Electronic Fund Transfers, 60986-61012 [E9-27717]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 74, Number 223 (Friday, November 20, 2009)]
[Proposed Rules]
[Pages 60986-61012]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-27717]



[[Page 60985]]

-----------------------------------------------------------------------

Part III





Federal Reserve System





-----------------------------------------------------------------------



12 CFR Part 205



Electronic Fund Transfers; Proposed Rule

Federal Register / Vol. 74, No. 223 / Friday, November 20, 2009 / 
Proposed Rules

[[Page 60986]]


-----------------------------------------------------------------------

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: Proposed rule; request for public comment.

-----------------------------------------------------------------------

SUMMARY: The Board is proposing to amend 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 
proposal restricts a person's ability to impose dormancy, inactivity, 
or service fees for certain prepaid products, primarily gift cards. In 
addition, the proposal generally prohibits the sale or issuance of such 
products if they have an expiration date of less than five years. The 
proposed amendments implement statutory requirements set forth in the 
Credit Card Accountability Responsibility and Disclosure Act of 2009 
that are effective on August 22, 2010.

DATES: Comments must be received on or before December 21, 2009.

ADDRESSES: You may submit comments, identified by Docket No. R-1377, by 
any of the following methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper form in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Ky Tran-Trong, Counsel, Vivian Wong, 
Senior Attorney, or Mandie Aubrey or Dana Miller, Attorneys, 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 915 and 916 of 
the EFTA for financial institutions and other persons subject to the 
Act who act in conformity with the Board's commentary interpretations. 
15 U.S.C. 1693m(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.
---------------------------------------------------------------------------

    \1\ Public Law 111-24, 123 Stat. 1734 (2009).
---------------------------------------------------------------------------

    The Board must prescribe rules implementing EFTA Section 915 within 
nine months after enactment of the Credit Card Act. 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 point-of-sale 
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\
---------------------------------------------------------------------------

    \2\ See Comdata, 2007 Adult Gift Card Study (available at: 
https://storedvalue.com/assets/pdf/study/2007/study_adult_gift_card_2007.pdf).
---------------------------------------------------------------------------

    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 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

[[Page 60987]]

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.
---------------------------------------------------------------------------

    \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: https://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); ``Loyalty is Closed-Loop 
Gift Card's `Second Wind','' The Green Sheet, at 53 (May 29, 2009) 
(citing an Aite Group estimate of 904 million closed-loop gift cards 
sold in 2007).
---------------------------------------------------------------------------

    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 may not be reloaded with 
additional value after card issuance. With closed-loop gift cards, 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. Merchants may also derive revenue from the imposition of 
certain fees, such as from monthly maintenance or transaction-based 
fees or from interest earned from unused card balances.
    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, open-loop gift card 
transactions are processed over the debit or credit card networks. 
Fourth, open-loop gift cards may carry additional, and in some cases 
higher, fees than closed-loop gift cards as a result of higher 
compliance and customer service costs. Fifth, 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, and used 
either for the purchaser's own purposes or given to 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 loyalty or 
frequent buyer program. Merchants and product manufacturers may also 
issue gift cards to consumers to provide a rebate for the consumer's 
purchase of a particular product instead of sending 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.\4\ 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 form, many 
State laws do not apply to open-loop bank-issued cards.\5\
---------------------------------------------------------------------------

    \4\ See, e.g., Consumers Union, State Gift Card Consumer 
Protection Laws (available at: https://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: https://www.ncsl.org/programs/banking/GiftCardsandCerts.htm).
    \5\ See, e.g., Ark. Code Sec.  4-88-704; Cal. Civil Code Sec.  
1749.45; Fla. Stat. Sec.  501.95; and Md. Commercial Code Ann. Sec.  
14-1320.
---------------------------------------------------------------------------

III. Summary of Proposal

Restrictions on Dormancy, Inactivity, or Service Fees

    Under the proposed 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 issuer or vendor must 
provide these disclosures to the purchaser before the certificate or 
card is purchased.

Expiration Date Restrictions

    The proposed rule would also provide 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.
    Two proposed alternative approaches are set forth to minimize 
potential confusion for consumers if the expiration date on a 
certificate or card and the expiration date for the underlying funds 
differ. The first alternative would prohibit 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 
require policies or procedures 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.
    The proposed rule would also require 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. In addition, the 
proposed rule would prohibit 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.

Additional Disclosure Requirements Regarding Fees

    In addition to the statutory restrictions for dormancy, inactivity, 
or service fees, the proposed rule would require the disclosure of all 
other fees imposed in connection with a gift

[[Page 60988]]

certificate, store gift card, or general-use prepaid card. These 
disclosures would have to be provided on or with the certificate or 
card and disclosed prior to purchase. The proposed rule would also 
require 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 use to obtain fee information or replacement certificates or cards.

Exclusions

    Consistent with the statute, the proposed rule excludes certain 
card 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, would not be subject to the 
substantive restrictions on imposing dormancy, inactivity, or service 
fees, or on expiration dates. However, under the proposal, disclosures 
of all fees, including any dormancy, inactivity, or service fees, and 
any expiration date that may apply, would be required for certificates 
or cards issued through a loyalty, award, or promotional program.

IV. Legal Authority

    Section 401 of the Credit Card Act creates a new Section 915 of the 
EFTA and prohibits any person from charging dormancy, inactivity, or 
service fees with respect to a gift certificate, store gift card, or 
general-use prepaid card, as those terms are defined in the Act, 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 U.S.C. 1693m(b). 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).
    Section 401(d)(1) of the Credit Card Act requires the Board to 
prescribe rules to carry out the new requirements. This section also 
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). 
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.
    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 the Board deems necessary or proper to effectuate the 
purposes of the title, to prevent circumvention or evasion, or to 
facilitate compliance.

V. Section-by-Section Analysis

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. To clarify that this standard is 
one of general application, the Board is proposing to revise Sec.  
205.4(a)(1) to provide that for certain disclosures required by the 
regulation, different disclosure standards may apply when specified in 
the rule.
    For example, as further discussed below, the disclosures for 
certain prepaid cards set forth in this proposal are subject to a 
``clear and conspicuous'' standard, consistent with new Section 915 of 
the EFTA, rather than the ``clear and readily understandable'' standard 
that generally applies under Regulation E. See proposed Sec.  205.20, 
discussed below. Similarly, under Sec.  205.11(c), notices provided by 
financial institutions to satisfy the error investigation requirements 
may be provided orally or in writing. See comment 11(c)-1.

Section 205.12 Relation to Other Laws

    Section 920 of the EFTA (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. 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 Section 920 of the EFTA 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 is proposing to amend Sec.  205.12(b) of Regulation E and 
comment 12(b)-1 to conform with the amendments to Section 920 of the 
EFTA made by the Credit Card Act.

Section 205.20 Requirements for Gift Cards and Gift Certificates

20(a) Definitions
    New 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, Section 915 applies to gift certificates, 
store gift cards, and general-use prepaid cards as those terms are 
defined in the statute. In addition, new EFTA Section 915(a)(1) defines 
a dormancy fee, inactivity charge or fee, and new EFTA Section 
915(a)(3) defines a service fee. See 15 U.S.C. 1693m(a). Proposed Sec.  
205.20(a) defines the following terms: gift certificate; store gift 
card; general-use prepaid card; loyalty, award, or promotional gift 
card; dormancy fee, inactivity charge or fee; and service fee.

[[Page 60989]]

    The proposed definitions of gift certificate, store gift card, and 
general-use prepaid card generally track the definitions set forth in 
the statute. However, the Board is proposing certain adjustments to the 
statutory definitions pursuant to its authority under EFTA Section 
904(c) to provide clarity and to harmonize key terms throughout the 
rule. In general, these adjustments are not intended to make 
substantive changes to the statutory definitions.
    As an initial matter, the Board notes that new 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.''
    The Board does not believe that distinguishing the types of 
products covered by the rule by, for instance, the material that is 
used to produce a payment card would 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.\6\
---------------------------------------------------------------------------

    \6\ Products issued in paper form only are excluded under new 
EFTA Section 915(a)(2)(D)(v) and proposed Sec.  205.20(b)(5).
---------------------------------------------------------------------------

    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. The Board does not believe that an 
issuer that, for example, chooses to use non-plastic biodegradable 
materials to create a more environmentally-friendly product should be 
precluded from relying on an exclusion solely because its payment 
device is not made of plastic. Therefore, the proposed rule generally 
refers to ``cards, codes, or other devices'' to avoid such arbitrary 
distinctions and to provide consistency across the definitions.
    Proposed comment 20(a)-1 clarifies that the requirements of Sec.  
205.20 generally apply to all cards, codes, or other devices that meet 
the 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 would apply even if a physical card or certificate is not issued. 
The proposed comment clarifies that products not issued in card form, 
such as an account number or bar code that enables the consumer to 
access underlying funds, would be subject to Sec.  205.20 if they 
otherwise meet the definition of gift certificate, store gift card, or 
general-use prepaid card. Similarly, Sec.  205.20 would apply to a 
device with a chip or other embedded mechanism which links the device 
to stored funds, such as a mobile phone or sticker containing a 
contactless chip, if the device otherwise meets the definition of gift 
certificate, store gift card or general-use prepaid card.
    In addition, 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). The 
Board does not believe, however, that there is a meaningful distinction 
between electronic promises and cards, codes, or other devices that can 
be used as payment mechanisms. Instead, the Board views an electronic 
promise as a commitment to pay that is itself manifested or represented 
by a ``card, code, or other device,'' rather than as a distinct payment 
mechanism. Proposed comment 20(a)-2 clarifies 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.'' \7\ The proposed comment further provides that the promise 
is 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. Thus, the proposal contemplates that the term ``card, code, or 
other device'' when used in the regulation also incorporates the 
statutory reference to ``electronic promises.'' 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 would be a card, 
code, or other device covered by Sec.  205.20. See proposed comment 
20(a)-2.
---------------------------------------------------------------------------

    \7\ See, e.g., UCC 3-106(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.'')
---------------------------------------------------------------------------

    Last, 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.'' One way to reconcile the use of these different terms in the 
statute is to interpret ``specified'' as referring to cards that are 
issued in a predenominated amount (e.g., a $50 gift card), and to 
interpret ``requested'' as referring to a consumer-requested amount 
(e.g., where the consumer states the amount to load on a gift card). 
Such an interpretation would mean that gift certificates and store gift 
cards issued in a consumer-requested amount and general-use prepaid 
cards issued in a predenominated amount would be excluded from the 
rule. The Board does not believe that such a result would be consistent 
with the statute's purpose.
    The Board believes that consumers should receive the same 
protections when purchasing gift cards or gift certificates regardless 
of whether the amount on the card or certificate is determined by the 
issuer or the consumer. Thus, the Board is interpreting the statutory 
definitions of gift certificate, store gift card, and general-use 
prepaid card broadly to cover both predenominated and consumer-
designated certificates or cards. Therefore, the proposed rule uses 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 a consumer-requested, or variable load, 
amount.
    The Board notes that 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 cards issued 
for non-business purposes. The Board solicits comment on whether it is 
appropriate to limit the scope of the final rule so that it does not 
apply to cards issued for business purposes. Any such limitation, 
however, would presumably not exclude cards that are purchased by a 
business for the purposes of redistribution or resale to consumers for 
consumers to use. For example, a program manager may purchase gift 
cards directly from an issuing merchant and sell those cards through 
the program manager's retail outlets. Or, a corporation may give gift 
cards it has purchased directly from the issuing merchant to consumers 
pursuant to a reward or other incentive program. In such cases, the 
Board believes that because the end use of the gift card is for 
consumer purposes, the consumer protections provided by the Credit Card 
Act should apply, unless the card is otherwise excluded. (See EFTA 
Section 915(a)(2)(D) and proposed Sec.  205.20(b), discussed below.) 
Accordingly, given

[[Page 60990]]

that issuers would have to adopt controls and potentially monitor the 
distribution or sale of gift cards to ensure that the end use is for 
business purposes, comment is also requested regarding the overall 
utility of, or need for, such a scope provision in the final rule.
20(a)(1) Gift Certificate
    Proposed Sec.  205.20(a)(1) defines the term ``gift certificate'' 
as a card, code, or other device that is: (a) Issued 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 proposed 
definition generally tracks the definition set forth in the statute, 
but modifies the terms to simplify and clarify the definition. See EFTA 
Section 915(a)(2)(B).
    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 each other 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 proposed comment 20(a)(2)-2.
20(a)(2) Store Gift Card
    Proposed Sec.  205.20(a)(2) defines the term ``store gift card'' as 
a card, code, or other device that is: (a) Issued to a consumer in a 
specified amount, whether or not that amount may be increased or 
reloaded by the cardholder, in exchange for payment; and (b) redeemable 
upon presentation at a single merchant or an affiliated group of 
merchants for goods and services. The proposed definition generally 
tracks the definition set forth in the statute, but modifies the terms 
to simplify and clarify the definition. See EFTA Section 915(a)(2)(C). 
Under the proposed rule, closed-loop cards generally would be 
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 
proposed Sec.  205.20(a)(2) qualifies as a ``store gift card,'' whether 
or not the cardholder may later add more funds to the card, code, or 
other device. Thus, because ``store gift card'' includes non-reloadable 
cards, codes, or other devices that are redeemable at single merchants 
or affiliated groups of merchants, proposed comment 20(a)(2)-1 
clarifies and illustrates by way of example that a gift certificate as 
defined in Sec.  205.20(a)(1) would be a type of store gift card.
    Proposed comment 20(a)(2)-2 provides guidance on the term 
``affiliated group of merchants.'' Under new 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 within the statute. 
However, in other contexts, ``affiliate'' is used to describe 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. 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)). The Board believes that such a 
concept should similarly apply to the term ``affiliate'' when used in 
the proposed rules. Accordingly, the terms ``gift certificate'' and 
``store gift card'' generally include cards, codes, or other devices 
that are redeemable at some or all of the companies that are related by 
virtue of common ownership or common corporate control and that share 
the same name, mark, or logo. An ``affiliated group of merchants'' 
would also include franchisees because franchisees generally are 
subject to a common corporate set of policies or practices under the 
terms of their franchise licenses.
    Under some retail card programs, merchants that honor the same 
certificate or card may not be owned or otherwise controlled by the 
same parent company. For instance, two unrelated companies may be 
engaged in complementary businesses and agree to operate a common gift 
card program in which cardholders may use the same certificate or card 
at either of the two businesses. To illustrate, 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 
and for a meal preceding or following the movie. While such companies 
would not be considered ``affiliates'' in other contexts, the Board 
believes that it is appropriate to treat such arrangements like gift 
card programs operated by retailers with the same parent company or 
under common corporate control. Accordingly, proposed comment 20(a)(2)-
2 provides that the term ``affiliated group of merchants'' would 
include two or more merchants or other persons that agree among each 
other, 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 proposed comment 20(a)(3)-2 regarding mall cards, discussed 
below.) The proposed comment clarifies, however, that merchants or 
other persons would not be 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 would not be considered 
affiliated with a hardware store merely because they both agree to 
accept Visa or MasterCard-branded cards.
    Proposed comment 20(a)(2)-3 addresses mall cards and cross-
references proposed comment 20(a)(3)-2, discussed below.
20(a)(3) General-Use Prepaid Card
    Proposed Sec.  205.20(a)(3) defines ``general-use prepaid card'' as 
a card, code, or other device that is: (a) Issued to a consumer in a 
specified amount, whether or not that amount may be increased or 
reloaded by the cardholder, 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 proposed 
definition generally tracks the definition set forth in the statute, 
but modifies the terms to simplify and clarify the definition. See EFTA 
Section 915(a)(2)(A). Under the proposed 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.
    Proposed 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 
generally 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 of the mall. Proposed comment

[[Page 60991]]

20(a)(3)-2 provides that a mall card could be considered a store gift 
card or a general-use prepaid card depending on the locations in which 
the card may be redeemed. That is, if use of the mall card is limited 
to the retailers at the associated shopping mall, the card is more 
likely to be considered a store gift card. If the mall card also 
carries the brand of a payment network and can be used at any retailer 
accepting that brand, the card would be considered a general-use 
prepaid card. Regardless, the substantive and disclosure requirements 
of Sec.  205.20 would 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
    New 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. Proposed Sec.  205.20(a)(4) generally defines 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.
    As an initial matter, the Board notes that the proposed definition 
generally applies to any card, code, or other device issued pursuant to 
a loyalty, award, or promotional program, regardless of whether the 
consumer has provided any form of payment or other value to obtain the 
card. The proposed definition covers, 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. The definition also covers cards provided by 
employers to reward job performance. Proposed comment 20(a)(4)-1 
provides examples of loyalty, award, or promotional programs.
    Under proposed Sec.  205.20(b)(3), further discussed below, if a 
card, code, or other device is deemed to be a loyalty, award, or 
promotional gift card, it would not be subject to the substantive 
restrictions on imposing dormancy, inactivity or service fees, or the 
requirement to have expiration dates of at least five years. 
Accordingly, to mitigate potential consumer surprise from unexpected 
fees or expiration dates for these cards, proposed Sec.  
205.20(a)(4)(iii) provides that in order to qualify as a ``loyalty, 
award, or promotional gift card,'' certain disclosures regarding the 
fees and expiration dates applying to such cards must also be provided 
to the consumer. These disclosures are discussed in more detail below 
under Sec.  205.20(b)(3).
20(a)(5) Dormancy or Inactivity Fee
    New section 915(a)(1) of the EFTA 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.'' Proposed Sec.  205.20(a)(5) implements this definition 
with non-substantive wording modifications to improve readability. 
Because the Board believes the terms ``charge'' and ``penalty'' are 
synonymous with ``fee'' as used in this definition, the proposal 
simplifies the definition by not including the references to ``charge'' 
or ``penalty'' used in the statute.
20(a)(6) Service Fee
    New 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.'' Proposed 
Sec.  205.20(a)(6) implements this definition using substantially the 
same language as the statute. Because the Board believes the terms 
``charge'' and ``penalty'' are synonymous with ``fee'' as used in this 
definition, the proposal simplifies the definition by not including the 
statutory references to ``charge'' or ``penalty'' used in the statute.
    In addition, proposed comment 20(a)(6)-1 clarifies 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. 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. Transaction fees include, for example, fees imposed each time a 
transaction is conducted with the certificate or card and foreign 
transaction fees.
    The Board considered an alternative interpretation of a ``periodic 
fee'' as 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 notes, however, 
that the statutory definition of ``service fee'' refers to the ``use'' 
of a gift certificate, store gift card, or general-use prepaid card. 
See new EFTA Section 915(a)(3)(A) (15 U.S.C. 1693m(a)(3)(A)). 
Therefore, the Board believes that Congress intended to also capture 
consumer-initiated fees such as transaction fees and reload fees in the 
definition of ``service fee.'' Moreover, the Board is concerned that a 
narrow interpretation of ``service fee'' would lead to circumvention by 
issuers and 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. The Board believes that 
interpreting the term ``service fee'' broadly, and thus limiting the 
imposition of such fees, will improve the transparency and 
predictability of costs to the consumer.
    Consistent with new EFTA Section 915(a)(3)(B), proposed comment 
20(a)(6)-1 also clarifies that a one-time initial issuance fee is not a 
service fee. Proposed comment 20(a)(6)-1 also provides examples of 
other one-time fees that are not service fees, including cash-out fees.
20(b) Exclusions
    New 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 promise, card, code, or device 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 disclosure 
requirements in the statute.
    Proposed Sec.  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 meet any of the six conditions specified in the statute. 
As noted above, the proposed rule uses the term ``card, code, or other 
device,'' instead of the term ``electronic promise, plastic card, or 
payment code or device'' for clarity and no substantive difference is 
intended.
    Proposed comment 20(b)-1 provides guidance on the effect of meeting 
any of the specified exclusions. The comment

[[Page 60992]]

states that an excluded card, code, or other device is not subject to 
any of the substantive restrictions and disclosure requirements 
regarding the imposition of dormancy, inactivity, or service fees, or 
expiration dates. The proposed comment also provides that the 
additional disclosures in proposed Sec.  205.20(f) regarding other fees 
imposed in connection with a card, code, or other device do not apply 
to an excluded card, code, or other device.\8\
---------------------------------------------------------------------------

    \8\ See, however, proposed Sec.  205.20(a)(4)(iii) with respect 
to loyalty, award, or promotional gift cards.
---------------------------------------------------------------------------

    Proposed comment 20(b)-2 clarifies that a card, code, or other 
device may qualify for one or more exclusions. For example, a 
corporation may award its employees with a gift card that is marketed 
solely to businesses for incentive-related purposes. Under this 
example, the card, code, or other device may qualify for the exclusion 
for loyalty, award, or promotional gift cards, or for the exclusion for 
cards, codes, or other devices not marketed to the general public. Even 
if a card, code, or other device does not qualify for a particular 
exclusion, it may still fall outside the rule under a different 
exclusion. Thus, for example, if the gift card awarded by the 
corporation is of a type that can also be purchased directly from a 
merchant, the gift card may fall outside coverage under the rule 
because it is a loyalty, award, or promotional gift card (provided that 
certain disclosures are provided with the card as proposed under Sec.  
205.20(a)(4)(iii)), even though the card would not qualify as a card 
that is not marketed to the general public because it can also be 
obtained through retail channels. See proposed Sec.  205.20(b)(4), 
discussed below.
    The six specific exclusions are discussed below.
20(b)(1) Usable Solely for Telephone Services
    Proposed Sec.  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). Proposed comment 20(b)(1)-1 contains 
examples of products that fall within this exclusion, such as prepaid 
cards for long-distance telephone service and prepaid cards for 
wireless telephone service. The proposed comment further clarifies 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.
    The Board notes that mobile phones today are capable of a number of 
different functions in addition to voice communications, including 
providing consumers the ability to send text messages and to access the 
Internet. Accordingly, the Board solicits comment on whether it should 
exercise its authority under EFTA Section 904 to expand the proposed 
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. 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''). 
The Board is concerned that interpreting the exclusion narrowly may 
have the unintended effect or reducing the availability or variety of 
prepaid telephone certificates or cards in the market.

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

    Proposed Sec.  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).
    Consistent with the statute, the card, code, or other device 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 
is not excluded, even if it is not marketed or labeled as a gift card 
or gift certificate, unless a different exclusion applies. Similarly, a 
reloadable card that is marketed as a gift card or gift certificate 
does not qualify for the exclusion. Proposed comment 20(b)(2)-1 
provides that a card, code, or other device is ``reloadable'' if it has 
the capability of having more funds added by a consumer after the 
initial purchase or issuance.
    Proposed comment 20(b)(2)-2 clarifies the meaning of the term 
``marketed or labeled as a gift card or gift certificate.'' Under the 
proposed comment, 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. Moreover, whether the 
exclusion applies does not depend on the type of entity that is making 
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),\9\ 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 certificate or card, including a general-purpose 
reloadable card, may also be deemed to be marketed or labeled as a gift 
card or gift certificate even if it is primarily marketed for another 
purpose. 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.
---------------------------------------------------------------------------

    \9\ Thus, a card would not be deemed to be marketed or labeled 
as a gift card or gift certificate solely because the purchaser 
gives the card to another consumer as a ``gift.''
---------------------------------------------------------------------------

    Proposed comment 20(b)(2)-3 provides positive and negative examples 
of the term ``marketed or labeled as a gift card or gift certificate.'' 
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. In 
contrast, a card, code, or other device is not marketed or labeled as a 
gift card or gift certificate if the issuer, vendor, 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 proposed comment 20(b)(2)-3. The Board solicits comment 
on whether additional guidance on marketing is necessary to provide 
clarity with respect to the activities that may trigger coverage under 
the rule and the activities that would not.
    As discussed above, a gift card may be sold directly to the 
consumer by a 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 issuer 
can be expected to have substantial control over all facets of the card 
program, including how the card is sold or marketed.

[[Page 60993]]

    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 from 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.\10\ 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.
---------------------------------------------------------------------------

    \10\ 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.
---------------------------------------------------------------------------

    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. An exclusion that depends upon 
how a card is marketed therefore poses substantial compliance risk for 
an issuer that cannot fully control how 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 provides that 
the exclusion for a card, code, or other device that is reloadable and 
not marketed or labeled as a gift card or gift certificate applies if 
the individual card, code, or other device is not marketed or labeled 
as a gift card or gift certificate and if entities subject to the rule 
maintain policies and procedures reasonably designed to avoid such 
marketing. The proposed comment provides illustrative examples of 
procedures that would qualify and not qualify for the exclusion for 
reloadable cards, codes, or other devices that are not marketed or 
labeled as gift cards or gift certificates.
    Under the first example, an issuer or program manager distributes a 
general-purpose reloadable card through retailers and enters into a 
contract with the retailer to establish the terms and conditions under 
which the card will be sold and marketed at the retailer. The contract 
includes restrictions prohibiting the general-purpose reloadable card 
from being sold or otherwise marketed as a gift card or gift 
certificate, and requirements for policies and procedures to regularly 
monitor or otherwise verify that the cards are not being sold or 
marketed as such. The issuer or program manager then sets up one 
promotional display at the retailer for gift cards and another 
physically separated display for excluded products under proposed Sec.  
205.20(b), including the general-purpose reloadable cards, such that a 
reasonable consumer would not believe that the excluded cards are gift 
cards. Under these circumstances, 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 because 
the issuer or program manager maintains policies and procedures 
reasonably designed to avoid the marketing of the general-purpose 
reloadable card as a gift card or gift certificate. See proposed 
comment 20(b)(2)-4.i.
    In the second example, the same facts apply, except that the issuer 
or program manager has set up a single promotional display at the 
retailer on which a variety of prepaid cards, including store gift 
cards, general-purpose reloadable cards, and wireless telephone cards, 
are sold. A sign stating ``Gift Cards'' appears prominently at the top 
of the display. Under proposed comment 20(b)(2)-4.ii, any general-
purpose reloadable cards sold under such circumstances would not 
qualify for the exclusion in proposed 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.
    The Board solicits comment on whether the proposed comment provides 
sufficient guidance regarding procedures that could enable an issuer, 
program manager, or other covered entity to comply with the rule with 
respect to an excluded product under proposed Sec.  205.20(b)(2). In 
particular, comment is requested on practical issues that may arise in 
a retail environment, for example, in areas where there may not be 
sufficient space for covered and non-covered products to be separately 
displayed, such as a checkout lane. Commenters are urged to provide 
specific examples of measures that may be utilized to ensure that a 
reasonable consumer would not believe that a card that would otherwise 
be excluded, such as a general-purpose reloadable card, is a gift card 
or gift certificate.
    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 initially 
sold as a non-reloadable open-loop 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 may be sent to the cardholder.
    The Board understands that under one model, the cardholder may use 
the temporary non-reloadable card to conduct 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 to make 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 arrives in the 
mail and is activated by the cardholder.
    Under either model, the temporary card would not appear to qualify 
for the reloadable and not marketed as a gift card or gift certificate 
exclusion because it is non-reloadable. If the rule were to provide 
that such products were to fall within the exclusion notwithstanding 
the issuance of the initial non-reloadable card, then consumers that 
elect not to register the card (and therefore do not obtain a 
reloadable card) would not be given the statutory protections under the 
Credit Card Act. Conversely, if the rule were to provide that such 
products do not qualify for the exclusion at any point even if the card 
is ultimately replaced by a reloadable card, then the exclusion in EFTA 
Section 915(a)(2)(D)(ii) and proposed Sec.  205.20(b)(2) would 
effectively be eliminated for most, if not all, general-purpose 
reloadable cards, given existing business models and other regulatory 
considerations.
    Under a third approach, the restrictions on assessing dormancy, 
inactivity, or service fees, and on expiration dates could be applied 
solely to the initial non-reloadable card, but

[[Page 60994]]

not to the reloadable replacement card. While the third approach may 
provide certain flexibility for some issuers, the Board is concerned 
that consumers may be confused or surprised when they receive new terms 
regarding dormancy, inactivity, or service fees and expiration dates 
for the reloadable card that differ from the terms previously disclosed 
at the initial purchase. Given these considerations, the Board solicits 
comment on the appropriate treatment of these products.
20(b)(3) Loyalty, Award, or Promotional Gift Card
    Proposed Sec.  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). As discussed above, proposed Sec.  
205.20(a)(4) generally defines a ``loyalty, award, or promotional gift 
card'' as a card, c