Source: https://www.federalregister.gov/documents/2010/08/17/2010-20154/electronic-fund-transfers
Timestamp: 2017-11-22 04:18:04
Document Index: 227247542

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A Rule by the Federal Reserve System on 08/17/2010
50683-50688 (6 pages)
https://www.federalregister.gov/d/2010-20154 https://www.federalregister.gov/d/2010-20154
Start Preamble Start Printed Page 50683
Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board's Web site at http://www.federalreserve.gov/​generalinfo/​foia/​ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper form in Room MP-500 of the Board's Martin Building (20th and C Streets, NW) between 9 a.m. and 5 p.m. on weekdays.
On May 22, 2009, the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit Card Act) was signed into law.[1] Section 401 of the Credit Card Act amended the Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., and imposed certain restrictions on a person's ability to impose dormancy, inactivity, or service fees with respect to gift certificates, store gift cards, and general-use prepaid cards. In addition, the Credit Card Act generally prohibited the issuance or sale of such products if they expire earlier than five years from the date of issuance of a gift certificate or the date on which funds were last loaded to a store gift card or general-use prepaid card.
Congress recently passed legislation that amends Section 403 of the Credit Card Act to delay the effective date of certain gift card disclosure provisions of the Credit Card Act for certificates or cards produced prior to April 1, 2010 (Gift Card Amendment).[2] The Gift Card Amendment provides a delayed effective date with respect to these provisions in order to permit the sale of existing card stock through January 31, 2011. Nonetheless, the substantive fee and expiration date protections provided by the Credit Card Act continue to apply to those certificates or cards sold to a consumer on or after August 22, 2010. The interim final rule published today revises the April 2010 final gift card rule in order to implement the Gift Card Amendment.
While the Gift Card Amendment delays the effective date for certain disclosure requirements set forth in the Credit Card Act, the Gift Card Amendment does not address the status of additional requirements adopted in the Board's final gift card rule. As a result, persons seeking to take advantage of the relief afforded by the Gift Card Amendment may be unable to do so if certain of these additional provisions were to apply after August 22, 2010. For example, § 205.20(e)(1) prohibits any person from selling or issuing a certificate or card unless the consumer has had a reasonable opportunity to purchase a certificate or card with at least five years remaining until the certificate or card expiration date. Thus, Start Printed Page 50684a card produced prior to April 1, 2010 that has a card expiration date of less than five years could not be sold under the final gift card rule, notwithstanding the provisions of the Gift Card Amendment. Therefore, in order to carry out the intended purpose of the Gift Card Amendment, this interim final rule also delays the effective date of certain of these supplemental requirements.
This interim final rule revises §§ 205.20(c) and (g) of the final gift card rule (“Form of Disclosures” and “Compliance Dates,” respectively) and adds a new § 205.20(h) (“Temporary Exemption”).
The Gift Card Amendment requires that certain alternative disclosures be made to the consumer in order for an issuer to take advantage of the delayed effective date, through in-store signage, messages during customer service calls, Web sites, and general advertising. These disclosure requirements are implemented through § 205.20(h)(2) of the interim final rule, discussed in more detail below.
Section 205.20(c)(2) of the final gift card rule generally requires disclosures to be made in writing or electronically, and in retainable form. The Board believes such requirements are unnecessary with respect to the disclosures required by § 205.20(h)(2). For example, it would be impracticable to provide in-store signage under § 205.20(h)(2) in a retainable form. Moreover, the alternative disclosures required by § 205.20(h)(2) are intended to relieve the burden of replacing non-compliant card stock with card stock bearing disclosures that comply with the final gift card rule, so Board believes that the format standards in § 205.20(c)(2) are less appropriate in this instance. Thus, § 205.20(c)(2) has been revised to provide that the disclosures required by § 205.20(h)(2) need not be made in a retainable form. For similar reasons, § 205.20(c)(2) is revised to provide that the prior-to-purchase disclosures required by § 205.20(c)(3) need not be provided in a retainable form. Section 205.20(c)(2) has also been revised to make clear that the disclosures required by § 205.20(h)(2) may be provided orally.
The final gift card rule becomes effective August 22, 2010, consistent with the Credit Card Act. To give effect to the delayed effective date set forth in the Gift Card Amendment, the interim final rule revises § 205.20(g)(1) to state that, except as provided in new § 205.20(h), § 205.20 applies to any gift certificate, store gift card, or general-use prepaid card sold to a consumer on or after August 22, 2010, or provided to a consumer as a replacement for such certificate or card.
Section 205.20(g)(2) of the final gift card rule sets forth a special transition rule for the disclosure requirements applicable to loyalty, award, and promotional gift cards. Specifically, § 205.20(g)(2) provides that the disclosure requirements in § 205.20(a)(4)(iii) apply to any card, code or other device provided to a consumer in connection with a loyalty, award, or promotional program where the period of eligibility for the program begins on or after August 22, 2010. The Gift Card Amendment does not specifically delay the effective date of the disclosures required by § 205.20(a)(4)(iii), and accordingly the effective date for loyalty, award, and promotional cards remains unchanged in this interim final rule.
As discussed above, the Gift Card Amendment delays the effective date of the disclosure requirements in EFTA Sections 915(b)(3) and (c)(2)(B) under the Credit Card Act under certain circumstances. Section 205.20(h)(1) implements the delayed effective date. Specifically, § 205.20(h)(1) provides that, for any gift certificate, store gift card, or general-use prepaid card produced prior to April 1, 2010, the effective date of the requirements of paragraphs (c)(3), (d)(2), (e)(1), (e)(3), and (f) of this section is January 31, 2011, provided that an issuer of such certificate or card meets several specified conditions.
Section 205.20(h)(1) delays the effective dates of §§ 205.20(d)(2) and (e)(3)(i) of the final gift card rule. Section 205.20(d)(2), which implemented EFTA Section 915(b)(3)(A), prohibits the imposition of any dormancy, inactivity, or service fee unless, among other things, certain specified clear and conspicuous disclosures about the fees are made on the certificate or card. Section 205.20(e)(3)(i), which implemented EFTA Section 915(c)(2)(B), requires that the expiration date for the certificate or card's underlying funds—or the fact that the underlying funds do not expire—be disclosed on the certificate or card. These disclosure requirements are subject to the delayed effective date under the Gift Card Amendment for certificates or cards produced prior to April 1, 2010.
Although not mandated by the Gift Card Amendment, the Board believes that §§ 205.20(e)(1), (e)(3)(iii), and (f) should also be subject to the delayed effective date in order to carry out the intended purpose of the Gift Card Amendment. For example, some gift cards produced before April 1, 2010 may bear expiration dates of less than five years, which would not comply with § 205.20(e)(1). If the Board did not provide for a delayed effective date with respect to § 205.20(e)(1), issuers would not be permitted to sell this existing Start Printed Page 50685card stock, even if issuers otherwise satisfied the statutory prerequisites to qualify for relief under the Gift Card Amendment. Such a result would undermine the purpose of the Gift Card Amendment.
Finally, § 205.20(h)(1) delays the effective date of § 205.20(c)(3). Section 205.20(c)(3) requires that the disclosures required by §§ 205.20(d)(2), (e)(3), and (f)(1) be disclosed to the consumer prior to purchase. As discussed in more detail in the final gift card rule, § 205.20(c)(3) was adopted in the final rule both pursuant to statutory mandate (in EFTA Section 915(c)(3)(B)) and pursuant to the Board's authority under EFTA Section 904(a). For the reasons discussed above, under § 205.20(h)(1) of this interim final rule, any disclosures that are required to be provided prior to purchase under § 205.20(c)(3) are subject to the delayed effective date, provided that the issuer complies with the conditions specified in § 205.20(h)(1).
To take advantage of the Gift Card Amendment's delayed effective date, an issuer of the certificate or card must meet several specified conditions. First, the issuer must comply with the other provisions of § 205.20, including the section's substantive restrictions on the imposition of fees. Second, the issuer must not impose an expiration date with respect to the funds underlying such a certificate or card. Third, the issuer must, at the consumer's request, replace such certificate or card if the certificate or card has funds remaining at no cost to the consumer. Finally, the issuer must satisfy the disclosure requirements of new § 205.20(h)(2), discussed in more detail below. See §§ 205.20(h)(1)(i)-(iv).
Comment 20(h)(1)-1 explains that certificates or cards produced prior to April 1, 2010 may be sold to a consumer for a limited time without satisfying the requirements of § 205.20(c)(3), (d)(2), (e)(1), (e)(3), and (f), provided that issuers of such certificates or cards comply with the additional substantive and disclosure requirements of §§ 205.20(h)(1)(i)-(iv). In contrast, issuers of certificates or cards produced prior to April 1, 2010 need not satisfy these additional requirements if the certificates or cards fully comply with the April 2010 final gift card rule. Thus, if on August 22, 2010 an issuer sells gift cards produced prior to April 1, 2010 that do not have fees and do not expire, and which otherwise comply with the final gift card rule, that issuer would not then be required to make the in-store signage and other disclosures required by § 205.20(h)(2) with respect to those gift cards because those cards satisfy the requirements of the final gift card rule.
In order for an issuer to take advantage of the delayed effective date, the Gift Card Amendment requires that certain alternative disclosures be made to the consumer. Section 205.20(h)(2) of the interim final rule implements these disclosure requirements, largely tracking the language of the statute. Specifically, § 205.20(h)(2) provides that issuers relying on the delayed effective date in § 205.20(h)(1) must disclose through in-store signage, messages during customer service calls, Web sites, and general advertising, that: (i) The underlying funds of such certificate or card do not expire; (ii) consumers holding such certificate or card have a right to a free replacement certificate or card, accompanied by the packaging and materials typically associated with such certificate or card; and (iii) any dormancy, inactivity, or service fee for such certificate or card that might otherwise be charged will not be charged if such fees do not comply with Section 915 of the Electronic Fund Transfer Act.
In some cases, issuers may not have direct control over in-store signage and store advertisements. Accordingly, comment 20(h)(2)-1 explains that issuers may make the disclosures required by § 205.20(h)(2) through a third party, such as a retailer or merchant. For example, an issuer may have a merchant install in-store signage with the disclosures required by § 205.20(h)(2) on the issuer's behalf.
The Gift Card Amendment requires the disclosures implemented in § 205.20(h)(2) to be maintained until January 31, 2013. The Board believes that such a requirement is appropriate with respect to Web sites that a certificate or card recipient may visit and phone numbers that a recipient may call for more information. For example, a gift card recipient may call a customer service phone number printed on the card to obtain more information about the card's fees or terms of expiration. See § 205.20(h)(3)(ii).
However, certificates or cards sold on or after January 31, 2011 must comply with §§ 205.20(a)-(f) of the final gift card rule. Because consumers would only be able to purchase cards that are fully compliant with the Credit Card Act from that date forward, consumers purchasing certificates or cards might mistakenly believe that the disclosures on the signage are applicable to their certificates or cards. Thus, the Board believes that requiring issuers to maintain advertisements or in-store signage on or after January 31, 2011 which reference certificates or cards that are no longer permitted to be issued or sold, could be confusing and even misleading to consumers.
Section 401(d)(1) of the Credit Card Act directs the Board to prescribe rules to carry out the gift card requirements of the Credit Card Act. The Board is exercising its authority under Section 401(d)(1) to implement the provisions of the Credit Card Act as superseded by the Gift Card Amendment with respect to the delayed effective date of the requirements in §§ 205.20(d)(2) and (e)(1)(i), and part of § 205.20(c)(3).
In addition, Section 401(d)(2) of the Credit Card Act requires the Board to determine the extent to which the individual definitions and provisions of the EFTA and Regulation E should apply to gift certificates, store gift cards, and general-use prepaid cards. See EFTA Section 915(d)(2); 15 U.S.C. 1693m(d)(2). Further, Section 904(a) of the EFTA authorizes the Board to prescribe regulations necessary to carry out the purposes of the title. The express purposes of the EFTA are to establish “the rights, liabilities, and responsibilities of participants in electronic fund transfer systems” and to provide “individual consumer rights.” Start Printed Page 50686 See EFTA Section 902(b); 15 U.S.C. 1693. The Board is exercising its authority under EFTA Sections 904(a) and 915(d)(2) for the reasons discussed above to provide for the delayed effective date of the disclosure requirements of §§ 205.20(e)(1), 205.20(e)(3)(ii)-(iii), and 205.20(f), and part of § 205.20(c)(3).
The Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) generally requires public notice before promulgation of regulations. See 5 U.S.C. 553(b). Unless notice or hearing is required by statute, however, the APA provides an exception “when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest.” 5 U.S.C. 553(b)(3)(B). The Board finds that, with respect to this rulemaking, there is good cause to conclude that providing notice and an opportunity to comment within the timeframe mandated by Congress is impracticable.
The gift card provisions of the Credit Card Act are effective August 22, 2010, and the Gift Card Amendment delays this effective date only with respect to certain specified disclosure provisions. The time period remaining before August 22, 2010 does not provide sufficient time for the Board to prepare proposed regulations and publish them in the Federal Register; provide a reasonable period for interested parties to review the proposal and prepare comments; analyze the comments submitted; and prepare the final regulations and publish them in the Federal Register. Even if the Board were able to technically comply with the notice-and-comment process required by § 553 within the allotted time, such a process would not comply with the purpose of the APA because interested parties would not have sufficient time to prepare well-researched comments and the Board would not have time to conduct a meaningful review and analysis of those comments. Furthermore, a notice-and-comment process would leave no time between the issuance of final regulations and August 22, 2010 for affected parties to adjust their procedures in order to comply. In contrast, the adoption of an interim final rule enables the Board to provide guidance in advance of the effective date and provides affected parties with more time to comply with the statutory provisions.
Because the gift card provisions of the Credit Card Act, and the rule promulgated thereunder, are effective on August 22, 2010, the Board's interim final rule implementing those provisions is also effective on that date. The APA generally requires that rules be published not less than 30 days before their effective date. See 5 U.S.C. 553(d). As with the notice requirement, however, the APA provides an exception when “otherwise provided by the agency for good cause found and published with the rule.” Id. § 553(d)(3).
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires an initial and final regulatory flexibility analysis only when 5 U.S.C. 553 requires publication of a notice of proposed rulemaking. See 5 U.S.C. 603(a), 604(a). As discussed in IV. Legal Authority, however, the Board has found good cause under 5 U.S.C. 553(b)(3)(B) to conclude that, with respect to this interim final rule, publication of a notice of proposed rulemaking is impracticable. Accordingly, the Board is not required to perform an initial or final regulatory flexibility analysis. Nonetheless, in order to solicit additional information from small entities subject to the interim final rule, the Board is publishing an interim final regulatory flexibility analysis. Based on its analysis and for the reasons stated below, the Board believes that the interim final rule is not likely to have a significant economic impact on a substantial number of small entities.
2. Small entities affected by the interim final rule. The number of small entities affected by this interim final rule is unknown, as discussed in more detail in the Regulatory Flexibility Analysis in the final gift card rule. 75 FR 16610 (Apr. 1, 2010). The delayed effective date of certain disclosures on certificates and cards will reduce the burden and compliance costs for small Start Printed Page 50687institutions by providing relief from the requirement to remove and destroy non-compliant certificates and cards and to replace them with compliant certificates or cards, so long as consumers are provided substantive rights under the rule and so long as alternative specified disclosures are made.
While the interim final rule delays the implementation of several disclosure requirements (§§ 205.20(c)(3), (d)(2), (e)(1), and (e)(3)), and temporarily implements several other requirements (§§ 205.20(h)), it does not change the overall burden associated with Regulation E. The Federal Reserve believes that the original burden estimates are more than sufficient to cover the temporary requirements. The estimates and total burden (738,600 hours) therefore will remain unchanged as published in the final rule. The Federal Reserve continues to expect that the amount of time required to implement each of the proposed changes for a given institution may vary based on the size and complexity of the respondent.
(h) Temporary exemption—(1) Delayed effective date. For any gift certificate, store gift card, or general-use prepaid card produced prior to April 1, 2010, the effective date of the requirements of paragraphs (c)(3), (d)(2), (e)(1), (e)(3), and (f) of this section is January 31, 2011, provided that an issuer of such certificate or card:
(iii) Any dormancy, inactivity, or service fee for such certificate or card that might otherwise be charged will not Start Printed Page 50688be charged if such fees do not comply with Section 915 of the Electronic Fund Transfer Act.
1. Application to certificates or cards produced prior to April 1, 2010. Certificates or cards produced prior to April 1, 2010 may be sold to a consumer on or after August 22, 2010 without satisfying the requirements of § 205.20(c)(3), (d)(2), (e)(1), (e)(3), and (f) through January 30, 2011, provided that issuers of such certificates or cards comply with the additional substantive and disclosure requirements of §§ 205.20(h)(1)(i) through (iv). In contrast, issuers of certificates or cards produced prior to April 1, 2010 need not satisfy these additional requirements if the certificates or cards fully comply with the rule (§§ 205.20(a) through (f)). For example, for gift cards produced prior to April 1, 2010 that do not have fees and do not expire, and which otherwise comply with the rule, the in-store signage and other disclosures required by § 205.20(h)(2) are not required with respect to those gift cards because those cards satisfy the requirements of the rule.