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New gift-card rules

As financial reform moves its way through the Senate, the proposed Consumer Protection Financial Agency has been reported as a key stumbling block to a bipartisan deal on FinReg. The agency, which was passed in the House as an independent entity but is proposed as an arm of the Federal Reserve in the Senate, would be devoted to protecting consumers from “unfair and abusive financial products services,” and have the power to regulate all kinds of consumer credit, from mortgage originators to payday lenders.

While the effect on predatory mortgages and hidden credit card fees have gotten most of the coverage, gift cards and prepaid debit cards, a nearly $90 billion a year industry, have been targeted by both supporters and opponents of the agency as a popular product that may be impacted by the new agency. However, well ahead of the final financial reform package, last month the Federal Reserve announced new rules governing gift cards, including:

  1. Fees for non-use can only be charged if there has been at least one year of inactivity, one fee is charged per month, and there is clear disclosure to the consumer. This includes monthly maintenance fees, reload fees, and ATM fees.
  2. Expiration dates must be at least five years after the card has been issued or funds are added the card, whichever is more recent.
  3. The rules govern all retail gift cards and network branded gift cards, like those branded with Visa, American Express, and MasterCard. However, they do not apply to prepaid phone cards or cards from consumer loyalty programs.
  4. The rules, which don’t go into effect until August 22, 2010, were mandated as part of the Credit Card Act of 2009. The previous regulatory landscape was a hodge-podge of state statues that ranged from almost nothing like Delaware (there is a mandatory expiration date of five years) to extremely stringent like Connecticut (prohibits expiration dates and service fees). However, stronger state laws will still continue to apply.
  5. So while the final version of the bill may or may not include a new regulator for consumer financial products, you can rest assured that the gift cards you get next holiday season will be good through at least 2015!