What You Should Know About the 2009 Federal CARD Act
CLIENT ALERT: Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”)
The federal CARD Act, signed into law on May 22, 2009, imposes new regulations on merchants and other issuers of gift certificates, store gift cards and other general use pre-paid cards. The CARD Act includes regulations related to expiration dates, fees and disclosures, all of which will go into effect on August 22, 2010. However, cards that were printed prior to April 1, 2010 (regardless of when the card was actually issued to the customer) may be exempt from the requirements of certain “on-card” disclosures until January 31, 2011.
The following is a summary of the CARD Act, highlighting those provisions that are likely to have the greatest impact on merchants and other card issuers.
Overview
The CARD Act regulates gift certificates, store gift cards and “general use pre-paid cards,” which includes any pre-paid card that is issued to a consumer in a specific amount, regardless of whether or not it may be reloaded or increased. The terms gift certificates, store gift cards, and general use pre-paid cards do not include certain types of cards, as more fully discussed below.
Dormancy or Inactivity Fees
Dormancy or inactivity fees may only be charged after there has been no activity on the card for twelve (12) consecutive months, and then may not be charged more frequently than once per calendar month. If any dormancy or inactivity fee is going to be charged, the following must be printed conspicuously on the card: (i) that such fee may be charged for inactivity; (ii) the amount of such dormancy or inactivity fee; and (iii) how often such fee may be assessed.
Expiration Dates
Disclosures
The Act requires that certain terms and conditions be disclosed to the consumer on the card itself or in a separate written disclosure delivered to the customer prior to purchase (a website posting may suffice), including fee information and expiration dates. All disclosures that must be printed on the gift cards must be printed in a “clear and conspicuous” manner. However, no specific font requirement exists.
Exemptions
Certain types of cards are exempt from the requirements of the CARD Act. Gift certificates issued only in paper form are exempt. This exemption, however, does not apply to gift certificates that are issued electronically to a consumer and then printed on paper. The exemption only applies to gift certificates issued originally in paper form. Similarly, gift cards that are not issued for a specific dollar amount are exempt from the CARD Act. This includes cards issued for a percentage discount (i.e., 25% off list price) or those that are redeemable only for admission to an event. Cards that are usable strictly for telephone services (i.e., prepaid phone cards) are also exempt from the CARD Act.
Loyalty, award and promotional cards, such as those issued in connection with consumer retention or rebate programs or contests, are exempt from some, but not all, of the requirements of the CARD Act. While these cards are not required to comply with the expiration date and fee restrictions, certain disclosures are required including: (i) the fact that the card is for promotional or loyalty purposes only; (ii) whether any expiration date and/or fees apply to the card; and (iii) a toll-free telephone number and website (if one is maintained) for information related to any fees.
State Laws
Note that where the State law is more restrictive than the CARD Act, the State law will apply, but where the CARD Act is more restrictive than State law, the CARD Act will apply. In Ohio, dormancy or inactivity fees may not be charged until there has been no activity on the card for two (2) years (vs. one (1) year under the CARD Act). Since the Ohio law is more restrictive than the CARD Act, the Ohio law applies. However, Ohio law is less restrictive with respect to expiration date restrictions, so the CARD Act applies.
Penalty for Non-Compliance
Failure to comply with the requirements of the CARD Act may result in a fine of between $500 and $5,000 per instance of non-compliance. Failure to comply with the Ohio law related to dormancy or inactivity fees may result in a fine equal to the amount of the fees, court costs and attorney’s fees.
If you would like to discuss how the new regulations may affect you or your business, or for a fuller description of the CARD Act, and legal requirements under its Ohio counterpart, please contact:
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Peter D. Brosse, Esq. Chair, Business Practice Group Meyers, Roman, Friedberg & Lewis 28601 Chagrin Blvd., Suite 500 Cleveland, Ohio 44122 (216) 831-0042 ext. 144 |
Scott M. Lewis, Esq. Administrative Partner Meyers, Roman, Friedberg & Lewis 28601 Chagrin Blvd., Suite 500 Cleveland, Ohio 44122 (216) 831-0042 ext. 124 |
Sarah M. Duffy, Esq.
Meyers, Roman, Friedberg & Lewis
28601 Chagrin Blvd., Suite 500
Cleveland, Ohio 44122
(216) 831-0042 ext. 191
This Client Alert is a summary only, prepared for general informational purposes, and is not an exhaustive description of the complex legal issues addressed herein. Nothing in this Client Alert is intended or is to constitute a legal opinion or legal advice from Meyers Roman Friedberg & Lewis or any of its attorneys.
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