Pending Legislation Would Extend CARD Act Deadline for Prepaid

Issuers of prepaid and gift cards could get an extension of the Aug. 22 deadline for complying with new rules from the Federal Reserve under legislation pending in the U.S. Senate. The so-called ECO-Gift Card bill, sponsored by U.S. Rep. Dan Maffei, D-NY, passed the U.S. House of Representatives on June 15 on a 357-0 vote.

The bill delays until Jan. 31 the effective date by which retailers must replace gift cards to make them compliant with regulations in the Credit Card Accountability Responsibility and Disclosure Act (CARD) Act. Card companies and retailers said that the original August deadline would create a logistical nightmare if they had to replace hundreds of millions of cards before the 2010 holiday-shopping season.

The 104 pages of rules, issued by the Fed to enforce the Credit CARD Act signed into law last year, mandate changes in disclosure, fee structures, card-expiration dates, and related areas. The rules cover gift certificates, store gift cards, and general-use prepaid cards.

H.R. 5502 would change the effective date of the gift card provisions for gift certificate, store gift card, or general-use prepaid cards produced prior to April 1, 2010.

If H.R. 5502 passes the Senate, retailers won’t be faced with tossing millions of cards already in inventory, says Jon Palmer, newly elected chairman of the Network Branded Prepaid Card Association and chief executive of FSV Payment Systems.

“Hundreds of millions of cards that are in inventory now can be used this year,” Palmer says, adding that the NBPCA is working in the Senate for passage of the Maffei bill.

Under the bill, retailers are required to inform consumers, beginning in August 2010, that they will not be charged dormancy fees and gift cards cannot expire. Disclosure to consumers will be required via toll- free numbers, Web sites, and signage in stores, and retailers must continue to inform customers of those changes through January 2013.

The Maffei bill is the second piece of legislation favorable to prepaid cards pending in Congress. Earlier this week, reloadable prepaid cards and cards issued by state and federal governments to distribute benefits were exempted from the so-called Durbin Amendment to regulate debit card interchange fees. Reloadable prepaid cards often are used by the unbanked and underbanked, and lobbyists worried that Sen Richard Durbin’s amendment would force banks to raise the costs of prepaid and government card programs.

Although NBPCA didn’t lobby for the changes in the Durbin amendment, “it’s probably a favorable outcome for prepaid,” Palmer says. “We prefer there be no price-setting by the legislature but the compromise of prepaid cards issued by the smaller banks and exemption of prepaid cards for these special purposes is a fair outcome.”

Under the Fed's prepaid card rules, dormancy, inactivity, or service fees may be assessed only for a card or certificate that has had at least one year of inactivity. There can be no more than one such fee charged per month. Consumers must be given clear and conspicuous disclosures about fees. Service fees subject to the restriction include monthly maintenance fees, balance-inquiry fees, and transaction-based fees, such as reload fees, ATM fees, and point-of-sale fees.

Under the rules, expiration dates must be a minimum of five years after the date a certificate or card is issued or the date funds are last loaded. The expiration-date restrictions apply to a consumer’s funds, not to the certificate or card itself. Fees are prohibited for replacing an expired certificate or card, or for refunding the remaining balance, if the underlying funds remain valid.