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This post was written by Gonzalo E. Mon and David J. Ervin.

Last week, the Federal Reserve Board announced final rules that restrict the application of fees and expiration dates to store gift cards, gift certificates, and general-use prepaid cards. The rules are issued under Regulation E and become effective August 22, 2010.

The rules apply to gift certificates, store gift cards, and general-use prepaid cards, as those terms are defined in the Credit CARD Act. Covered products include retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand. The rule does not apply to other types of prepaid cards, including reloadable prepaid cards that are not marketed or labeled as a gift card or gift certificate, and prepaid cards received through a loyalty, award, or promotional program.

The rules prohibit imposition of dormancy, inactivity, or service fees unless (1) there has been at least one year of inactivity on the certificate or card, (2) no more than one such fee is charged per month, and (3) the consumer is given clear and conspicuous disclosures about the fees. The rules also prohibit the sale or issuance of a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years after the date a certificate or card is issued or the date funds are last loaded.

Keep in mind that in addition to the new federal rules, gift cards are subject to a patchwork of state laws. Indeed, the new rules provide that a state law is not preempted due to inconsistency with federal law if the state law is more protective of consumers. Unfortunately, then, issuers still need to make sure that any cards that are marketed across the country comply with all of the relevant state laws.

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Skype, a service that lets consumers make phone calls online, agreed to settle a class action that challenged the company's policy of expiring credits that were older than 180 days. While Skype is free for consumers who call each other over the internet, there are fees associated with various additional features. To use these features, consumer can purchase “credits.” However, if a consumer’s account remains inactive for more than 180 days, the credit is wiped out.

The plaintiffs argued that the Skype credit is essentially a gift card, and that imposing an expiration date or inactivity fees violates laws in various states. As part of the settlement, Skype will pay $1.8 million toward a settlement fund, which will provide eligible class members with electronic vouchers for Skype credit of up to $4 each. Skype also agreed to do away with its 180-day expiration policy. More information about the settlement is available on this website.

If your company sells credits for your services, check with your legal counsel before imposing expiration dates on the credits or using any mechanism that could deplete the number of credits in a consumer’s account. Gift card laws in certain states may be broad enough to apply to your credits and could restrict your ability to deplete or expire the credits.
 

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