Electronic Fund Transfers, 16580-16621 [2010-6759]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 75, Number 62 (Thursday, April 1, 2010)]
[Rules and Regulations]
[Pages 16580-16621]
From the Federal Register Online via the Government Printing 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: 
https://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: 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).
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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: https://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: https://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: 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).
    \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,

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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: https://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,