This is an update to an earlier post regarding the Federal Reserve Board’s final rules implementing the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”). On July 27, 2010, H.R. 5502 was signed into law, extending the effective date of disclosure requirements under the CARD Act from August 22, 2010 to January 31, 2011, for qualifying gift cards produced prior to April 1, 2010. You may recall that the rules restrict fees and expiration dates on various types of gift certificates and cards, and require sellers and issuers to make specific disclosures.

Gift Certificates, Store Gift Cards, and General-Use Prepaid Cards

Generally, the rules restrict fees, expiration dates, and impose certain disclosure requirements for (A) gift certificates, (B) store gift cards, and (C) general-use prepaid cards, as these terms (collectively, “gift cards”) are defined in the CARD Act.

Definitions

(A) Gift Certificates – are defined in the CARD Act as a card, code, or other device that is: (i) redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo; (ii) issued in a specified amount that may not be increased or reloaded; (iii) purchased on a prepaid basis in exchange for payment; and (iv) honored upon presentation by such single merchant or affiliated group of merchants for goods or services.

(B) Store Gift Cards – these types of cards are commonly known as “closed-loop cards”, and are essentially the same as Gift Certificates, but are reloadable or may be increased in value. The CARD Act specifically defines these cards as electronic promises, plastic cards, or other payment codes or devices that are: (i) redeemable at a single merchant or an affiliated group of merchants that share the same name, mark, or logo; (ii) issued in a specified amount, whether or not that amount may be increased in value or reloaded at the request of the holder; (iii) purchased on a prepaid basis in exchange for payment; and (iv) honored upon presentation by such single merchant or affiliated group of merchants for goods or services.

(C) General-Use Prepaid Cards – commonly referred to as “open-loop cards”, are defined in the CARD Act as cards or other payment codes or devices issued by any person that are: (i) redeemable at multiple, unaffiliated merchants or service providers, or automated teller machines; (ii) issued in a requested amount, whether or not that amount may, at the option of the issuer, be increased in value or reloaded if requested by the holder; (iii) purchased or loaded on a prepaid basis; and (iv) honored, upon presentation, by merchants for goods or services or at automated teller machines.


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President Obama will soon sign the final Wall Street Reform and Consumer Protection Act, which the Senate passed last week. However, in many ways, the battle over financial reform has just begun. While the law makes broad and comprehensive changes to the nation’s financial system regulatory structure, many more details will be added in

After working through the night, the Congressional conference committee tasked with negotiating a final financial reform bill voted 27-16 to approve the bill and send it back to each chamber for a final vote on the conference report.

Recaps of the long day and night of negotiations and the final bill are available from Poltico

The Restoring American Financial Stability Act passed by the Senate on May 20 (discussed in an earlier post ) includes an amendment authored by Sen. Susan Collins (R-Maine), which would toughen the risk-and size-based capital standards facing financial institutions. Sen. Collins has stated that smaller financial institutions should no longer be subject to more lenient standards than large institutions because the “failure of larger institutions is much more likely to have a broad economic impact” and having different standards creates the incentive for banks to become “too big to fail.” The amendment would hold banks with assets above $250 billion to capital requirements at least as stringent as those applicable to smaller institutions.

Under U.S. rules, bank regulators look to the ratio of a financial institution’s Tier 1 capital to total risk-adjusted assets as a key indicator of financial health. Tier 1 capital, which includes common stock and some preferred stock, serves to cushion banks in the event of potential loss. The language in Senator Collins’ amendment apparently orders federal bank regulators to set minimum leverage and risk-based capital requirements for all banks, implies that trust-preferred securities will no longer be included within the definition of Tier 1 capital, and implies that all banks would need to comply with this new rule immediately. In an interview with the American Banker, however, Senator Collins said that what’s intended is that the new measure would apply only to “systemically important firms,” would be phased in over time, and that the language of the amendment will be changed before the bill is passed to reflect these intentions. 


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Recently, the Federal Reserve Board announced the final rules that amend Regulation E to implement the gift card provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (“CARD Act”). The rules restrict fees and expiration dates on various types of gift certificates and cards, and require sellers and issuers to make specific disclosures. These