In the wake of the COVID-19 pandemic, many small businesses and restaurants have been forced to close or to provide only limited services to customers. To ensure a sustained income stream, some businesses have been emphasizing the sale of gift cards or gift certificates—and the media have been encouraging consumers to support their favorites by pitching gift cards as the “war bonds” of the coronavirus pandemic. But while buying and selling gift cards can be a win-win for both consumers and the businesses issuing them, gift card issuers must remember to comply with federal and state gift card laws that impose restrictions on expiration dates and fees, require specific disclosures, and impose other regulatory requirements. With the upsurge in gift card activity, it’s a good time to review these laws and restrictions to ensure one does not end up as the target of a Federal Trade Commission or state attorney general inquiry or an expensive class action lawsuit.

Federal Regulation of Gift Cards

The Credit Card Accountability Responsibility and Disclosure Act (“CARD Act”) was signed into law on May 22, 2009. Although the name suggests this law pertains only to credit cards, it also applies to gift cards, stored value cards, and general-use prepaid cards that are sold or issued primarily for personal, family, or household use. Section 401 of the CARD Act requires specific disclosures regarding expiration dates and fees, limits dormancy, inactivity, and service fees, and establishes a minimum expiration date for these cards.


Continue Reading Are Gift Cards the War Bonds of the COVID-19 Era? Maybe So, but Issuers Still Need to Consider the Consumer Protection Laws

prepaid cardsFor those of us who are regular readers of FTC press releases, the allure of last week’s announcement that the FTC settled its lawsuit against prepaid card company NetSpend Corporation may be more in the substance – or lack thereof – of the announcement itself. In four sentences, the FTC simply stated that the advertiser agreed to settle, that the Commission vote approving the final order was 2-1, and that Acting Chairman Ohlhausen issued a dissenting statement.

No details were provided about the claims at issue or the monetary relief imposed on the advertiser. And the FTC did not, as it often does, publish an ancillary blog on the FTC Business Center website to educate us (albeit entertainingly) on all of the terrible things that must not be done. Is this a sign of how case announcements will be handled under the Ohlhausen administration? For companies that settle with the FTC to avoid the expense and distraction of litigating with the government, a departure from condemnatory FTC press releases would be welcome.


Continue Reading FTC Settles Major Prepaid Card Advertising Case and Doesn’t Say Much about It

Note: We have revised the description of the terms of the settlement in our recent blog post on the Carribean Cruise Line TCPA matter. Click here to read the corrected post.

paperworkHaving trouble sleeping and need something to read? Lucky for you the Consumer Financial Protection Bureau (the Bureau) recently released its 1700+ page final rule for prepaid accounts under the Electronic Fund Transfer Act and the Truth in Lending Act. On the other hand, if you’d rather spend your wakeless nights watching playoff baseball, we’ve got you covered with a brief summary of the rule and some implications for the prepaid industry.

What are the types of prepaid accounts subject to the rule? The final rule defines prepaid accounts to encompass a diverse group of products, including traditional general-purpose reloadable cards; non-reloadable prepaid cards; payroll cards; student financial aid disbursement cards; tax refund cards; government benefit cards; mobile wallets; person-to-person payment products; and other electronic prepaid accounts that can store funds. The rule excludes from coverage gift cards and gift certificates; accounts used for savings or reimbursements related to certain health, dependent care, and transit or parking expenses; and certain limited government program accounts.


Continue Reading Sweeping New Federal Regulations for the Prepaid Industry

The gift card saga in New Jersey looks like it has finally wrapped up with Governor Chris Christie tying a bow on the proceedings by signing NJ S-2235, eliminating data collection requirements for sellers of qualifying gift cards and gift certificates.  Those who have followed this story may recall that back in 2010 New Jersey passed a new gift card law, which made a number of changes including shortening the abandonment period and requiring gift card sellers to collect address information, or at a minimum zip codes, from gift card purchasers.  The law was the first of its kind and led many companies, such as Blackhawk Network and InComm, to pull their gift cards from the state.  In 2012, we reported that the Third Circuit upheld the law, including the data collection provision, but as we advised later that year, the state subsequently amended the law, extending the abandonment period to 5 years and delaying the collection requirement until July 1, 2016. 
Continue Reading Returned to Sender: New Jersey Repeals Zip Code Collection Requirement for Gift Card Sellers

After remaining under seal for close to a year, an unusually exciting – well, exciting for lawyers, anyway – whistleblower (“qui tam”) case involving unclaimed gift cards in Delaware has now been unsealed and released to the public after Delaware state prosecutors independently investigated the claims and joined the case in March 2014.  The lawsuit was originally filed in June 2013 by William Sean French, a former officer of the primary defendant, Card Compliant LLC, against the company and 33 major retailers, including Ulta, Houston’s, The Apple-American Group, Homeaway.com, Il Fornaio, and Benihana, as well as the National Restaurant Association.

The allegations in the complaint state that the defendants violated the Delaware False Claims and Reporting Act (“DFCRA”) by knowingly failing to report and remit the value of unredeemed gift card balances in an effort to deprive the State of Delaware of hundreds of millions of dollars due to the State under its unclaimed and abandoned property laws.  Allegedly, in establishing the gift card avoidance scheme, the defendants created “sham” contracts identifying Card Compliant as the holder of the gift cards in exchange for an annual fee, when in reality the gift cards were always in the possession, custody and control of the card-issuing companies.  According to the allegations, Card Compliant and the shell corporations it purportedly created in Ohio and Florida were never the holders or issuers of the gift cards, and if unredeemed gift cards were never issued or held in an exempt state like Florida, Ohio or Virginia and names and addresses of each holder were not maintained, then the unredeemed balances were reportable to each company’s state of incorporation.


Continue Reading Your Escheatin’ Heart Will Tell On You: Delaware Unseals Massive Gift Card Unclaimed Property Lawsuit

On December 10th, with consumers decking the halls and swarming retail stores, the Commissioner of the Connecticut Department of Revenue Services, Kevin B. Sullivan, gave a warning to holiday shoppers that gift cards are not subject to sales tax in Connecticut. According to the Commissioner, shoppers should return to the store with their receipts and

Good news for retailers who offer gift cards to their customers for use in stores.  For the second time in recent weeks, a jury found that a major retailer has not infringed patents related to prepaid gift cards.  In the case of Alexsam Inc. v. The Gap Inc., et al, Case No. 2:13-cv-00004-MHS-CMC, Alexsam, a non-practicing entity (sometimes called by the less-complimentary moniker “patent troll”), sued The Gap for violating two patents that cover systems and methods for putting money onto store gift cards and activating the same at the point of sale.  After six months of litigation in the Eastern District of Texas’ “rocket docket,” a popular federal court for patent litigation, Alexsam’s infringement claims were rejected by a jury.  The Gap decision follows a similar non-infringement determination for Barnes & Noble who was also able to convince a jury that it also did not violate Alexsam’s patent rights.
Continue Reading Patent Troll Did Not Activate Its Gift Card

With the nation just having celebrated its 236th birthday, you probably still  have gifts on your mind. Great news—at least for now, you can pick up a gift card in New Jersey without giving up any personal information. As we noted in an entry earlier this Spring, a few prominent gift card sellers, including InComm,

The Consumer Financial Protection Bureau on May 23, 2012 announced that it is asking for comments about general purpose reloadable prepaid cards (“GPR Cards”) through an Advance Notice of Proposed Rulemaking (“ANPR”). The Bureau intends to issue a proposal to extend consumer protections provided under Regulation E to GPR Cards.

Regulation E implements the Electronic