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Fed Proposes New Gift Card Rules

On Monday, as part of its effort to increase consumer protections, the Federal Reserve Board announced proposed new rules that would restrict the fees and expiration dates that may eat up the value of gift cards.

The rules would protect consumers from unexpected costs associated with not using the gift card right away, and also requires issuers to clearly state the terms and conditions of the gift card.

Currently, many issuers of gift cards begin to deduct a fee from cards that haven't been used within their specified time-frame. The cost of these "dormancy fees" tend to range from $2 to $5 a month, and typically begin to suck the life out of a gift card after a year from the date of purchase, but some gift cards have as little as six months before these types of fees reduce the card's true value.

So if the recipient tosses a fifty dollar gift card in a drawer to save for a rainy day and then pulls it out to use a year or two later, the card's value is likely to be significantly less than the fifty dollars they thought they had.

The Fed said, "The proposed rules would prohibit dormancy, inactivity, and service fees on gift cards unless: (1) there has been at least one year of inactivity on the certificate or card; (2) no more than one such fee is charged per month; and (3) the consumer is given clear and conspicuous disclosures about the fees."

The proposed rules also require that the gift card's expiration date is at least five years after the date of issuance, or five years after the date when funds were last loaded.

The proposed rules will generally cover gift certificates, retail gift cards that can be used at a single merchant or affiiated group of merchants, and general-use pre-paid cards - network branded gift cards, which are redeemable at any merchant that accepts the card brand.

The proposed rules will not apply to other types of prepaid cards, including reloadable prepaid cards that aren't marketed or labeled as gift cards or gift certificates, and prepaid cards that are offered as part of a loyalty, award, or promotional program.

The proposal would amend Regulation E (Electronic Fund Transfers) to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure (Credit CARD) Act of 2009. The rules would become effective August 22, 2010.

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Tuesday, 14 July 2020

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