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Consumer Banking and Payments Law: 7.4.2.2 Regulation E’s Ban on Compulsory Use of Specific Accounts for Government Benefits

One provision of the EFTA and Regulation E that has particular application to government benefit prepaid cards is the rule providing that “[n]o financial institution or other person may require a consumer to establish an account for receipt of electronic fund transfers with a particular institution as a condition of employment or receipt of a government benefit.”905 This provision is a parallel to the provision prohibiting compulsory use of preauthorized electronic fund transfers as a condition of credit.

Consumer Banking and Payments Law: 7.4.4 Other Federal Laws Governing Government Prepaid Cards

Regulation II, which generally caps merchant interchange fees on debit cards, has provisions that impact government prepaid cards.932 If the card is issued by a financial institution with over $10 billion in assets, it is exempt from the interchange fee cap only if the card does not have overdraft fees, permits one free ATM transaction per month, and does not accept deposit of funds other than government payments.933 Many government prepaid cards are issued by larger banks that are covered by Re

Consumer Banking and Payments Law: 7.4.6 Pro-Consumer Card Terms That Governments Can Negotiate

When a government agency selects a prepaid card provider, it can negotiate the contract to provide consumer protections beyond those required by law. For example, the federal government negotiated important consumer protections for its Direct Express card, used to pay Social Security and SSI benefits.944 State governments can also negotiate for consumer protections when they contract with prepaid card providers.

Consumer Banking and Payments Law: 7.5.1.1 Overview, Scope, and Requirements for Student Choice

Many colleges and universities use prepaid, debit, or other stored value cards to distribute financial aid and other funds or to pay for certain items on campus. The cards are often combined with the student identification card and may access more than one type of account.

Schools also may have arrangements with financial institutions that can include co-branding, joint marketing, campus access, and branches on campus.

Consumer Banking and Payments Law: 7.5.1.3 Rules for T2 Student Accounts

The Department of Education rules are less stringent for T2 accounts (accounts offered to college students by financial institutions or other entities that are not involved in the financial aid disbursement process).979 The T2 rules apply if, pursuant to a contract with the school, accounts are offered and marketed directly to students enrolled at the school.980 The mere use of a school name, logo, mascot, or other school affiliation in connection with the account does not bring the account with

Consumer Banking and Payments Law: 7.6 Other Types of Prepaid Cards

The number of additional uses for prepaid cards is almost endless. Just a few are mentioned here.

Transit cards. While transit systems have used stored value cards for quite a while, some local governments have linked their transit cards to a more broadly usable prepaid card with an identification card feature. Some of these cards have raised concerns about onerous fees and steering of consumers into substandard accounts.1008

Consumer Banking and Payments Law: 7.7.1 What Is a Gift Card?

This section describes the rules that generally apply to gift cards and gift certificates. Many of the laws discussed in this section may also apply to prepaid cards or other one-time payment devices even if they are not marketed or used as gift cards. For example, the gift card provisions under Regulation E apply to most nonreloadable general-use prepaid cards.1024 The rules also apply to reloadable cards that are marketed or labeled as a gift card or gift certificate.

Consumer Banking and Payments Law: 7.7.2.5 The Gift Card Agreement

The agreement that arises between the consumer and the provider or issuer of a gift card is also a source of contract law governing the card. There usually will be a gift card agreement found in terms printed on or provided with the card, in brochures published by the card issuer, or on the card issuer’s website. These terms often will favor the issuer,1063 but terms may also provide protections to the consumer. Ambiguous terms should be construed against the drafter.

Consumer Banking and Payments Law: 7.7.5.1 Regulation E

No person may sell or issue a gift certificate or gift card1084 with an expiration date, unless that person has established policies and procedures to provide consumers an opportunity to purchase a card with at least five years remaining on the card.1085 The card’s expiration date must be at least five years from when it was initially issued or last reloaded.1086

Consumer Banking and Payments Law: 7.7.5.2 State Law

A number of state laws require that expiration dates be a certain number of years from card issuance or place other restrictions on a card’s expiration date.1094 Other state statutes require that the card be redeemable at least under certain circumstances.1095 At a minimum, any expiration date should be clearly disclosed before purchase and should not be imposed on consumers after purchase.1096

Consumer Banking and Payments Law: 7.7.6 When the Card Does Not Function Properly

Consumers may be sold defective cards that do not operate at all or are not able to access the amount of value for which the consumer paid. In that situation, the issuer should be liable for breach of an express or implied warranty based either directly on UCC Article 2 or by analogy.1098 But Regulation E error resolution procedures do not apply because gift cards are not generally within the scope of the EFTA’s general provisions. It even may be difficult or impossible for the consumer to ascertain to whom a complaint should be made.

Consumer Banking and Payments Law: 7.7.7 Lost and Stolen Cards; Unauthorized Use

Because the EFTA’s general provisions do not apply to gift cards, the EFTA provides no protections for consumers when a gift card is lost, stolen, or used without authorization. Some cards may provide protection after they are registered. For example, MasterCard and VISA “zero liability” rules may offer protections for gift cards with those brands.1099