According to this WSJ article, gift card industry is not happy about a the latest Treasury Department proposal for a US consumer watchdog agency. Specifically, they don’t like the proposed rule giving power to State’s laws in cases where they are more powerful than Federal laws.

The new breed of gift card laws will hit the cash cow open-loop cards (Visa, Mastercard) particular hard as they have been almost minting money with their high fees.

Another article in Today’s Wall Street Journal (States Get More Power to Challenge National Banks) might effect gift cards in the future. The issue is a Supreme Court rulling on Monday that partially overturns Federal rules on Bank regulation, allowing States procecutors to go after Federally chartered banks for violating certain fair lending practices. With respect to gift cards, Federally chartered banks have used the excuse that they are only regulated by the Federal government to thwart efforts by States to apply gift card laws to them. While this ruling doesn’t currently give States the power to go after banks in violation of their gift card laws, it is possibly a step in that direction.

The Wall Street Journal has an article (WSJ – A Push to Regulate Prepaid Cards) about the risks associated with reloadable prepaid debit/gift cards, namely that they aren’t subject to the Credit Card Act of 2009 and such cards aren’t required to offer protections against fraud. If fraudulent charges appear on your reloadable prepaid debit card, you essentially may have no recourse as any fraud protection offered is voluntary for the issuer.

What is most shocking however in this article is the report on the total size of the prepaid market – between $39 billion and $119 billion in transactions in 2007. (Seriously, a range this big makes me wonder if they have any clue as to the market size. This is like someone specifying their age as between 24 and 56 on Match.com rather than saying they are in their 40’s.) Numbers that large clearly aren’t part of the estimates of the overall “gift” card market of $90 billion/year. It is also shocking that such a large volume of transactions isn’t covered by the recent credit/gift card legislation.

President Obama has signed the Credit Card Reform Act into law. For a breakdown of how it affects gift cards, see here and here. The new rules won’t take effect until February of 2010. One of the most overlooked features of the law is that the Federal Reserve now has jurisdiction over gift cards, meaning it can set how high fees can be and such.

As we reported below (4/30/09 story with updates), congress passed the credit card reform act which includes curbs on gift card expiration and fees. There is other legislation (not yet a bill) making its way through congress that deals with the interchange aspects of credit cards and includes even more possible gift card legislation. The central theme in this legislation is the desire for merchants to not be penalized for offering cash prices below credit prices. One possible effect for gift cards is the ability for states to pass gift card legislation stricter than the Federal legislation. (article)

This article about how drug cartels just love gift cards points out something I never knew before: Gift cards are not covered by the law the prevents a person from taking more than $10,000 either into or out of the United States without reporting it.

According to this summary and this article of the proposed new Federal laws governing credit cards that are now working their way through the House(H.R. 627) and Senate (S.414), at least one of the proposed laws “protects gift cards from most inactivity fees.” How it does so doesn’t appear clear to me from the text of the bill. A Federal law governing gift cards would be a HUGE advancement towards the reasonable legislation of some of the rediculous fees associated with some gift cards. We can only hope that since these bills deal with credit cards, any proposed gift card laws will apply to open-loop (Visa) cards as well as closed-loop ones.

There is another version of the Fair Gift Card Act (S.710) making its way through Congress as well, again introduced by Senators Schumer and Udall. There has been virtually NO press coverage on this bill. This bill DOES apply to both open and closed loop gift cards!

In short, the Fair Gift Card Act specifies

– Cards may not expire in less than 5 years

– No dormancy, inactivity, or service fees except under very restrictive circumstances

– The Federal laws do not supercede any State laws related to gift card expirations and fees.

UPDATE 5/6/09: The gift card provision of the Senate bill is apparently one of the sticking points in rectifying the credit card legislation House and Senate bills. (article)

Update 5/18/09: The Senate passed a version of S.414 that still includes the gift card provisions stated above. The next step is for the Senate and the House to hash out a compromise bill between their two versions. Whether the gift card provisions make it in is anyones guess. (article)

Update 5/20/09: The Senate version of the bill has passed the House and been sent to President Obama for signing. Looks like the gift card provisions are still in it!

The Senate is considering a bill to tighten regulations on credit cards. Among the provisions is one that would prohibit gift cards from expiring in less than five years from the date of issue as well as significantly limit dormancy fees. This legilslation, introuced by Senators Charles Schumer and Mark Udall, is similar to legislation Schumer has been trying to get passed since 2004. There is no indication at this time whether the law would apply to both open and closed loop gift cards. (article & article)

Texas is considing a law that would ban gift card expiration dates. (article)

Today’s news is chock full of a few nice anecdotes about gift card laws.

Maryland is considering a law that would allow the state to claim 70% of unused gift card balances. Hmmm, would that make them more or less likely to pass gift card laws that would benefit the consumer? One thing I found particular humorous was the comment made by lobbyist (for retailers) Bruce Bereano “The money belongs to the person. It doesn’t belong to the state.” This is the first I’ve heard that retailers are so fiercely defending a consumers right to get the full value out of their gift card. But we really know that the retailers just want to keep all that unspent free money all to themselves. Also shocking in this article is the fact that 32 states have a law like this (I didn’t know that).

Illnois is considering a law like California’s whereby consumers could cash out gift card balances less than $10. What is interesting though is that they are considering including open-loop cards (or as they call them, reloadable cards).