrictions 
on imposing dormancy, inactivity, or service fees, and expiration 
dates, but otherwise permit such certificates or cards to be sold even 
if they do not contain the required disclosures. Finally, the Board 
solicited comment on an appropriate transition period after which all 
certificates or cards must fully comply with the new rules.
    Industry commenters urged the Board to grandfather all physical 
cards already in the marketplace and in distribution, including cards 
that are sold on-line or via telephone, for a certain period of time, 
ranging from 180 days to 24 months. In particular, industry commenters 
noted that the short implementation period between the issuance of 
final rules and the statutory compliance date of August 22, 2010 would 
leave insufficient time for the industry to review the new rule 
requirements; design, produce, and merchandise new stock; and remove 
and replace old stock. In addition, industry commenters observed that 
the final rule could require the possible manufacture and installation 
of new displays and signage, each of which would require additional 
time.
    Several industry commenters also questioned whether there would be 
adequate industry resources available either to produce sufficient 
compliant cards or to replace non-compliant cards prior to the 
effective date. As a result, some issuers and retailers may not have 
their orders filled in an amount sufficient to meet consumer demand, 
which could significantly reduce sales, especially if stock could not 
be replaced by the holiday season when the bulk of sales occur.
    Some industry commenters estimated that replacing all card stock in 
inventory could cost an estimated $20 to $50 million per card issuer 
and/or distributor, including the costs of destroying existing card 
stock. One issuer of promotional and reward cards stated that it 
typically holds several million customized cards in inventory at any 
given point in time for

[[Page 16609]]

promotional programs that may run a year or longer, and thus estimated 
that it would cost several hundred thousands of dollars to destroy 
current card inventory and order replacement inventory. Industry 
commenters further noted the adverse environmental impact from 
destroying large quantities of plastic card stock, which are only 
rarely made from recyclable or biodegradable materials.
    In the interim, industry commenters noted that consumers would 
remain adequately protected if the Board required card issuers to 
comply with the substantive fee and expiration date restrictions in the 
Credit Card Act, and to provide adequate signage, displays, and/or 
customer service messaging apprising consumers of their new rights. In 
contrast, one state attorney general commenter urged the Board to 
prohibit the sale of ``grandfathered'' gift certificates and cards that 
do not contain the prescribed disclosures after the effective date of 
the Credit Card Act.
    Industry commenters also urged the Board to confirm that Sec.  
205.20 does not apply to gift certificates and gift cards purchased by 
consumers prior to August 22, 2010 to avoid retroactive application of 
the rule. Industry commenters further noted that card issuers were 
unlikely to have contact information of consumers who have either 
purchased or received the cards, and therefore would be unable to 
provide those consumers with new disclosures.
    Under Section 403 of the Credit Card Act, the gift card provisions 
must become effective 15 months after the date of enactment, or by 
August 22, 2010. Accordingly, the Board believes that the purpose and 
intent of these new provisions would be most effectively carried out by 
requiring full compliance with the final rule, including each of the 
substantive and disclosure requirements, by August 22, 2010. In this 
regard, the Board believes that there could be significant consumer 
confusion if gift cards sold after August 22, 2010 carried disclosures 
that were inconsistent with the substantive protections afforded by the 
Credit Card Act. In particular, consumers relying on a card expiration 
date that is shorter than five years from the date of issuance may 
elect to discard an expired gift card notwithstanding the fact that the 
underlying funds may remain valid after card expiration, and thus be 
denied the protections under the Credit Card Act.
    Some industry commenters asserted that consumers could be apprised 
of their new rights through signage at the point of sale, or through 
communications via an issuer's toll-free telephone number or Web site, 
thereby mitigating any adverse effect from inconsistent card 
disclosures. However, the Board believes that such measures would not 
by themselves provide adequate protection. In the first instance, 
signage at the point-of-sale would be ineffective for the vast majority 
of gift card recipients as they would not be the consumers initially 
purchasing the cards. With respect to other proposed methods of 
communication, a consumer that had no reason to call the telephone 
number or visit the Web site would not receive the necessary 
disclosures. For example, a recipient may receive a card with an 
expiration date printed on it which may no longer apply after the 
effective date of the rule, and then dispose of the expired card 
without first calling the telephone number on the card.
    Accordingly, new Sec.  205.20(g)(1) provides that Sec.  205.20 
applies to any gift certificate, store gift card, or general-use 
prepaid card sold to a consumer on or after August 22, 2010, or 
provided to the consumer as a replacement for such certificate or card. 
However, the final rule does not apply the new requirements, including 
the restrictions on imposing dormancy, inactivity, or service fees and 
on expiration dates, or the disclosure requirements set forth in the 
Credit Card Act or the regulation, to certificates or cards sold or 
provided to a consumer prior to that date.
    Section 205.20(g)(2) sets forth a transition rule for loyalty, 
award, and promotional gift cards, which are otherwise only subject to 
the disclosure requirements under Sec.  205.20. Specifically, the final 
rule does not apply to any gift cards provided to a consumer through a 
loyalty, award, or promotional program where the period of eligibility 
for the program began prior to August 22, 2010. For these cards, the 
same concerns regarding the inconsistency of disclosures and 
substantive practices do not apply. Gift cards issued through a 
loyalty, award, or promotional program that begins on or after August 
22, 2010 must comply with the disclosure requirements in Sec.  
205.20(a)(4)(iii) in order to qualify for the exclusion in Sec.  
205.20(b)(3). New comment 20(g)-1 provides additional guidance 
regarding the period of eligibility for a loyalty, award, or 
promotional program.
Additional Issues
Authority To Adopt Additional EFTA Protections
    EFTA Section 915(d)(2) gives the Board the authority to determine 
the extent to which the individual definitions and provisions of the 
EFTA or Regulation E should apply to general-use prepaid cards, gift 
certificates, and store gift cards. See 15 U.S.C. 1693m(d)(2). In the 
November 2009 Proposed Rule, the Board proposed to exercise this 
authority to require the disclosure of any fees that may apply, and the 
conditions under which such fee may be imposed. See, e.g., proposed 
Sec.  205.20(f). However, the Board did not otherwise seek to apply any 
other provisions in the EFTA or Regulation E to gift certificates, 
store gift cards, or general-use prepaid cards. For example, the Board 
did not propose to apply the periodic statement disclosures or error 
resolution obligations under the EFTA or Regulation E to gift 
certificates, store gift cards, or general-use prepaid cards.
    Industry commenters agreed that broader application of Regulation E 
requirements to gift certificates, store gift cards, and general-use 
prepaid cards was not appropriate, because it would lead to 
inconsistent treatment of the gift certificates or cards addressed by 
this rule and other prepaid card products, such as general-purpose 
reloadable cards that are used as account substitutes. One industry 
commenter observed that applying periodic statement requirements to 
non-reloadable gift cards, for example, would be problematic because 
such cards are typically issued anonymously and therefore customer 
information would generally not be available for providing statements.
    Consumer groups, however, urged the Board to exercise the authority 
provided by EFTA Section 915(d)(1) to clarify that Regulation E covers 
general-use prepaid cards that consumers may use as a substitute for 
traditional bank accounts. See 15 U.S.C. 1693m(d)(1). While many of 
these cards currently carry voluntary protections that resemble 
Regulation E protections, consumer groups observed that such voluntary 
provisions could be rescinded at any time, unlike regulatory and 
statutory requirements such as those provided for debit cards under the 
EFTA and Regulation E. In particular, consumer groups believed that 
general-use prepaid cardholders should have the same protections 
against unauthorized transactions and be able to recover missing funds 
due to lost or stolen cards.
    As stated in the proposal, the Board believes that it is more 
appropriate to make any determination whether to impose periodic 
statement requirements, error resolution obligations, and other 
protections set forth in the EFTA and Regulation E with respect to 
prepaid cards in the context of a separate rulemaking to avoid any 
regulatory gaps or inconsistencies. For

[[Page 16610]]

example, a requirement to impose some form of periodic statement or 
error resolution obligations for reloadable gift cards could lead to 
inconsistent treatment if similar requirements were not simultaneously 
adopted for general-purpose reloadable cards, which may serve as 
substitutes for accounts subject to the EFTA and Regulation E.
    The Credit Card Act also granted the Board authority to limit the 
amount of dormancy, inactivity, or service fees, or the balance below 
which such fees or charges may be assessed. See EFTA Section 915(d)(1); 
15 U.S.C. 1693m(d)(1). The Board did not propose to exercise this 
authority in light of downward trends in the amount of dormancy and 
inactivity fees in connection with retail gift cards over time.\36\
---------------------------------------------------------------------------

    \36\ For example, the most recent survey by one government 
agency indicates the median inactivity fee has decreased from $1.73 
per month in 2003 to $1.38 per month in 2007. See Montgomery County 
Office of Consumer Protection, Gift Card Reports, 2003-2007 
(available at: http://www.montgomerycountymd.gov/ocptmpl.asp?url=/content/ocp/consumer/a-zgiftcardreports.asp).
---------------------------------------------------------------------------

    Consumer groups urged the Board to use its authority in order to 
restrict the size of dormancy, inactivity, and service fees to only 
cover the costs to maintain a gift card or gift certificate so as to 
ensure cards do not lose their entire value within a short period of 
time once the one-year inactivity period has run. Consumer groups also 
stated that the Board should limit the size and amount of other one-
time fees, such as issuance and cash-out fees, to ensure that such fees 
are reasonable and proportional to a gift card's value. Finally, 
consumer groups believed the Board should establish a balance above 
which fees could not be assessed on gift cards and gift certificates so 
that consumers would not be penalized and lose most of their gift 
card's remaining value. Industry commenters supported the Board's 
decision not to impose any dollar caps on fees, or to establish a 
balance above which fees could not be assessed, in connection with gift 
certificates, store gift cards, and general-use prepaid cards.
    The Board continues to believe that the need for additional 
restrictions on fees is not clear in light of the general downward 
trend in dormancy and inactivity fees for gift cards and gift 
certificates.\37\ In addition, the statute only permits one such fee 
per month if there has been no activity over the preceding 12-month 
period, which may put downward pressure on the amount of fees assessed 
in connection with gift cards. The Board will continue to monitor the 
development of the gift card market as it adjusts to the new rules and 
could take action to impose other restrictions on dormancy, inactivity, 
or service fees at a later time, if appropriate.
---------------------------------------------------------------------------

    \37\ One major issuer of network-branded gift cards recently 
announced plans to eliminate monthly fees altogether. See Andrew 
Martin, ``American Express to End Monthly Fees on Gift Cards,'' New 
York Times, Oct. 1, 2009, at B2.
---------------------------------------------------------------------------

Preemption
    Several industry commenters urged the Board to clarify whether the 
new protections regarding funds expiration dates supersede state laws 
requiring the escheat of funds underlying gift cards and gift 
certificates. For example, certain state laws require issuers of unused 
gift cards to remit the remaining funds to the state where the 
cardholder resides or where the issuer is incorporated after a certain 
period of time--typically three to five years after the card is sold or 
last used. Industry commenters expressed concern that state escheat 
requirements could mean that in some states, issuers would be required 
to remit funds to the state after three years, while still remaining 
obligated to honor the funds under the gift card rules for up to two 
additional years, consistent with the requirement that funds remain 
valid for five years from the date of issuance or last load. Some 
commenters acknowledged that if a consumer used a certificate or card 
after the issuer had remitted funds to the state, but prior to the 
funds' expiration date, issuers could recover from the state the funds 
that already had been remitted. However, the commenters argued that 
this process was administratively burdensome and costly for the issuer. 
Thus, industry commenters asserted that the Board should preempt such 
state escheat laws for inconsistency with the final rule requirements 
to avoid putting card providers in a position where they would be 
unable to comply with both the final rule and state escheat laws.
    Under the revised preemption provisions in Sec.  205.12, discussed 
above, the Board may determine whether a state law relating to, among 
other things, expiration dates of gift certificates, store gift cards, 
or general-use prepaid cards is preempted by a provision of the 
regulation. However, a provision can only preempt a state law that is 
inconsistent with the provision and only to the extent of its 
inconsistency. Moreover, the regulation provides that a state law is 
not inconsistent with any provision if it is more protective of 
consumers.
    State escheat laws vary significantly. For example, the number of 
years that may elapse before an issuer must remit funds to the state 
differs among the states. Moreover, some state laws do not require an 
issuer of gift certificates or gift cards to remit remaining funds to 
the state in certain circumstances. Some states may also provide a 
process through which an issuer may recover funds previously escheated 
to the state in the event the issuer subsequently honors a consumer's 
claim to funds. As such, the Board believes it is not feasible or 
prudent to make a preemption determination that applies generally to 
all states.
    Upon request for a preemption determination with respect to a 
particular state's escheat law, the Board would apply the standards set 
forth in Sec.  205.12(b)(2) to determine whether such a law is 
inconsistent with Sec.  205.20. The Board's analysis would be published 
for notice and comment, and, if the Board determines the state law is 
preempted, the final determination would be published in the commentary 
to Sec.  205.12.

VII. Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
generally requires an agency to perform an assessment of the impact a 
rule is expected to have on small entities.
    However, under section 605(b) of the RFA, the regulatory 
flexibility analysis otherwise required under section 604 of the RFA is 
not required if an agency certifies, along with a statement providing 
the factual basis for such certification, that the rule will not have a 
significant economic impact on a substantial number of small entities. 
Based on its analysis and for the reasons stated below, the Board 
believes that this final rule is not likely to have a significant 
economic impact on a substantial number of small entities.
    1. Statement of the need for, and objectives of, the rule. The EFTA 
was enacted to provide a basic framework establishing the rights, 
liabilities, and responsibilities of participants in electronic fund 
transfer systems. The primary objective of the EFTA is the provision of 
individual consumer rights. 15 U.S.C. 1693. The EFTA authorizes the 
Board to prescribe regulations to carry out the purpose and provisions 
of the statute. 15 U.S.C. 1693b(a). The Act expressly states that the 
Board's regulations may contain ``such classifications, 
differentiations, or other provisions, * * * as, in the judgment of the 
Board, are necessary or proper to effectuate the purposes of [the Act], 
to prevent circumvention or evasion [of the Act], or to facilitate 
compliance [with the Act].'' 15 U.S.C. 1693b(c).

[[Page 16611]]

    The Board is adopting revisions to Regulation E to implement Title 
IV of the Credit Card Act, which generally restricts a person's ability 
to impose a dormancy, inactivity, or service fee with respect to a gift 
certificate, store gift card, or general-use prepaid card. Title IV 
also generally provides that a gift certificate, store gift card, or 
general-use prepaid card may not be sold or issued unless the 
expiration date is no less than five years from the date a gift 
certificate is issued or five years from the date funds were last 
loaded to a store gift card or general-use prepaid card.
    In addition, the final rule requires the disclosure of all other 
fees imposed in connection with a gift certificate, store gift card, or 
general-use prepaid card. The certificate or card must also disclose a 
toll-free telephone number and, if one is maintained, a Web site that a 
consumer may access to obtain fee information or replacement 
certificates or cards.
    The Board believes that the revisions to Regulation E discussed 
above are consistent with the Act, as amended by Title IV of the Credit 
Card Act, and within Congress's broad grant of authority to the Board 
to adopt provisions that carry out the purposes of the statute.
    2. Small entities affected by the final rule. The number of small 
entities affected by this proposal is unknown. Under the final rule, a 
person is prohibited from imposing a dormancy, inactivity, or service 
fee with respect to a gift certificate, store gift card, or general-use 
prepaid card, unless three conditions are satisfied. First, a dormancy, 
inactivity, or service fee may be imposed only if there has been no 
activity with respect to the certificate or card within the one-year 
period prior to the imposition of the fee. Second, only one such fee 
may be assessed in a given calendar month. Third, disclosures regarding 
dormancy, inactivity, or service fees must be clearly and conspicuously 
stated on the certificate or card, and the issuer or seller must 
provide these disclosures to the purchaser before the certificate or 
card is purchased. The final rule is limited in scope to certificates 
or cards sold or issued to consumers primarily for personal, family, or 
household purposes.
    The final rule also provides that a gift certificate, store gift 
card, or general-use prepaid card may not be sold or issued, unless the 
expiration date of the funds underlying the certificate or card is no 
less than five years after the date of issuance (in the case of a gift 
certificate) or five years after the date of last load of funds (in the 
case of a store gift card or general-use prepaid card). In addition, 
information about whether funds underlying a certificate or card may 
expire must be clearly and conspicuously disclosed both on the 
certificate or card and prior to purchase.
    Under the final rule, persons subject to the rule are required to 
maintain policies or procedures to provide consumers with a reasonable 
opportunity to purchase a certificate or card with an expiration date 
that is at least five years from the date of purchase. The final rule 
also prohibits the imposition of any fees for replacing an expired 
certificate or card to ensure that consumers are able to access the 
underlying funds for the full five-year period.
    In addition to the statutory fee restrictions described above, the 
final rule requires the disclosure of all other fees imposed in 
connection with a gift certificate, store gift card, or general-use 
prepaid card. These disclosures must be provided prior to purchase and 
on or with the certificate or card. The final rule also requires the 
disclosure on the certificate or card of a toll-free telephone number 
and, if one is maintained, a Web site that a consumer may access to 
obtain fee information or replacement certificates or cards.
    For loyalty, award, or promotional gift cards, the final rule 
requires three disclosures on the card, as applicable: (1) A statement 
indicating that the certificate or card is issued for loyalty, award, 
or promotional purposes; (2) the expiration date of the underlying 
funds; and (3) a toll-free telephone number and, if one is maintained, 
a Web site that a consumer may access to obtain fee information. Fees 
imposed in connection with a loyalty, award, or promotional card must 
be disclosed on or with the card. A loyalty, award, or promotional gift 
card is not, however, subject to the substantive restrictions on 
imposing dormancy, inactivity, or service fees, or on expiration dates.
    Overall, to comply with the final rule, all persons involved in 
issuing, distributing or selling gift cards and certificates (or 
loyalty, award, or promotional gift cards) may need to review and 
potentially revise disclosures that appear on or with the certificates 
or cards. In addition, issuers, sellers, and distributors of gift 
certificates, store gift cards, and general-use prepaid cards may have 
to review and potentially revise their inventory distribution and 
management policies and controls in order to provide consumers with a 
reasonable opportunity to purchase certificates or cards with an 
expiration date with at least than five years from the date of 
purchase.
    The Small Business Administration (SBA) has defined a small 
business as one whose average annual receipts do not exceed $7 million 
or who have fewer than 500 employees.\38\ The Board expects that well 
over 90% of all businesses qualify as small businesses under the SBA's 
standards.\39\ Consequently, a very large number of small entities 
could be subject to the final rules to the extent that they issue or 
sell gift certificates, store gift cards, or general-use prepaid cards. 
The Board is unaware, however, of any industry data regarding the 
number of merchants that issue gift certificates or gift cards.
---------------------------------------------------------------------------

    \38\ See SBA, Summary of Size Standards by Industry (available 
at: http://www.sba.gov/contractingopportunities/officials/size/summaryofssi/index.html).
    \39\ See Small Business Administration, Office of the Advocacy, 
Frequently Asked Questions (available at: http://web.sba.gov/faqs/faqindex.cfm?areaID=24); Employer Firms, & Employment by Employment 
Size of Firm by NAICS Codes, 2006 (available at: http://www.sba.gov/advo/research/us06_n6.pdf).
---------------------------------------------------------------------------

    Nonetheless, the final requirements apply only to the extent that a 
certificate or card program imposes dormancy, inactivity, or service 
fees or establishes an expiration date with respect to the underlying 
funds. In this regard, the Board understands that the vast majority of 
gift certificates and store gift cards issued by merchants or retailers 
today do not carry such fees or expiration dates.\40\ Moreover, smaller 
merchants are more likely to issue gift certificates in paper form 
only, and such certificates are not covered by the final rule. See 
Sec.  205.20(b)(5). Thus, the Board believes the final rule would not 
impact a significant number of merchants that issue store gift cards or 
gift certificates. Similarly, the Board believes the final rule also 
would not significantly impact the entities that distribute or sell 
such cards or certificates on behalf of merchants. Moreover, the Board 
understands that given their size, such entities are unlikely to be 
``small businesses'' as defined by the SBA.
---------------------------------------------------------------------------

    \40\ See Montgomery County Office of Consumer Protection, Gift 
Cards 2007 (available at: http://www.montgomerycountymd.gov/ocptmpl.asp?url=/content/ocp/consumer/a-zgiftcardreports.asp) 
(reporting that 18 of 22 retail gift cards surveyed do not carry any 
fees or expiration dates). See also Retail Gift Card Association, 
Code of Principles (available at: http://www.thergca.org/uploads/Code_of_Principles_PDF.pdf) (recommending as a best practice for 
retail gift card programs that no fees or expiration dates should 
apply).
---------------------------------------------------------------------------

    In addition, the final rule potentially covers issuers of general-
use prepaid cards, primarily financial institutions, card program 
managers that issue or distribute general-use prepaid cards, and 
distributors or retailers of such

[[Page 16612]]

cards. General-use prepaid cards may be more likely to carry dormancy, 
inactivity, or service fees and expiration dates compared to gift 
certificates and store gift cards. Consequently, entities that issue, 
distribute or sell general-use prepaid cards will be more likely to be 
impacted by the final rule.
    In the proposed regulatory flexibility analysis, the Board stated 
that the proposal would be unlikely to impact a substantial number of 
small entities with respect to the issuance or sale of general-use 
prepaid cards. In response, one industry trade association commenter 
representing convenience stores observed that many of its constituents, 
comprised of small, independent convenience stores, sold a variety of 
prepaid products, including store gift cards and general-purpose 
reloadable cards. Thus, because such retailers would have to adopt new 
controls to ensure that general-purpose reloadable cards are not 
marketed as a gift card or gift certificate, this commenter asserted 
the rule could have a significant impact on small businesses overall.
    As an initial matter, the Board notes that cards that would 
otherwise be considered general-use prepaid cards may in many cases be 
exempt from the statute and proposed rule if they are reloadable and 
not marketed or labeled as a gift card or gift certificate. In 
addition, as discussed above, open-loop cards, which include general-
use prepaid cards, make up a relatively small portion of the total 
prepaid card market in terms of the number of cards issued and the 
dollar value of the amounts loaded.
    To the extent that a retailer may sell covered gift cards alongside 
general-purpose reloadable cards, the rule may require new signage or 
reorganization of product displays to avoid the marketing of the 
general-purpose reloadable cards as a gift card. Nonetheless, the Board 
understands that in many cases, a merchandiser working on behalf of a 
distributor of prepaid cards, rather than the retailer itself, may set 
up the prepaid card display, thereby mitigating the retailer's 
compliance burden. The Board has also provided additional examples in 
the final rule to illustrate how excluded cards, including general-
purpose reloadable cards, may be sold alongside gift certificates or 
cards covered by the rule to further facilitate compliance.
    For these reasons, although the Board is not aware of any data 
regarding entities that issue or otherwise sell general-use prepaid 
cards, the Board believes that, overall, the rule is not likely to have 
a significant impact on a substantial number of small entities with 
respect to the issuance or sale of general-use prepaid cards.
    3. Other federal rules. The Board has not identified any federal 
rules that duplicate, overlap, or conflict with the revisions to 
Regulation E.

VIII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the 
final rule under the authority delegated to the Board by the Office of 
Management and Budget (OMB). The collection of information that is 
subject to the PRA by this final rule is found in 12 CFR part 205. The 
Federal Reserve may not conduct or sponsor, and an organization is not 
required to respond to, this information collection unless the 
information collection displays a currently valid OMB control number. 
The OMB control number is 7100-0200.
    This information collection is required to provide benefits for 
consumers and is mandatory. See 15 U.S.C. 1693 et seq. Since the Board 
does not collect any information, no issue of confidentiality arises. 
The respondents/recordkeepers are for-profit financial institutions, 
including small businesses. Institutions are required to retain records 
for 24 months, but this regulation does not specify types of records 
that must be retained.
    Title IV of the Credit Card Act prohibits any person from imposing 
a dormancy, inactivity, or service fee with respect to a gift 
certificate, store gift card, or general-use prepaid card, unless three 
conditions are satisfied. First, such fees may be imposed only if there 
has been no activity with respect to the certificate or card within the 
one-year period prior to the imposition of the fee or charge. Second, 
only one such fee may be assessed in a given month. Third, disclosures 
regarding dormancy, inactivity, or service fees must be clearly and 
conspicuously stated on the certificate or card, and the issuer or 
vendor must provide these disclosures before the certificate or card is 
purchased.
    The Credit Card Act also provides that a gift certificate, store 
gift card, or general-use prepaid card may not be sold or issued unless 
the expiration date is no less than five years after the date of 
issuance (in the case of a gift certificate) or five years after the 
date of last load of funds (in the case of a store gift card or 
general-use prepaid card). In addition, the statute requires that the 
terms of expiration must be clearly and conspicuously stated on the 
certificate or card.
    Any entities involved in the issuance, distribution, or sale of 
gift certificates, store gift cards, or general-use prepaid cards (or 
the issuance or distribution of loyalty, award, or promotional gift 
cards) potentially are affected by this collection of information 
because these entities will be required to provide disclosures 
regarding the fees imposed in connection with these certificates or 
cards and when the funds underlying a certificate or card expire. Under 
the final rule, gift certificates, store gift cards, and general-use 
prepaid cards must state certain disclosures about dormancy, 
inactivity, or service fees; expiration dates; and a telephone number 
and Web site, if one is maintained, for additional information. 
Disclosures about other fees must be provided on or with the 
certificate or card. In addition, disclosures about fees and expiration 
dates must be provided to the consumer prior to purchase. Consumers 
receiving loyalty, award, and promotional gift cards also must be given 
disclosures regarding applicable fees and expiration dates.
    Entities subject to the final rule will have to review and revise 
disclosures that are currently provided on or with a certificate or 
card to ensure that they accurately state any fees and expiration dates 
that may apply.
    The total estimated burden increase, as well as the estimates of 
the burden increase associated with each major section of the final 
rule as set forth below, represents averages for all respondents 
regulated by the Federal Reserve. The Federal Reserve expects that the 
amount of time required to implement each of the proposed changes for a 
given institution may vary based on the size and complexity of the 
respondent. Furthermore, the burden estimate for this rulemaking 
includes the burden addressing overdrafts to Regulation E, as announced 
in a separate final November 2009 final rulemaking (Docket No. R-1343).
    As discussed above, on November 20, 2009, a notice of proposed 
rulemaking was published in the Federal Register (74 FR 60986). The 
comment period for this notice expired on December 21, 2009. No 
comments specifically addressing the paperwork burden estimates were 
received. One comment referenced PRA; however the Federal Reserve 
believes the points raised were related to regulatory burden (beyond 
the scope of PRA). The estimates therefore will remain unchanged as 
published in the proposed rule.
    Section 205.20(b)(2) implements the exclusion for cards, codes, or 
other devices that are reloadable and not marketed or labeled as a gift 
card or gift

[[Page 16613]]

certificate. As noted in comment 20(b)(2)-4, institutions will qualify 
for this exclusion so long as they establish and maintain policies and 
procedures reasonably designed to avoid the marketing of a prepaid card 
not otherwise subject to the rule, such as a general-purpose reloadable 
card, as a gift card or gift certificate. The Federal Reserve estimates 
that the 1,205 respondents regulated by the Federal Reserve will take, 
on average, 40 hours (one-business week) to review and implement 
written policies and procedures and provide training associated with 
Sec.  205.20(b)(2). The Federal Reserve estimates the annual one-time 
burden for respondents to be 48,200 hours and believes that, on a 
continuing basis, respondents will take an average of 8 hours annually 
to maintain their policies and procedures.
    Under Sec.  205.20(e)(1), institutions involved in issuing and 
selling certificates or cards are required to adopt policies and 
procedures to provide consumers with a reasonable opportunity to 
purchase a certificate or card with at least five years remaining until 
the certificate or card expiration date. The Federal Reserve estimates 
that the 1,205 respondents regulated by the Federal Reserve will take, 
on average, 40 hours (one-business week) to implement or modify written 
policies and procedures and provide training associated with Sec.  
205.20(e)(1). The Federal Reserve estimates the annual one-time burden 
for respondents to be 48,200 hours and believes that, on a continuing 
basis, respondents would take an average of 8 hours annually to 
maintain their policies and procedures.
    Under Sec.  205.20(e)(3), three disclosures must be stated on the 
certificate or card, as applicable: (1) The terms of expiration of the 
underlying funds or, if the underlying funds do not expire, that fact; 
(2) a toll-free telephone number and, if one is maintained, a Web site 
that a consumer may use to obtain a replacement certificate or card 
after the certificate or card expires, if the underlying funds may be 
available; (3) a statement that the certificate or card expires, but 
the underlying funds either do not expire or expire later than the 
certificate or card, and that the consumer may contact the issuer for a 
replacement card.
    For loyalty, award, or promotional gift cards, Sec.  
205.20(a)(4)(iii) requires three disclosures on the certificate or 
card, as applicable: (1) A statement indicating that the certificate or 
card is issued for loyalty, award, or promotional purposes; (2) the 
expiration date of the underlying funds; and (3) a toll-free telephone 
number and, if one is maintained, a Web site that a consumer may use to 
obtain fee information.
    The Federal Reserve estimates that the 1,205 respondents regulated 
by the Federal Reserve will take, on average, 80 hours (two-business 
weeks) to update their systems to revise disclosures and redesign 
certificates or cards to comply with the proposed disclosure 
requirements in Sec.  205.20(e)(3). The Federal Reserve estimates the 
annual one-time burden for respondents to be 96,400 hours and believes 
that, on a continuing basis, there would be no additional increase in 
burden.
    The number of respondents regulated by the Federal Reserve that 
sell or issue certificates or cards subject to the final rule is 
unknown. Accordingly, for purposes of this final Paperwork Reduction 
Act analysis, it is assumed that all of the respondents regulated by 
the Federal Reserve will be impacted by the new rule. The Federal 
Reserve estimates the final rule will impose a one-time increase in the 
annual burden under Regulation E for all respondents regulated by the 
Federal Reserve by 192,800 hours, from 526,520 to 719,320 hours. In 
addition, the Federal Reserve estimates that, on a continuing basis, 
the proposed requirements would increase the annual burden by 19,280 
hours from 526,520 to 545,800 hours. The total annual burden would 
increase by 212,080 hours, from 526,520 to 738,600 hours.
    The other federal financial agencies are responsible for estimating 
and reporting to OMB the total paperwork burden for the institutions 
for which they have administrative enforcement authority. They may, but 
are not required to, use the Federal Reserve's burden estimation 
methodology. Using the Federal Reserve's method, the current total 
estimated annual burden for all persons subject to Regulation E, 
including Federal Reserve-supervised institutions would be 
approximately 1,403,459 hours. The above estimates represent an average 
across all respondents and reflect variations between persons based on 
their size, complexity, and practices. All covered persons, including 
depository institutions (of which there are approximately 17,200), 
potentially are affected by this collection of information, and thus 
are respondents for purposes of the PRA. The final rule imposes a one-
time increase in the estimated annual burden for such institutions by 
2,752,000 hours. On a continuing basis the rule will increase in the 
estimated annual burden for such institutions by 275,200 hours. The 
total annual burden for the respondents regulated by the Federal 
financial agencies is estimated to be 4,430,659 hours.
    The Federal Reserve has a continuing interest in the public's 
opinions of our collections of information. At any time, comments 
regarding the burden estimate, or any other aspect of this collection 
of information, including suggestions for reducing the burden, may be 
sent to: Secretary, Board of Governors of the Federal Reserve System, 
Washington, DC 20551; and to the Office of Management and Budget, 
Paperwork Reduction Project (7100-0200), Washington, DC 20503.

List of Subjects in 12 CFR Part 205

    Consumer protection, Electronic fund transfers, Federal Reserve 
System, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Board amends 12 CFR part 
205 and the Official Staff Commentary, as follows:

PART 205--ELECTRONIC FUND TRANSFERS (REGULATION E)

0
1. The authority citation for part 205 continues to read as follows:

    Authority:  15 U.S.C. 1693b.


0
2. Section 205.3(a) is revised to read as follows:


Sec.  205.3  Coverage.

    (a) General. This part applies to any electronic fund transfer that 
authorizes a financial institution to debit or credit a consumer's 
account. Generally, this part applies to financial institutions. For 
purposes of Sec. Sec.  205.3(b)(2) and (b)(3), 205.10(b), (d), and (e), 
205.13, and 205.20, this part applies to any person.
* * * * *

0
3. Section 205.4(a)(1) is revised to read as follows:


Sec.  205.4  General disclosure requirements; jointly offered services.

    (a)(1) Form of disclosures. Disclosures required under this part 
shall be clear and readily understandable, in writing, and in a form 
the consumer may keep, except as otherwise provided in this part. The 
disclosures required by this part may be provided to the consumer in 
electronic form, subject to compliance with the consumer-consent and 
other applicable provisions of the Electronic Signatures in Global and 
National Commerce Act (E-Sign Act) (15 U.S.C. 7001 et seq.). A 
financial institution may use commonly accepted or readily 
understandable abbreviations in complying with the disclosure 
requirements of this part.
* * * * *

[[Page 16614]]


0
4. Section 205.12(b)(1) is revised to read as follows:


Sec.  205.12  Relation to other laws.

* * * * *
    (b) Preemption of inconsistent state laws.--(1) Inconsistent 
requirements. The Board shall determine, upon its own motion or upon 
the request of a state, financial institution, or other interested 
party, whether the act and this part preempt state law relating to 
electronic fund transfers, or dormancy, inactivity, or service fees, or 
expiration dates in the case of gift certificates, store gift cards, or 
general-use prepaid cards.
* * * * *

0
5. Section 205.20 is added as follows:


Sec.  205.20  Requirements for gift cards and gift certificates.

    (a) Definitions. For purposes of this section, except as excluded 
under paragraph (b), the following definitions apply:
    (1) Gift certificate means a card, code, or other device that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount that may not be 
increased or reloaded in exchange for payment; and
    (ii) Redeemable upon presentation at a single merchant or an 
affiliated group of merchants for goods or services.
    (2) Store gift card means a card, code, or other device that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (ii) Redeemable upon presentation at a single merchant or an 
affiliated group of merchants for goods or services.
    (3) General-use prepaid card means a card, code, or other device 
that is:
    (i) Issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in a specified amount, whether or not 
that amount may be increased or reloaded, in exchange for payment; and
    (ii) Redeemable upon presentation at multiple, unaffiliated 
merchants for goods or services, or usable at automated teller 
machines.
    (4) Loyalty, award, or promotional gift card means a card, code, or 
other device that:
    (i) Is issued on a prepaid basis primarily for personal, family, or 
household purposes to a consumer in connection with a loyalty, award, 
or promotional program;
    (ii) Is redeemable upon presentation at one or more merchants for 
goods or services, or usable at automated teller machines; and
    (iii) Sets forth the following disclosures, as applicable:
    (A) A statement indicating that the card, code, or other device is 
issued for loyalty, award, or promotional purposes, which must be 
included on the front of the card, code, or other device;
    (B) The expiration date for the underlying funds, which must be 
included on the front of the card, code, or other device;
    (C) The amount of any fees that may be imposed in connection with 
the card, code, or other device, and the conditions under which they 
may be imposed, which must be provided on or with the card, code, or 
other device; and
    (D) A toll-free telephone number and, if one is maintained, a Web 
site, that a consumer may use to obtain fee information, which must be 
included on the card, code, or other device.
    (5) Dormancy or inactivity fee. The terms ``dormancy fee'' and 
``inactivity fee'' mean a fee for non-use of or inactivity on a gift 
certificate, store gift card, or general-use prepaid card.
    (6) Service fee. The term ``service fee'' means a periodic fee for 
holding or use of a gift certificate, store gift card, or general-use 
prepaid card. A periodic fee includes any fee that may be imposed on a 
gift certificate, store gift card, or general-use prepaid card from 
time to time for holding or using the certificate or card.
    (7) Activity. The term ``activity'' means any action that results 
in an increase or decrease of the funds underlying a certificate or 
card, other than the imposition of a fee, or an adjustment due to an 
error or a reversal of a prior transaction.
    (b) Exclusions. The terms ``gift certificate,'' ``store gift 
card,'' and ``general-use prepaid card'', as defined in paragraph (a) 
of this section, do not include any card, code, or other device that 
is:
    (1) Useable solely for telephone services;
    (2) Reloadable and not marketed or labeled as a gift card or gift 
certificate. For purposes of this paragraph (b)(2), the term 
``reloadable'' includes a temporary non-reloadable card issued solely 
in connection with a reloadable card, code, or other device;
    (3) A loyalty, award, or promotional gift card;
    (4) Not marketed to the general public;
    (5) Issued in paper form only; or
    (6) Redeemable solely for admission to events or venues at a 
particular location or group of affiliated locations, or to obtain 
goods or services in conjunction with admission to such events or 
venues, at the event or venue or at specific locations affiliated with 
and in geographic proximity to the event or venue.
    (c) Form of disclosures--(1) Clear and conspicuous. Disclosures 
made under this section must be clear and conspicuous. The disclosures 
may contain commonly accepted or readily understandable abbreviations 
or symbols.
    (2) Format. Disclosures made under this section generally must be 
provided to the consumer in written or electronic form. Written and 
electronic disclosures made under this section must be in a retainable 
form. Only disclosures provided under paragraph (c)(3) of this section 
may be given orally.
    (3) Disclosures prior to purchase. Before a gift certificate, store 
gift card, or general-use prepaid card is purchased, a person that 
issues or sells such certificate or card must disclose to the consumer 
the information required by paragraphs (d)(2), (e)(3), and (f)(1) of 
this section. The fees and terms and conditions of expiration that are 
required to be disclosed prior to purchase may not be changed after 
purchase.
    (4) Disclosures on the certificate or card. Disclosures required by 
paragraphs (a)(4)(iii), (d)(2), (e)(3), and (f)(2) of this section must 
be made on the certificate or card, or in the case of a loyalty, award, 
or promotional gift card, on the card, code, or other device. A 
disclosure made in an accompanying terms and conditions document, on 
packaging surrounding a certificate or card, or on a sticker or other 
label affixed to the certificate or card does not constitute a 
disclosure on the certificate or card. For an electronic certificate or 
card, disclosures must be provided electronically on the certificate or 
card provided to the consumer. An issuer that provides a code or 
confirmation to a consumer orally must provide to the consumer a 
written or electronic copy of the code or confirmation promptly, and 
the applicable disclosures must be provided on the written copy of the 
code or confirmation.
    (d) Prohibition on imposition of fees or charges. No person may 
impose a dormancy, inactivity, or service fee with respect to a gift 
certificate, store gift card, or general-use prepaid card, unless:
    (1) There has been no activity with respect to the certificate or 
card, in the one-year period ending on the date on which the fee is 
imposed;
    (2) The following are stated, as applicable, clearly and 
conspicuously on the gift certificate, store gift card, or general-use 
prepaid card:

[[Page 16615]]

    (i) The amount of any dormancy, inactivity, or service fee that may 
be charged;
    (ii) How often such fee may be assessed; and
    (iii) That such fee may be assessed for inactivity; and
    (3) Not more than one dormancy, inactivity, or service fee is 
imposed in any given calendar month.
    (e) Prohibition on sale of gift certificates or cards with 
expiration dates. No person may sell or issue a gift certificate, store 
gift card, or general-use prepaid card with an expiration date, unless:
    (1) The person has established policies and procedures to provide 
consumers with a reasonable opportunity to purchase a certificate or 
card with at least five years remaining until the certificate or card 
expiration date;
    (2) The expiration date for the underlying funds is at least the 
later of:
    (i) Five years after the date the gift certificate was initially 
issued, or the date on which funds were last loaded to a store gift 
card or general-use prepaid card; or
    (ii) The certificate or card expiration date, if any;
    (3) The following disclosures are provided on the certificate or 
card, as applicable:
    (i) The expiration date for the underlying funds or, if the 
underlying funds do not expire, that fact;
    (ii) A toll-free telephone number and, if one is maintained, a Web 
site that a consumer may use to obtain a replacement certificate or 
card after the certificate or card expires if the underlying funds may 
be available; and
    (iii) Except where a non-reloadable certificate or card bears an 
expiration date that is at least seven years from the date of 
manufacture, a statement, disclosed with equal prominence and in close 
proximity to the certificate or card expiration date, that:
    (A) The certificate or card expires, but the underlying funds 
either do not expire or expire later than the certificate or card, and;
    (B) The consumer may contact the issuer for a replacement card; and
    (4) No fee or charge is imposed on the cardholder for replacing the 
gift certificate, store gift card, or general-use prepaid card or for 
providing the certificate or card holder with the remaining balance in 
some other manner prior to the funds expiration date, unless such 
certificate or card has been lost or stolen.
    (f) Additional disclosure requirements for gift certificates or 
cards. The following disclosures must be provided in connection with a 
gift certificate, store gift card, or general-use prepaid card, as 
applicable:
    (1) Fee disclosures. For each type of fee that may be imposed in 
connection with the certificate or card (other than a dormancy, 
inactivity, or service fee subject to the disclosure requirements under 
paragraph (d)(2) of this section), the following information must be 
provided on or with the certificate or card:
    (i) The type of fee;
    (ii) The amount of the fee (or an explanation of how the fee will 
be determined); and
    (iii) The conditions under which the fee may be imposed.
    (2) Telephone number for fee information. A toll-free telephone 
number and, if one is maintained, a Web site, that a consumer may use 
to obtain information about fees described in paragraphs (d)(2) and 
(f)(1) of this section must be disclosed on the certificate or card.
    (g) Compliance dates.--(1) Effective date for gift certificates, 
store gift cards, and general-use prepaid cards. The requirements of 
this section apply to any gift certificate, store gift card, or 
general-use prepaid card sold to a consumer on or after August 22, 
2010, or provided to the consumer as a replacement for such certificate 
or card.
    (2) Effective date for loyalty, award, or promotional gift cards. 
The requirements in paragraph (a)(4)(iii) apply to any card, code, or 
other device provided to a consumer in connection with a loyalty, 
award, or promotional program if the period of eligibility for such 
program began on or after August 22, 2010.

0
6. In Supplement I to part 205,
0
a. Under Section 205.12 Relation to other laws, under 12(b) Preemption 
of inconsistent state laws, paragraph 1. is revised.
0
b. Section 205.20--Requirements for Gift Cards and Gift Certificates is 
added.

Supplement I to Part 205--Official Staff Interpretations

* * * * *

Section 205.12--Relation to Other Laws

* * * * *

(b) Preemption of Inconsistent State Laws

    1. Specific determinations. The regulation prescribes standards 
for determining whether state laws that govern EFTs, and state laws 
regarding gift certificates, store gift cards, or general-use 
prepaid cards that govern dormancy, inactivity, or service fees, or 
expiration dates, are preempted by the act and the regulation. A 
state law that is inconsistent may be preempted even if the Board 
has not issued a determination. However, nothing in Sec.  205.12(b) 
provides a financial institution with immunity for violations of 
state law if the institution chooses not to make state disclosures 
and the Board later determines that the state law is not preempted.
* * * * *

Section 205.20--Requirements for Gift Cards and Gift Certificates

20(a) Definitions

    1. Form of card, code, or device. Section 205.20 applies to any 
card, code, or other device that meets one of the definitions in 
Sec.  205.20(a)(1) through (a)(3) (and is not otherwise excluded by 
Sec.  205.20(b)), even if it is not issued in card form. Section 
205.20 applies, for example, to an account number or bar code that 
can be used to access underlying funds. Similarly, Sec.  205.20 
applies to a device with a chip or other embedded mechanism that 
links the device to stored funds, such as a mobile phone or sticker 
containing a contactless chip that enables the consumer to access 
the stored funds. A card, code, or other device that meets the 
definition in Sec.  205.20(a)(1) through (a)(3) includes an 
electronic promise (see comment 20(a)-2) as well as a promise that 
is not electronic. See, however, Sec.  205.20(b)(5). In addition, 
Sec.  205.20 applies if a merchant issues a code that entitles a 
consumer to redeem the code for goods or services, regardless of the 
medium in which the code is issued (see, however, Sec.  
205.20(b)(5)), and whether or not it may be redeemed electronically 
or in the merchant's store. Thus, for example, if a merchant e-mails 
a code that a consumer may redeem in a specified amount either on-
line or in the merchant's store, that code is covered under Sec.  
205.20, unless one of the exclusions in Sec.  205.20(b) apply.
    2. Electronic promise. The term ``electronic promise'' as used 
in EFTA Sections 915(a)(2)(B), (a)(2)(C), and (a)(2)(D) means a 
person's commitment or obligation communicated or stored in 
electronic form made to a consumer to provide payment for goods or 
services for transactions initiated by the consumer. The electronic 
promise is itself represented by a card, code or other device that 
is issued or honored by the person, reflecting the person's 
commitment or obligation to pay. For example, if a merchant issues a 
code that can be given as a gift and that entitles the recipient to 
redeem the code in an on-line transaction for goods or services, 
that code represents an electronic promise by the merchant and is a 
card, code, or other device covered by Sec.  205.20.
    3. Cards, codes, or other devices redeemable for specific goods 
or services. Certain cards, codes, or other devices may be 
redeemable upon presentation for a specific good or service, or 
``experience,'' such as a spa treatment, hotel stay, or airline 
flight. In other cases, a card, code, or other device may entitle 
the consumer to a certain percentage off the purchase of a good or 
service, such as 20% off of any purchase in a store. Such cards, 
codes, or other devices generally are not subject to the 
requirements of this section because they are not issued to a 
consumer ``in a specified amount'' as required under the

[[Page 16616]]

definitions of ``gift certificate,'' ``store gift card,'' or 
``general-use prepaid card.'' However, if the card, code, or other 
device is issued in a specified or denominated amount that can be 
applied toward the purchase of a specific good or service, such as a 
certificate or card redeemable for a spa treatment up to $50, the 
card, code, or other device is subject to this section, unless one 
of the exceptions in Sec.  205.20(b) apply. See, e.g., Sec.  
205.20(b)(3). Similarly, if the card, code, or other device states a 
specific monetary value, such as ``a $50 value,'' the card, code, or 
other device is subject to this section, unless an exclusion in 
Sec.  205.20(b) applies.
    4. Issued primarily for personal, family, or household purposes. 
Section 205.20 only applies to cards, codes, or other devices that 
are sold or issued to a consumer primarily for personal, family, or 
household purposes. A card, code, or other device initially 
purchased by a business is subject to this section if the card, 
code, or other device is purchased for redistribution or resale to 
consumers primarily for personal, family, or household purposes. 
Moreover, the fact that a card, code, or other device may be 
primarily funded by a business, for example, in the case of certain 
rewards or incentive cards, does not mean the card, code, or other 
device is outside the scope of Sec.  205.20, if the card, code, or 
other device will be provided to a consumer primarily for personal, 
family, or household purposes. But see Sec.  205.20(b)(3). Whether a 
card, code, or other device is issued to a consumer primarily for 
personal, family, or household purposes will depend on the facts and 
circumstances. For example, if a program manager purchases store 
gift cards directly from an issuing merchant and sells those cards 
through the program manager's retail outlets, such gift cards are 
subject to the requirements of Sec.  205.20 because the store gift 
cards are sold to consumers primarily for personal, family, or 
household purposes. In contrast, a card, code, or other device 
generally would not be issued to consumers primarily for personal, 
family, or household purposes, and therefore would fall outside the 
scope of Sec.  205.20, if the purchaser of the card, code, or device 
is contractually prohibited from reselling or redistributing the 
card, code, or device to consumers primarily for personal, family, 
or household purposes, and reasonable policies and procedures are 
maintained to avoid such sale or distribution for such purposes. 
However, if an entity that has purchased cards, codes, or other 
devices for business purposes sells or distributes such cards, 
codes, or other devices to consumers primarily for personal, family, 
or household purposes, that entity does not comply with Sec.  205.20 
if it has not otherwise met the substantive and disclosure 
requirements of the rule or unless an exclusion in Sec.  205.20(b) 
applies.
    5. Examples of cards, codes, or other devices issued for 
business purposes. Examples of cards, codes, or other devices that 
are issued and used for business purposes and therefore excluded 
from the definitions of ``gift certificate,'' ``store gift card,'' 
or ``general-use prepaid card'' include:
    i. Cards, codes, or other devices to reimburse employees for 
travel or moving expenses.
    ii. Cards, codes, or other devices for employees to use to 
purchase office supplies and other business-related items.

Paragraph 20(a)(2)--Store Gift Card

    1. Relationship between ``gift certificate'' and ``store gift 
card''. The term ``store gift card'' in Sec.  205.20(a)(2) includes 
``gift certificate'' as defined in Sec.  205.20(a)(1). For example, 
a numeric or alphanumeric code representing a specified dollar 
amount or value that is electronically sent to a consumer as a gift 
which can be redeemed or exchanged by the recipient to obtain goods 
or services may be both a ``gift certificate'' and a ``store gift 
card'' if the specified amount or value cannot be increased.
    2. Affiliated group of merchants. The term ``affiliated group of 
merchants'' means two or more affiliated merchants or other persons 
that are related by common ownership or common corporate control 
(see, e.g., 12 CFR 227.3(b) and 12 CFR 223.2) and that share the 
same name, mark, or logo. For example, the term includes franchisees 
that are subject to a common set of corporate policies or practices 
under the terms of their franchise licenses. The term also applies 
to two or more merchants or other persons that agree among 
themselves, by contract or otherwise, to redeem cards, codes, or 
other devices bearing the same name, mark, or logo (other than the 
mark, logo, or brand of a payment network), for the purchase of 
goods or services solely at such merchants or persons. For example, 
assume a movie theatre chain and a restaurant chain jointly agree to 
issue cards that share the same ``Flix and Food'' logo that can be 
redeemed solely towards the purchase of movie tickets or concessions 
at any of the participating movie theatres, or towards the purchase 
of food or beverages at any of the participating restaurants. For 
purposes of Sec.  205.20, the movie theatre chain and the restaurant 
chain would be considered to be an affiliated group of merchants, 
and the cards are considered to be ``store gift cards.'' However, 
merchants or other persons are not considered to be affiliated 
merely because they agree to accept a card that bears the mark, 
logo, or brand of a payment network.
    3. Mall gift cards. See comment 20(a)(3)-2.

Paragraph 20(a)(3)--General-Use Prepaid Card

    1. Redeemable upon presentation at multiple, unaffiliated 
merchants. A card, code, or other device is redeemable upon 
presentation at multiple, unaffiliated merchants if, for example, 
such merchants agree to honor the card, code, or device if it bears 
the mark, logo, or brand of a payment network, pursuant to the rules 
of the payment network.
    2. Mall gift cards. Mall gift cards that are intended to be used 
or redeemed for goods or services at participating retailers within 
a shopping mall may be considered store gift cards or general-use 
prepaid cards depending on the merchants with which the cards may be 
redeemed. For example, if a mall card may only be redeemed at 
merchants within the mall itself, the card is more likely to be 
redeemable at an affiliated group of merchants and considered a 
store gift card. However, certain mall cards also carry the brand of 
a payment network and can be used at any retailer that accepts that 
card brand, including retailers located outside of the mall. Such 
cards are considered general-use prepaid cards.

Paragraph 20(a)(4)--Loyalty, Award, or Promotional Gift Card

    1. Examples of loyalty, award, or promotional programs. Examples 
of loyalty, award or promotional programs under Sec.  205.20(a)(4) 
include, but are not limited to:
    i. Consumer retention programs operated or administered by a 
merchant or other person that provide to consumers cards or coupons 
redeemable for or towards goods or services or other monetary value 
as a reward for purchases made or for visits to the participating 
merchant;
    ii. Sales promotions operated or administered by a merchant or 
product manufacturer that provide coupons or discounts redeemable 
for or towards goods or services or other monetary value.
    iii. Rebate programs operated or administered by a merchant or 
product manufacturer that provide cards redeemable for or towards 
goods or services or other monetary value to consumers in connection 
with the consumer's purchase of a product or service and the 
consumer's completion of the rebate submission process.
    iv. Sweepstakes or contests that distribute cards redeemable for 
or towards goods or services or other monetary value to consumers as 
an invitation to enter into the promotion for a chance to win a 
prize.
    v. Referral programs that provide cards redeemable for or 
towards goods or services or other monetary value to consumers in 
exchange for referring other potential consumers to a merchant.
    vi. Incentive programs through which an employer provides cards 
redeemable for or towards goods or services or other monetary value 
to employees, for example, to recognize job performance, such as 
increased sales, or to encourage employee wellness and safety.
    vii. Charitable or community relations programs through which a 
company provides cards redeemable for or towards goods or services 
or other monetary value to a charity or community group for their 
fundraising purposes, for example, as a reward for a donation or as 
a prize in a charitable event.
    2. Issued for loyalty, award, or promotional purposes. To 
indicate that a card, code, or other device is issued for loyalty, 
award, or promotional purposes as required by Sec.  
205.20(a)(4)(iii), it is sufficient for the card, code, or other 
device to state on the front, for example, ``Reward'' or 
``Promotional.''
    3. Reference to toll-free number and Web site. If a card, code, 
or other device issued in connection with a loyalty, award, or 
promotional program does not have any fees, the disclosure under 
Sec.  205.20(a)(4)(iii)(D) is not required on the card, code, or 
other device.

Paragraph 20(a)(6)--Service Fee

    1. Service fees. Under Sec.  205.20(a)(6), a service fee 
includes a periodic fee for holding

[[Page 16617]]

or use of a gift certificate, store gift card, or general-use 
prepaid card. A periodic fee includes any fee that may be imposed on 
a gift certificate, store gift card, or general-use prepaid card 
from time to time for holding or using the certificate or card, such 
as a monthly maintenance fee, a transaction fee, an ATM fee, a 
reload fee, a foreign currency transaction fee, or a balance inquiry 
fee, whether or not the fee is waived for a certain period of time 
or is only imposed after a certain period of time. A service fee 
does not include a one-time fee or a fee that is unlikely to be 
imposed more than once while the underlying funds are still valid, 
such as an initial issuance fee, a cash-out fee, a supplemental card 
fee, or a lost or stolen certificate or card replacement fee.

Paragraph 20(a)(7)--Activity

    1. Activity. Under Sec.  205.20(a)(7), any action that results 
in an increase or decrease of the funds underlying a gift 
certificate, store gift card, or general-use prepaid card, other 
than the imposition of a fee, or an adjustment due to an error or a 
reversal of a prior transaction, constitutes activity for purposes 
of Sec.  205.20. For example, the purchase and activation of a 
certificate or card, the use of the certificate or card to purchase 
a good or service, or the reloading of funds onto a store gift card 
or general-use prepaid card constitutes activity. However, the 
imposition of a fee, the replacement of an expired, lost, or stolen 
certificate or card, and a balance inquiry do not constitute 
activity. In addition, if a consumer attempts to engage in a 
transaction with a gift certificate, store gift card, or general-use 
prepaid card, but the transaction cannot be completed due to 
technical or other reasons, such attempt does not constitute 
activity. Furthermore, if the funds underlying a gift certificate, 
store gift card, or general-use prepaid card are adjusted because 
there was an error or the consumer has returned a previously 
purchased good, the adjustment also does not constitute activity 
with respect to the certificate or card.

20(b) Exclusions

    1. Application of exclusion. A card, code, or other device is 
excluded from the definition of ``gift certificate,'' ``store gift 
card,'' or ``general-use prepaid card'' if it meets any of the 
exclusions in Sec.  205.20(b). An excluded card, code, or other 
device generally is not subject to any of the requirements of this 
section. (See, however, Sec.  205.20(a)(4)(iii), requiring certain 
disclosures for loyalty, award, or promotional gift cards.)
    2. Eligibility for multiple exclusions. A card, code, or other 
device may qualify for one or more exclusions. For example, a 
corporation may give its employees a gift card that is marketed 
solely to businesses for incentive-related purposes, such as to 
reward job performance or promote employee safety. In this case, the 
card may qualify for the exclusion for loyalty, award, or 
promotional gift cards under Sec.  205.20(b)(3), or for the 
exclusion for cards, codes, or other devices not marketed to the 
general public under Sec.  205.20(b)(4). In addition, as long as any 
one of the exclusions applies, a card, code, or other device is not 
covered by Sec.  205.20, even if other exclusions do not apply. In 
the above example, the corporation may give its employees a type of 
gift card that can also be purchased by a consumer directly from a 
merchant. Under these circumstances, while the card does not qualify 
for the exclusion for cards, codes, or other devices not marketed to 
the general public under Sec.  205.20(b)(4) because the card can 
also be obtained through retail channels, it is nevertheless exempt 
from the substantive requirements of Sec.  205.20 because it is a 
loyalty, award, or promotional gift card. (See, however, Sec.  
205.20(a)(4)(iii), requiring certain disclosures for loyalty, award, 
or promotional gift cards.) Similarly, a person may market a 
reloadable card to teenagers for occasional expenses that enables 
parents to monitor spending. Although the card does not qualify for 
the exclusion for cards, codes, or other devices not marketed to the 
general public under Sec.  205.20(b)(4), it may nevertheless be 
exempt from the requirements of Sec.  205.20 under Sec.  
205.20(b)(2) if it is reloadable and not marketed or labeled as a 
gift card or gift certificate.

Paragraph 20(b)(1)--Usable Solely for Telephone Services

    1. Examples of excluded products. The exclusion for products 
usable solely for telephone services applies to prepaid cards for 
long-distance telephone service, prepaid cards for wireless 
telephone service and prepaid cards for other services that function 
similar to telephone services, such as prepaid cards for voice over 
internet protocol (VoIP) access time.

Paragraph 20(b)(2)--Reloadable and Not Marketed or Labeled as a Gift 
Card or Gift Certificate

    1. Reloadable. A card, code, or other device is ``reloadable'' 
if the terms and conditions of the agreement permit funds to be 
added to the card, code, or other device after the initial purchase 
or issuance. A card, code, or other device is not ``reloadable'' 
merely because the issuer or processor is technically able to add 
functionality that would otherwise enable the card, code, or other 
device to be reloaded.
    2. Marketed or labeled as a gift card or gift certificate. The 
term ``marketed or labeled as a gift card or gift certificate'' 
means directly or indirectly offering, advertising or otherwise 
suggesting the potential use of a card, code or other device, as a 
gift for another person. Whether the exclusion applies generally 
does not depend on the type of entity that makes the promotional 
message. For example, a card may be marketed or labeled as a gift 
card or gift certificate if anyone (other than the purchaser of the 
card), including the issuer, the retailer, the program manager that 
may distribute the card, or the payment network on which a card is 
used, promotes the use of the card as a gift card or gift 
certificate. A card, code, or other device, including a general-
purpose reloadable card, is marketed or labeled as a gift card or 
gift certificate even if it is only occasionally marketed as a gift 
card or gift certificate. For example, a network-branded general 
purpose reloadable card would be marketed or labeled as a gift card 
or gift certificate if the issuer principally advertises the card as 
a less costly alternative to a bank account but promotes the card in 
a television, radio, newspaper, or Internet advertisement, or on 
signage as ``the perfect gift'' during the holiday season. However, 
the mere mention of the availability of gift cards or gift 
certificates in an advertisement or on a sign that also indicates 
the availability of other excluded prepaid cards does not by itself 
cause the excluded prepaid cards to be marketed as a gift card or a 
gift certificate. For example, the posting of a sign in a store that 
refers to the availability of gift cards does not by itself 
constitute the marketing of otherwise excluded prepaid cards that 
may also be sold in the store as gift cards or gift certificates, 
provided that a consumer acting reasonably under the circumstances 
would not be led to believe that the sign applies to all prepaid 
cards sold in the store. (See, however, comment 20(b)(2)-4.ii.)
    3. Examples of marketed or labeled as a gift card or gift 
certificate.
    i. Examples of marketed or labeled as a gift card or gift 
certificate include:
    A. Using the word ``gift'' or ``present'' on a card, 
certificate, or accompanying material, including documentation, 
packaging and promotional displays;
    B. Representing or suggesting that a certificate or card can be 
given to another person, for example, as a ``token of appreciation'' 
or a ``stocking stuffer,'' or displaying a congratulatory message on 
the card, certificate or accompanying material;
    C. Incorporating gift-giving or celebratory imagery or motifs, 
such as a bow, ribbon, wrapped present, candle, or congratulatory 
message, on a card, certificate, accompanying documentation, or 
promotional material;
    ii. The term does not include:
    A. Representing that a card or certificate can be used as a 
substitute for a checking, savings, or deposit account;
    B. Representing that a card or certificate can be used to pay 
for a consumer's health-related expenses--for example, a card tied 
to a health savings account;
    C. Representing that a card or certificate can be used as a 
substitute for travelers checks or cash;
    D. Representing that a card or certificate can be used as a 
budgetary tool, for example, by teenagers, or to cover emergency 
expenses.
    4. Reasonable policies and procedures to avoid marketing as a 
gift card. The exclusion for a card, code, or other device that is 
reloadable and not marketed or labeled as a gift card or gift 
certificate in Sec.  205.20(b)(2) applies if a reloadable card, 
code, or other device is not marketed or labeled as a gift card or 
gift certificate and if persons subject to the rule, including 
issuers, program managers, and retailers, maintain policies and 
procedures reasonably designed to avoid such marketing. Such 
policies and procedures may include contractual provisions 
prohibiting a reloadable card, code, or other device from being 
marketed or labeled as a gift card or gift certificate, 
merchandising guidelines or plans regarding how the product must be 
displayed in a retail outlet, and controls to regularly monitor or 
otherwise verify that the card, code or other device is not being 
marketed as a gift card. Whether a reloadable card, code, or other 
device has been marketed as a gift card or gift

[[Page 16618]]

certificate will depend on the facts and circumstances, including 
whether a reasonable consumer would be led to believe that the card, 
code, or other device is a gift card or gift certificate. The 
following examples illustrate the application of Sec.  205.20(b)(2):
    i. An issuer or program manager of prepaid cards agrees to sell 
general-purpose reloadable cards through a retailer. The contract 
between the issuer or program manager and the retailer establishes 
the terms and conditions under which the cards may be sold and 
marketed at the retailer. The terms and conditions prohibit the 
general-purpose reloadable cards from being marketed as a gift card 
or gift certificate, and require policies and procedures to 
regularly monitor or otherwise verify that the cards are not being 
marketed as such. The issuer or program manager sets up one 
promotional display at the retailer for gift cards and another 
physically separated display for excluded products under Sec.  
205.20(b), including general-purpose reloadable cards and wireless 
telephone cards, such that a reasonable consumer would not believe 
that the excluded cards are gift cards. The exclusion in Sec.  
205.20(b)(2) applies because policies and procedures reasonably 
designed to avoid the marketing of the general-purpose reloadable 
cards as gift cards or gift certificates are maintained, even if a 
retail clerk inadvertently stocks or a consumer inadvertently places 
a general-purpose reloadable card on the gift card display.
    ii. Same facts as in i., except that the issuer or program 
manager sets up a single promotional display at the retailer on 
which a variety of prepaid cards are sold, including store gift 
cards and general-purpose reloadable cards. A sign stating ``Gift 
Cards'' appears prominently at the top of the display. The exclusion 
in Sec.  205.20(b)(2) does not apply with respect to the general-
purpose reloadable cards because policies and procedures reasonably 
designed to avoid the marketing of excluded cards as gift cards or 
gift certificates are not maintained.
    iii. Same facts as in i., except that the issuer or program 
manager sets up a single promotional multi-sided display at the 
retailer on which a variety of prepaid card products, including 
store gift cards and general-purpose reloadable cards are sold. Gift 
cards are segregated from excluded cards, with gift cards on one 
side of the display and excluded cards on a different side of a 
display. Signs of equal prominence at the top of each side of the 
display clearly differentiate between gift cards and the other types 
of prepaid cards that are available for sale. The retailer does not 
use any more conspicuous signage suggesting the general availability 
of gift cards, such as a large sign stating ``Gift Cards'' at the 
top of the display or located near the display. The exclusion in 
Sec.  205.20(b)(2) applies because policies and procedures 
reasonably designed to avoid the marketing of the general-purpose 
reloadable cards as gift cards or gift certificates are maintained, 
even if a retail clerk inadvertently stocks or a consumer 
inadvertently places a general-purpose reloadable card on the gift 
card display.
    iv. Same facts as in i., except that the retailer sells a 
variety of prepaid card products, including store gift cards and 
general-purpose reloadable cards, arranged side-by-side in the same 
checkout lane. The retailer does not affirmatively indicate or 
represent that gift cards are available, such as by displaying any 
signage or other indicia at the checkout lane suggesting the general 
availability of gift cards. The exclusion in Sec.  205.20(b)(2) 
applies because policies and procedures reasonably designed to avoid 
marketing the general-purpose reloadable cards as gift cards or gift 
certificates are maintained.
    5. On-line sales of prepaid cards. Some Web sites may 
prominently advertise or promote the availability of gift cards or 
gift certificates in a manner that suggests to a consumer that the 
Web site exclusively sells gift cards or gift certificates. For 
example, a Web site may display a banner advertisement or a graphic 
on the home page that prominently states ``Gift Cards,'' ``Gift 
Giving,'' or similar language without mention of other available 
products, or use a Web address that includes only a reference to 
gift cards or gift certificates in the address. In such a case, a 
consumer acting reasonably under the circumstances could be led to 
believe that all prepaid products sold on the Web site are gift 
cards or gift certificates. Under these facts, the Web site has 
marketed all such products, including general-purpose reloadable 
cards, as gift cards or gift certificates, and the exclusion in 
Sec.  205.20(b)(2) does not apply.
    6. Temporary non-reloadable cards issued in connection with a 
general-purpose reloadable card. Certain general-purpose reloadable 
cards that are typically marketed as an account substitute initially 
may be sold or issued in the form of a temporary non-reloadable 
card. After the card is purchased, the cardholder is typically 
required to call the issuer to register the card and to provide 
identifying information in order to obtain a reloadable replacement 
card. In most cases, the temporary non-reloadable card can be used 
for purchases until the replacement reloadable card arrives and is 
activated by the cardholder. Because the temporary non-reloadable 
card may only be obtained in connection with the general-purpose 
reloadable card, the exclusion in Sec.  205.20(b)(2) applies so long 
as the card is not marketed as a gift card or gift certificate.

Paragraph 20(b)(4)--Not Marketed to the General Public

    1. Marketed to the general public. A card, code, or other device 
is marketed to the general public if the potential use of the card, 
code, or other device is directly or indirectly offered, advertised, 
or otherwise promoted to the general public. A card, code, or other 
device may be marketed to the general public through any advertising 
medium, including television, radio, newspaper, the Internet, or 
signage. However, the posting of a company policy that funds may be 
disbursed by prepaid card (such as a sign posted at a cash register 
or customer service center stating that store credit will be issued 
by prepaid card) does not constitute the marketing of a card, code, 
or other device to the general public. In addition, the method of 
distribution by itself is not dispositive in determining whether a 
card, code, or other device is marketed to the general public. 
Factors that may be considered in determining whether the exclusion 
applies to a particular card, code, or other device include the 
means or channel through which the card, code, or device may be 
obtained by a consumer, the subset of consumers that are eligible to 
obtain the card, code, or device, and whether the availability of 
the card, code, or device is advertised or otherwise promoted in the 
marketplace.
    2. Examples. The following examples illustrate the application 
of the exclusion in Sec.  205.20(b)(4):
    i. A merchant sells its gift cards at a discount to a business 
which may give them to employees or loyal consumers as incentives or 
rewards. In determining whether the gift card falls within the 
exclusion in Sec.  205.20(b)(4), the merchant must consider whether 
the card is of a type that is advertised or made available to 
consumers generally or can be obtained elsewhere. If the card can 
also be purchased through retail channels, the exclusion in Sec.  
205.20(b)(4) does not apply, even if the consumer obtained the card 
from the business as an incentive or reward. See, however, Sec.  
205.20(b)(3).
    ii. A national retail chain decides to market its gift cards 
only to members of its frequent buyer program. Similarly, a bank may 
decide to sell gift cards only to its customers. If a member of the 
general public may become a member of the program or a customer of 
the bank, the card does not fall within the exclusion in Sec.  
205.20(b)(4) because the general public has the ability to obtain 
the cards. See, however, Sec.  205.20(b)(3).
    iii. A card issuer advertises a reloadable card to teenagers and 
their parents promoting the card for use by teenagers for occasional 
expenses, schoolbooks and emergencies and by parents to monitor 
spending. Because the card is marketed to and may be sold to any 
member of the general public, the exclusion in Sec.  205.20(b)(4) 
does not apply. See, however, Sec.  205.20(b)(2).
    iv. An insurance company settles a policyholder's claim and 
distributes the insurance proceeds to the consumer by means of a 
prepaid card. Because the prepaid card is simply the means for 
providing the insurance proceeds to the consumer and the 
availability of the card is not advertised to the general public, 
the exclusion in Sec.  205.20(b)(4) applies.
    v. A merchant provides store credit to a consumer following a 
merchandise return by issuing a prepaid card that clearly indicates 
that the card contains funds for store credit. Because the prepaid 
card is issued for the stated purpose of providing store credit to 
the consumer and the ability to receive refunds by a prepaid card is 
not advertised to the general public, the exclusion in Sec.  
205.20(b)(4) applies.
    vi. A tax preparation company elects to distribute tax refunds 
to its clients by issuing prepaid cards, but does not advertise or 
otherwise promote the ability to receive proceeds in this manner. 
Because the prepaid card is simply the mechanism for providing the 
tax refund to the consumer, and the tax preparer does not advertise 
the ability to obtain tax refunds by a prepaid card, the exclusion 
in Sec.  205.20(b)(4) applies. However,

[[Page 16619]]

if the tax preparer promotes the ability to receive tax refund 
proceeds through a prepaid card as a way to obtain ``faster'' access 
to the proceeds, the exclusion in Sec.  205.20(b)(4) does not apply.

Paragraph 20(b)(5)--Issued in Paper Form Only

    1. Exclusion explained. To qualify for the exclusion in Sec.  
205.20(b)(5), the sole means of issuing the card, code, or other 
device must be in a paper form. Thus, the exclusion generally 
applies to certificates issued in paper form where solely the paper 
itself may be used to purchase goods or services. A card, code or 
other device is not issued solely in paper form simply because it 
may be reproduced or printed on paper. For example, a bar code, card 
or certificate number, or certificate or coupon electronically 
provided to a consumer and redeemable for goods and services is not 
issued in paper form, even if it may be reproduced or otherwise 
printed on paper by the consumer. In this circumstance, although the 
consumer might hold a paper facsimile of the card, code, or other 
device, the exclusion does not apply because the information 
necessary to redeem the value was initially issued in electronic 
form. A paper certificate is within the exclusion regardless of 
whether it may be redeemed electronically. For example, a paper 
certificate or receipt that bears a bar code, code, or account 
number falls within the exclusion in Sec.  205.20(b)(5) if the bar 
code, code, or account number is not issued in any form other than 
on the paper. In addition, the exclusion in Sec.  205.20(b)(5) 
continues to apply in circumstances where an issuer replaces a gift 
certificate that was initially issued in paper form with a card or 
electronic code (for example, to replace a lost paper certificate).
    2. Examples. The following examples illustrate the application 
of the exclusion in Sec.  205.20(b)(5):
    i. A merchant issues a paper gift certificate that entitles the 
bearer to a specified dollar amount that can be applied towards a 
future meal. The merchant fills in the certificate with the name of 
the certificate holder and the amount of the certificate. The 
certificate falls within the exclusion in Sec.  205.20(b)(5) because 
it is issued in paper form only.
    ii. A merchant allows a consumer to prepay for a good or 
service, such as a car wash or time at a parking meter, and issues a 
paper receipt bearing a numerical or bar code that the consumer may 
redeem to obtain the good or service. The exclusion in Sec.  
205.20(b)(5) applies because the code is issued in paper form only.
    iii. A merchant issues a paper certificate or receipt bearing a 
bar code or certificate number that can later be scanned or entered 
into the merchant's system and redeemed by the certificate or 
receipt holder towards the purchase of goods or services. The bar 
code or certificate number is not issued by the merchant in any form 
other than paper. The exclusion in Sec.  205.20(b)(5) applies 
because the bar code or certificate number is issued in paper form 
only.
    iv. An on-line merchant electronically provides a bar code, card 
or certificate number, or certificate or coupon to a consumer that 
the consumer may print on a home printer and later redeem towards 
the purchase of goods or services. The exclusion in Sec.  
205.20(b)(5) does not apply because the bar code or card or 
certificate number was issued to the consumer in electronic form, 
even though it can be reproduced or otherwise printed on paper by 
the consumer.

Paragraph 20(b)(6)--Redeemable Solely for Admission to Events or Venues

    1. Exclusion explained. The exclusion for cards, codes, or other 
devices that are redeemable solely for admission to events or venues 
at a particular location or group of affiliated locations generally 
applies to cards, codes, or other devices that are not redeemed for 
a specified monetary value, but rather solely for admission or entry 
to an event or venue. The exclusion also covers a card, code, or 
other device that is usable to purchase goods or services in 
addition to entry into the event or the venue, either at the event 
or venue or at an affiliated location or location in geographic 
proximity to the event or venue.
    2. Examples. The following examples illustrate the application 
of the exclusion in Sec.  205.20(b)(6):
    i. A consumer purchases a prepaid card that entitles the holder 
to a ticket for entry to an amusement park. The prepaid card may 
only be used for entry to the park. The card qualifies for the 
exclusion in Sec.  205.20(b)(6) because it is redeemable for 
admission or entry and for goods or services in conjunction with 
that admission. In addition, if the prepaid card does not have a 
monetary value, and therefore is not ``issued in a specified 
amount,'' the card does not meet the definitions of ``gift 
certificate,'' ``store gift card,'' or ``general-use prepaid card'' 
in Sec.  205.20(a). See comment 20(a)-3.
    ii. Same facts as in i., except that the gift card also entitles 
the holder of the gift card to a dollar amount that can be applied 
towards the purchase of food and beverages or goods or services at 
the park or at nearby affiliated locations. The card qualifies for 
the exclusion in Sec.  205.20(b)(6) because it is redeemable for 
admission or entry and for goods or services in conjunction with 
that admission.
    iii. A consumer purchases a $25 gift card that the holder of the 
gift card can use to make purchases at a merchant, or, 
alternatively, can apply towards the cost of admission to the 
merchant's affiliated amusement park. The card is not eligible for 
the exclusion in Sec.  205.20(b)(6) because it is not redeemable 
solely for the admission or ticket itself (or for goods and services 
purchased in conjunction with such admission). The card meets the 
definition of ``store gift card'' and is therefore subject to Sec.  
205.20, unless a different exclusion applies.

20(c) Form of Disclosures

Paragraph 20(c)(1)--Clear and Conspicuous

    1. Clear and conspicuous standard. All disclosures required by 
this section must be clear and conspicuous. Disclosures are clear 
and conspicuous for purposes of this section if they are readily 
understandable and, in the case of written and electronic 
disclosures, the location and type size are readily noticeable to 
consumers. Disclosures need not be located on the front of the 
certificate or card, except where otherwise required, to be 
considered clear and conspicuous. Disclosures are clear and 
conspicuous for the purposes of this section if they are in a print 
that contrasts with and is otherwise not obstructed by the 
background on which they are printed. For example, disclosures on a 
card or computer screen are not likely to be conspicuous if obscured 
by a logo printed in the background. Similarly, disclosures on the 
back of a card that are printed on top of indentations from embossed 
type on the front of the card are not likely to be conspicuous if 
the indentations obstruct the readability of the disclosures. To the 
extent permitted, oral disclosures meet the standard when they are 
given at a volume and speed sufficient for a consumer to hear and 
comprehend them.
    2. Abbreviations and symbols. Disclosures may contain commonly 
accepted or readily understandable abbreviations or symbols, such as 
``mo.'' for month or a ``/'' to indicate ``per.'' Under the clear 
and conspicuous standard, it is sufficient to state, for example, 
that a particular fee is charged ``$2.50/mo. after 12 mos.''

Paragraph 20(c)(2)--Format

    1. Electronic disclosures. Disclosures provided electronically 
pursuant to this section are not subject to compliance with the 
consumer consent and other applicable provisions of the Electronic 
Signatures in Global and National Commerce Act (E-Sign Act) (15 USC 
7001 et seq.). Electronic disclosures must be in a retainable form. 
For example, a person may satisfy the requirement if it provides an 
online disclosure in a format that is capable of being printed. 
Electronic disclosures may not be provided through a hyperlink or in 
another manner by which the purchaser can bypass the disclosure. A 
person is not required to confirm that the consumer has read the 
electronic disclosures.

Paragraph 20(c)(3)--Disclosure Prior to Purchase

    1. Method of purchase. The disclosures required by this 
paragraph must be provided before a certificate or card is purchased 
regardless of whether the certificate or card is purchased in 
person, online, by telephone, or by other means.
    2. Electronic disclosures. Section 205.20(c)(3) provides that 
the disclosures required by this section must be provided to the 
consumer prior to purchase. For certificates or cards purchased 
electronically, disclosures made to the consumer after a consumer 
has initiated an online purchase of a certificate or card, but prior 
to completing the purchase of the certificate or card, would satisfy 
the prior-to-purchase requirement. However, electronic disclosures 
made available on a person's Web site that may or may not be 
accessed by the consumer are not provided to the consumer and 
therefore would not satisfy the prior-to-purchase requirement.
    3. Non-physical certificates and cards. If no physical 
certificate or card is issued, the disclosures must be provided to 
the consumer before the certificate or card is purchased. For 
example, where a gift certificate or card is a code that is provided

[[Page 16620]]

by telephone, the required disclosures may be provided orally prior 
to purchase. See also Sec.  205.20(c)(2).

Paragraph 20(c)(4)--Disclosures on the Certificate or Card

    1. Non-physical certificates and cards. If no physical 
certificate or card is issued, the disclosures required by this 
paragraph must be disclosed on the code, confirmation, or other 
written or electronic document provided to the consumer. For 
example, where a gift certificate or card is a code or confirmation 
that is provided to a consumer on-line or sent to a consumer's e-
mail address, the required disclosures may be provided 
electronically on the same document as the code or confirmation.
    2. No disclosures on a certificate or card. Disclosures required 
by Sec.  205.20(c)(4) need not be made on a certificate or card if 
it is accompanied by a certificate or card that complies with this 
section. For example, a person may issue or sell a supplemental gift 
card that is smaller than a standard size and that does not bear the 
applicable disclosures if it is accompanied by a fully compliant 
certificate or card. See also comment 20(c)(2)-2.

20(d) Prohibition on Imposition of Fees or Charges

    1. One-year period. Section 205.20(d) provides that a person may 
impose a dormancy, inactivity, or service fee only if there has been 
no activity with respect to a certificate or card for one year. The 
following examples illustrate this rule:
    i. A certificate or card is purchased on January 15 of year one. 
If there has been no activity on the certificate or card since the 
certificate or card was purchased, a dormancy, inactivity, or 
service fee may be imposed on the certificate or card on January 15 
of year two.
    ii. Same facts as i., and a fee was imposed on January 15 of 
year two. Because no more than one dormancy, inactivity, or service 
fee may be imposed in any given calendar month, the earliest date 
that another dormancy, inactivity, or service fee may be imposed, 
assuming there continues to be no activity on the certificate or 
card, is February 1 of year two. A dormancy, inactivity, or service 
fee is permitted to be imposed on February 1 of year two because 
there has been no activity on the certificate or card for the 
preceding year (February 1 of year one through January 31 of year 
two), and February is a new calendar month. The imposition of a fee 
on January 15 of year two is not activity for purposes of Sec.  
205.20(d). See comment 20(a)(7)-1.
    iii. Same facts as i., and a fee was imposed on January 15 of 
year two. On January 31 of year two, the consumer uses the card to 
make a purchase. Another dormancy, inactivity, or service fee could 
not be imposed until January 31 of year three, assuming there has 
been no activity on the certificate or card since January 31 of year 
two.
    2. Relationship between Sec. Sec.  205.20(d)(2) and (c)(3). 
Sections 205.20(d)(2) and (c)(3) contain similar, but not identical, 
disclosure requirements. Section 205.20(d)(2) requires the 
disclosure of dormancy, inactivity, and service fees on a 
certificate or card. Section 205.20(c)(3) requires that vendor 
person that issues or sells such certificate or card disclose to a 
consumer any dormancy, inactivity, and service fees associated with 
the certificate or card before such certificate or card may be 
purchased. Depending on the context, a single disclosure that meets 
the clear and conspicuous requirements of both Sec. Sec.  
205.20(d)(2) and (c)(3) may be used to disclose a dormancy, 
inactivity, or service fee. For example, if the disclosures on a 
certificate or card, required by Sec.  205.20(d)(2), are visible to 
the consumer without having to remove packaging or other materials 
sold with the certificate or card, for a purchase made in person, 
the disclosures also meet the requirements of Sec.  205.20(c)(3). 
Otherwise, a dormancy, inactivity, or service fee may need to be 
disclosed multiple times to satisfy the requirements of Sec. Sec.  
205.20(d)(2) and (c)(3). For example, if the disclosures on a 
certificate or card, required by Sec.  205.20(d)(2), are obstructed 
by packaging sold with the certificate or card, for a purchase made 
in person, they also must be disclosed on the packaging sold with 
the certificate or card to meet the requirements of Sec.  
205.20(c)(3).
    3. Relationship between Sec. Sec.  205.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required under Sec.  
205.20(d)(2), any applicable disclosures under Sec. Sec.  
205.20(e)(3) and (f)(2) of this section must also be provided on the 
certificate or card.
    4. One fee per month. Under Sec.  205.20(d)(3), no more than one 
dormancy, inactivity, or service fee may be imposed in any given 
calendar month. For example, if a dormancy fee is imposed on January 
1, following a year of inactivity, and a consumer makes a balance 
inquiry on January 15, a balance inquiry fee may not be imposed at 
that time because a dormancy fee was already imposed earlier that 
month and a balance inquiry fee is a type of service fee. If, 
however, the dormancy fee could be imposed on January 1, following a 
year of inactivity, and the consumer makes a balance inquiry on the 
same date, the person assessing the fees may choose whether to 
impose the dormancy fee or the balance inquiry fee on January 1. The 
restriction in Sec.  205.20(d)(3) does not apply to any fee that is 
not a dormancy, inactivity, or service fee. For example, assume a 
service fee is imposed on a general-use prepaid card on January 1, 
following a year of inactivity. If a consumer cashes out the 
remaining funds by check on January 15, a cash-out fee, to the 
extent such cash-out fee is permitted under Sec.  205.20(e)(4), may 
be imposed at that time because a cash-out fee is not a dormancy, 
inactivity, or service fee.
    5. Accumulation of fees. Section 205.20(d) prohibits the 
accumulation of dormancy, inactivity, or service fees for previous 
periods into a single fee because such a practice would circumvent 
the limitation in Sec.  205.20(d)(3) that only one fee may be 
charged per month. For example, if a consumer purchases and 
activates a store gift card on January 1 but never uses the card, a 
monthly maintenance fee of $2.00 a month may not be accumulated such 
that a fee of $24 is imposed on January 1 the following year.

20(e) Prohibition on Sale of Gift Certificates or Cards With 
Expiration Dates

    1. Reasonable opportunity. Under Sec.  205.20(e)(1), no person 
may sell or issue a gift certificate, store gift card, or general-
use prepaid card with an expiration date, unless there are policies 
and procedures in place to provide consumers with a reasonable 
opportunity to purchase a certificate or card with at least five 
years remaining until the certificate or card expiration date. 
Consumers are deemed to have a reasonable opportunity to purchase a 
certificate or card with at least five years remaining until the 
certificate or card expiration date if:
    i. There are policies and procedures established to prevent the 
sale of a certificate or card unless the certificate or card 
expiration date is at least five years after the date the 
certificate or card was sold or initially issued to a consumer; or
    ii. A certificate or card is available to consumers to purchase 
five years and six months before the certificate or card expiration 
date.
    2. Applicability to replacement certificates or cards. Section 
205.20(e)(1) applies solely to the purchase of a certificate or 
card. Therefore, Sec.  205.20(e)(1) does not apply to the 
replacement of such certificates or cards. Certificates or cards 
issued as a replacement may bear a certificate or card expiration 
date of less than five years from the date of issuance of the 
replacement certificate or card. If the certificate or card 
expiration date for a replacement certificate or card is later than 
the date set forth in Sec.  205.20(e)(2)(i), then pursuant to Sec.  
205.20(e)(2), the expiration date for the underlying funds at the 
time the replacement certificate or card is issued must be no 
earlier than the expiration date for the replacement certificate or 
card. For purposes of Sec.  205.20(e)(2), funds are not considered 
to be loaded to a store gift card or general-use prepaid card solely 
because a replacement card has been issued or activated for use.
    3. Disclosure of funds expiration--date not required. Section 
205.20(e)(3)(i) does not require disclosure of the precise date the 
funds will expire. It is sufficient to disclose, for example, 
``Funds expire 5 years from the date funds last loaded to the 
card.''; ``Funds can be used 5 years from the date money was last 
added to the card.''; or ``Funds do not expire.''
    4. Disclosure not required if no expiration date. If the 
certificate or card and underlying funds do not expire, the 
disclosure required by Sec.  205.20(e)(3)(i) need not be stated on 
the certificate or card. If the certificate or card and underlying 
funds expire at the same time, only one expiration date need be 
disclosed on the certificate or card.
    5. Reference to toll-free telephone number and Web site. If a 
certificate or card does not expire, or if the underlying funds are 
not available after the certificate or card expires, the disclosure 
required by Sec.  205.20(e)(3)(ii) need not be stated on the 
certificate or card. See, however, Sec.  205.20(f)(2).
    6. Relationship to Sec.  226.20(f)(2). The same toll-free 
telephone number and Web site may be used to comply with Sec. Sec.  
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web 
site must be maintained or disclosed if

[[Page 16621]]

no fees are imposed in connection with a certificate or card, and 
the certificate or card and the underlying funds do not expire.
    7. Distinguishing between certificate or card expiration and 
funds expiration. If applicable, a disclosure must be made on the 
certificate or card that notifies a consumer that the certificate or 
card expires, but the funds either do not expire or expire later 
than the certificate or card, and that the consumer may contact the 
issuer for a replacement card. The disclosure must be made with 
equal prominence and in close proximity to the certificate or card 
expiration date. The close proximity requirement does not apply to 
oral disclosures. In the case of a certificate or card, close 
proximity means that the disclosure must be on the same side as the 
certificate or card expiration date. For example, if the disclosure 
is the same type size and is located immediately next to or directly 
above or below the certificate or card expiration date, without any 
intervening text or graphical displays, the disclosures would be 
deemed to be equally prominent and in close proximity. The 
disclosure need not be embossed on the certificate or card to be 
deemed equally prominent, even if the expiration date is embossed on 
the certificate or card. The disclosure may state on the front of 
the card, for example, ``Funds expire after card. Call for 
replacement card.'' or ``Funds do not expire. Call for new card 
after 09/2016.'' Disclosures made pursuant to Sec.  
205.20(e)(3)(iii)(A) may also fulfill the requirements of Sec.  
205.20(e)(3)(i). For example, making a disclosure that ``Funds do 
not expire'' to comply with Sec.  205.20(e)(3)(iii)(A) also fulfills 
the requirements of Sec.  205.20(e)(3)(i).
    8. Expiration date safe harbor. A non-reloadable certificate or 
card that bears an expiration date that is at least seven years from 
the date of manufacture need not state the disclosure required by 
Sec.  205.20(e)(3)(iii). However, Sec.  205.20(e)(1) still prohibits 
the sale or issuance of such certificate or card unless there are 
policies and procedures in place to provide a consumer with a 
reasonable opportunity to purchase the certificate or card with at 
least five years remaining until the certificate or card expiration 
date. In addition, under Sec.  205.20(e)(2), the funds may not 
expire before the certificate or card expiration date, even if the 
expiration date of the certificate or card bears an expiration date 
that is more than five years at the date of purchase. For purposes 
of this safe harbor, the date of manufacture is the date on which 
the certificate or card expiration date is printed on the 
certificate or card.
    9. Relationship between Sec. Sec.  205.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required to be made under 
Sec.  205.20(e)(3), any applicable disclosures under Sec. Sec.  
205.20(d)(2) and (f)(2) must also be provided on the certificate or 
card.
    10. Replacement or remaining balance of an expired certificate 
or card. When a certificate or card expires, but the underlying 
funds have not expired, an issuer, at its option in accordance with 
applicable state law, may provide either a replacement certificate 
or card or otherwise provide the certificate or card holder, for 
example, by check, with the remaining balance on the certificate or 
card. In either case, the issuer may not charge a fee for the 
service.
    11. Replacement of a lost or stolen certificate or card not 
required. Section 205.20(e)(4) does not require the replacement of a 
certificate or card that has been lost or stolen.
    12. Date of issuance or loading. For purposes of Sec.  
205.20(e)(2)(i), a certificate or card is not issued or loaded with 
funds until the certificate or card is activated for use.
    13. Application of expiration date provisions after redemption 
of certificate or card. The requirement that funds underlying a 
certificate or card must not expire for at least five years from the 
date of issuance or date of last load ceases to apply once the 
certificate or card has been fully redeemed, even if the underlying 
funds are not used to contemporaneously purchase a specific good or 
service. For example, some certificates or cards can be used to 
purchase music, media, or virtual goods. Once redeemed by a 
consumer, the entire balance on the certificate or card is debited 
from the certificate or card and credited or transferred to another 
``account'' established by the merchant of such goods or services. 
The consumer can then make purchases of songs, media, or virtual 
goods from the merchant using that ``account'' either at the time 
the value is transferred from the certificate or card or at a later 
time. Under these circumstances, once the card has been fully 
redeemed and the ``account'' credited with the amount of the 
underlying funds, the five-year minimum expiration term no longer 
applies to the underlying funds. However, if the consumer only 
partially redeems the value of the certificate or card, the five-
year minimum expiration term requirement continues to apply to the 
funds remaining on the certificate or card.

20(f) Additional Disclosure Requirements for Gift Certificates or 
Cards

    1. Reference to toll-free telephone number and Web site. If a 
certificate or card does not have any fees, the disclosure under 
Sec.  205.20(f)(2) is not required on the certificate or card. See, 
however, Sec.  205.20(e)(3)(ii).
    2. Relationship to Sec.  226.20(e)(3)(ii). The same toll-free 
telephone number and Web site may be used to comply with Sec. Sec.  
226.20(e)(3)(ii) and (f)(2). Neither a toll-free number nor a Web 
site must be maintained or disclosed if no fees are imposed in 
connection with a certificate or card, and both the certificate or 
card and underlying funds do not expire.
    3. Relationship between Sec. Sec.  205.20(d)(2), (e)(3), and 
(f)(2). In addition to any disclosures required pursuant to Sec.  
205.20(f)(2), any applicable disclosures under Sec. Sec.  
205.20(d)(2) and (e)(3) must also be provided on the certificate or 
card.

20(g) Compliance Dates

    1. Period of eligibility for loyalty, award, or promotional 
programs. For purposes of Sec.  205.20(g)(2), the period of 
eligibility is the time period during which a consumer must engage 
in a certain action or actions to meet the terms of eligibility for 
a loyalty, award, or promotional program and obtain the card, code, 
or other device. Under Sec.  205.20(g)(2), a gift card issued 
pursuant to a loyalty, award, or promotional program that began 
prior to August 22, 2010 need not state the disclosures in Sec.  
205.20(a)(4)(iii) regardless of whether the consumer became eligible 
to receive the gift card prior to August 22, 2010, or after that 
date. For example, a product manufacturer may provide a $20 rebate 
card to a consumer if the consumer purchases a particular product 
and submits a fully completed entry between January 1, 2010 and 
December 31, 2010. Similarly, a merchant may provide a $20 gift card 
to a consumer if the consumer makes $200 worth of qualifying 
purchases between June 1, 2010 and October 30, 2010. Under both 
examples, gift cards provided pursuant to these loyalty, award, or 
promotional programs need not state the disclosures in Sec.  
205.20(a)(4)(iii) to qualify for the exclusion in Sec.  205.20(b)(3) 
for loyalty, award, or promotional gift cards because the period of 
eligibility for each program began prior to August 22, 2010.

    By order of the Board of Governors of the Federal Reserve 
System, March 23, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010-6759 Filed 3-31-10; 8:45 am]
BILLING CODE 6210-01-P