Eyeing Gift-Card Popularity, the OCC Issues Disclosure Rules

Responding to the rapid build-up in popularity of gift cards, a federal banking regulator has issued guidelines telling banks what information they should disclose?and how they should disclose it?to both the buyers and ultimate users of the prepaid plastic. The new rules, which bear on matters such as expiration dates, fees, and so-called split-tender transactions, come as banks and merchants gear up systems for the coming holiday season, typically the time when gift cards sell most heavily. Some 59% of adults, or an estimated 131 million people, either bought or received a gift card over the year from August 2004 to August 2005, according to a study released late last year by First Data Prepaid Services (Digital Transactions News, Oct. 25, 2005). With gift-card sales booming as consumers increasingly buy the cards in preference to giving cash or buying traditional gift items, the Office of the Comptroller of the Currency seems concerned that ordinary consumer disclosures might not suffice given the special nature of the cards, which carry stored value loaded by the buyer. “Because the purchaser and the recipient of a gift card typically are not the same person, gift cards present unique disclosure challenges,” says Washington, D.C.-based agency in a document it released this week and addressed to the national banks it regulates. “In particular, providing disclosures to a gift card purchaser may not be sufficient to avoid compliance and reputation risks related to misunderstanding by a recipient about material costs, terms, and conditions of the gift card.” Specifically, the OCC says banks should make sure gift cards they issue have on them an expiration date, information about monthly maintenance, dormancy, usage, or other fees, and a toll-free number or Web site where users can get more information. These items, the regulator says, should be printed on the card or on a sticker affixed to the card. Further, the OCC says banks should give buyers other information that they should be urged to pass on to recipients. This information should be included in promotional packaging or in a sleeve accompanying the card. It may include, among other things: the name of the issuing bank; any other applicable fees, such as replacement fees or cash-redemption charges; whether and how users can get a replacement when cards or lost or stolen and detail on responsibility for unauthorized transactions; where the card can be used, with advice on using it at places like gas stations that might process authorizations exceeding the value of a purchase (most bank-issued gift cards?including those issued with merchants?can be used on the Visa and MasterCard networks or on the American Express system); information on the issuer's obligation to authorize transactions along with the conditions under which it may decline transactions; and whether, and when, users can use the card in combination with other payment media to complete a transaction?the split-tender transaction. The agency's document also admonishes banks to avoid misleading marketing, such as statements that cards have no expiration date when various fees might erode the value on the card “and thereby have the same practical effect as an expiration date.” The OCC, which as part of the U.S. Treasury Department regulates more than 1,900 banks controlling more than two-thirds of all commercial-bank assets in the U.S., says its new rules apply only to bank-issued gift cards, not to other forms of prepaid plastic.