Credit Card Regulation Extending to Gift Cards and Similar

According to the National Retail Federation, gift cards will be–for the third year running–the most requested gift this holiday season. Meanwhile, the New York Times recently quoted analysts who believe that, by 2012, Americans will be loading more than $100 billion on all forms of pre-paid card, including Visa- and Mastercard-branded pre-paid “credit” (more accurately “debit”) cards, and retailers’ gift cards.

Given this appetite for these types of cards among consumers, it is unsurprising that the Credit CARD Act of 2009 included provision for their regulation. And, last week, the Federal Reserve published its proposals for protecting the public.

Credit Card Rates Not an Issue

Of course, most of the things that bother consumers most about traditional cards–credit card rates, spending limits, late payment penalties, and so on–don’t apply to pre-paid and gift cards. But that doesn’t mean that these financial instruments don’t raise concerns of their own.

The Fed’s discussion document points to a number of these:

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.

The Fed’s Proposals

Unfortunately, any new consumer protections will not be in place in time for this holiday season. However, it is the Fed’s intention that they are going to be active for the end of 2010. And the principal areas that are likely to be covered are:

• Restrictions on dormancy, inactivity, and service fees
• Expiration date restrictions
• Additional disclosure requirements regarding fees

Credit Card Companies Calm

Credit card companies that issue pre-paid cards responded to the Fed’s discussion document with surprising–not to say worrying–equanimity. In a statement, Kirsten Trusko, who is president of the Network Branded Prepaid Card Association, said:

While we are still digesting the full impact of the Federal Reserve Board’s newly proposed rules related to gift cards, our general feeling is that the Fed’s proposal seems tough but fair and reasonable. In fact, much of what is being proposed related to expiration dates, clear and conspicuous disclosure of fees, restrictions on certain kinds of fees, etc., is already being done by many members of the industry. We look forward to working with the Board in the coming weeks to provide comments for improving on certain aspects of the proposed rules and resolving any unanswered questions they may have.

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