On March 23, 2010, the Federal Reserve Board (“Board”) issued its Final Rule implementing Title IV of the federal Credit Card Accountability, Responsibility and Disclosure Act of 2009, which was signed into law May 22, 2009 (collectively, the “Rules”). The Rules amend the federal Electronic Funds Transfer Act (EFTA), and the Final Rule amends the EFTA‘s Regulation E.
The new rules take effect August 22, 2010 and apply to prepaid card products sold to consumers on or after August 22, 2010, or provided to a consumer as a replacement for such product. State laws that are consistentwith the CARD Act are not preempted. State laws may provide for greater protection of consumers as long as they do not conflict with the Rules.
The focus of this Client Advisory is on the exemption for cards, codes and other devices useable solely for telephone services (“Prepaid Calling Cards”)[1]. If these can be used to redeem other services, they will not qualify for the exemption. All companies issuing or distributing Prepaid Calling Cards should review their disclosures, as well as any redemption policies and procedures.
Keep in mind that a plastic card is not required — covered products include “cards, codes and other devices.”
The Rules exempts Prepaid Calling Cards useable only for telephone services (long-distance or wireless telephone service or other like-kinded services, e.g., VoIP). Because mobile phones are capable of more than voice communications, (texting, Internet access, photos), the Board considered, but decided not to exempt cards that may be redeemed for prepaid Internet access, non-voice applications or other services.
The exemption is also limited to cards that do not state a specific monetary value but are redeemable for a specific service. That is, cards not covered by the Rules are those that are not issued “in a specified amount.” However, as to cards issued in a specific amount that can be applied toward the purchase of a specific service whose specific value is not stated, it will subject to the Rules unless it qualifies for another one of the six exemptions (see, footnote).
When reviewing a Prepaid Calling Card program, companies should identify the relevant redemption policy for their products, e.g., they are redeemable solely for telephone services. If they are not, they should be modified to be redeemable solely for telephone services, or comply with the Rules and disclosure requirements; or be reconfigured to qualify for another type exemption.
Clients with questions about the Federal Reserve Rules, specifically, or the CARD Act, generally, should contact the attorney assigned to your account. Alternatively, you may reply to this message via e-mail and someone will promptly respond to your inquiry.
[1] The new law includes six exemptions from these requirements. The six exemptions are cards, codes or other devices that are: 1) useable solely for telephone services; 2) reloadable and not marketed or labeled as a gift card or gift certificate; 3) part of loyalty, award or promotional programs; 4) not marketed to the general public; 5) issued in paper form only; or 6) redeemable solely for admission to events or venues at a particular location or group of affiliated locations, or to obtain goods/services in conjunction with admission to such events or venues, at the event or venue or at specific locations affiliated with and in geographic proximity to the event or venue. The Board indicated that the statutory exemptions should be interpreted narrowly to ensure consumers receive the full protection contemplated by the CARD Act.
