Consumer Banking and Payments Law: 7.7.2.2 Federal Regulator Guidance
The Office of the Comptroller of the Currency has issued guidance to national banks that use third parties in connection with “prepaid access,” which includes gift cards.
The Office of the Comptroller of the Currency has issued guidance to national banks that use third parties in connection with “prepaid access,” which includes gift cards.
Like the rest of EFTA, the gift card provisions do not preempt stronger state laws. “A State law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protection afforded by this subchapter.”1053
Several states have laws that cover “gift cards” or “gift certificates.”1055 Some state statutes also apply to general-use prepaid cards as well as gift certificates and gift cards.
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.
The EFTA and Regulation E have disclosure requirements for gift cards.1068
Regulation E prohibits dormancy, inactivity, or service fees on gift certificates, store gift cards, and nonreloadable general-use prepaid cards1076 other than a one-time initial issuance fee, unless:
State statutes may limit service fees, even though Regulation E does not do so. In addition, some state statutes place different limits on dormancy or inactivity fees than those found in Regulation E.1083
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
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
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.
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
Gift cards are a popular way for scammers to receive the victim’s money. Scammers urge the consumer to purchase the cards and then to give card numbers to the scammer. The scammer can then extract the card’s value, but the cards are virtually untraceable.
Every state has escheat, unclaimed property, or abandoned property laws, and one issue is whether, under these statutes, gift card issuers must transfer unused value to the state, which the state may then seek to return to the applicable consumers.1116 The Uniform Unclaimed Property Act adopted in fifteen states as their escheat statute specifically includes gift certificates.1117 Under the Act, the state official who administers the statute must advertise lists of “abandoned” property.
When the payee or a special indorsee has not indorsed the check, and the check is collected on and paid anyway (usually over a forged signature), the payee cannot seek compensation from the drawer on the underlying obligation.
A restrictive indorsement may condition the circumstances under which a check may be negotiated. For example, adding “for deposit only” or “for mobile deposit only” can protect the consumer if the check is lost or stolen.
The UCC has special rules when a fiduciary “embezzles money of the represented person by applying the proceeds of an instrument that belongs to the represented person to the personal use of the fiduciary.”156 If a person taking a check from the fiduciary has knowledge of the fiduciary status, and, notice or knowledge of the breach of the fiduciary duty, depending on the type of misdeed, the party taking the check may be liable for a claim to the instrument under U.C.C.
This section details when funds deposited in the payee’s account by check, cash, or electronic payment are available to the payee for withdrawal. It primarily discusses the Expedited Funds Availability Act (EFAA). Section 4.8.11, infra, also discusses other rules that may apply if a bank were to put a hold on access to funds in a demand deposit account.
The day on which a bank must make cash deposits available for withdrawal depends on whether or not the deposit was made in person. If made in person to an employee of the depository bank, the funds must be made available not later than the business day after the banking day on which the cash is deposited.206 Otherwise, the funds must be made available not later than the second business day after the banking day of the deposit.207
Regulation CC governs “electronic deposits,” defined as deposits by wire transfer or ACH credit transfer.208 Banks must make deposits by electronic payments available for withdrawal not later than the business day after the banking day on which the bank received the electronic payment.209 An electronic payment is deemed to have been received when the bank has received the payment in actual and finally collected funds, the information about the account, and the amount to be credited.
The time by which funds must be made available is determined by a mandatory availability schedule. Availability depends upon the type (i.e., cash, electronic, type of check) and manner (i.e., in person, by ATM) of the consumer’s deposit. Banks may make funds available sooner than is required by the schedule.212
The funds availability schedule does not affect a depositary bank’s right to:
Some types of deposits pose little risk for the consumer’s bank. Therefore, unless one of the exceptions applies,233 those deposits have “next-day availability”: the funds deposited are available for withdrawal “not later than the business day after the banking day” on which the consumer made the deposit.
The following types of deposits are entitled to next-day availability:
Unless one of the exceptions applies,246 the consumer is entitled to next-day availability for the first $225 deposited by check or checks on any one business day.247 The rule applies to the lesser of $225 or the “aggregate amount deposited on any one banking day to all accounts of the customer by check or checks not subject to next-day availability.”248 That total applies to all che
If the consumer pays a merchant with a gift card and the merchant is unable to receive value from the card issuer, the merchant may try to locate the consumer and demand payment, resulting in the consumer having to pay twice. Payment with a gift card certainly discharges the consumer’s obligation if the agreement among the parties so provides.
If either the gift card issuer or the store where the card can be used files for bankruptcy, the consumer may have difficulty using the card.1135 The consumer’s rights depend on the identity of and relationships between the parties involved, and the way in which the card program is set up.