CUSOs that issue and sell gift cards, often though agent issuing programs with credit unions, report that the Federal Reserve's latest version of gift card regulations will have little impact on their operations.
Congress mandated the new rules as part of last year's Credit Card Accountability, Responsibility and Disclosure Act and the Federal Reserve has set Aug. 22 as the date the new regulations go into effect.
Among the changes is a rule that gift card issuers will only be able charge fees on dormant or inactive cards after the cards have not been used for at least a year. In addition, dormancy, inactivity or service fees may only be assessed once a month and must be disclosed to the cardholder.
The new rules also mandate card issuers sell gift cards with expiration dates of not less than five years after a gift card is sold or loaded with funds. It also prohibits issuers from charging a fee for replacing an expired gift card or for refunding a remaining balance.
The new regulations' chief impact on credit union gift card issuers will be to force a race to make the changes the new rules mandate by the Aug. 22 deadline, according to Jeff Falk, director of product development for TMG Financial Services, the branch of The Members Group that issues cards, including the Altira card line of gift cards and other reloadable cards.
"We are going to have to move fast to both get the old stuff out of the pipeline and get the new stuff in," Falk said. The majority of TMG's client CUs that sell its gift cards do so with TMG's branding, he explained, but some sell the cards with their own brands and those were all going to require reprinting he said.
The other impact will have to do with the dormancy or inactivity fees. Falk said the industry doesn't like to use the term "breakage" for the amount of money left on a card after a consumer has drawn down most of it, but for most consumers, that money's existence is a fact of life.
Currently, Altira starts to collect the money left on cards about six months after they are issued through the mechanism of a fee, usually around $2.50 per month. Most gift cards have most of their money used within a few weeks from purchase, he added. The new rules mean that Altira would likely still collect fees from cards that were no longer being used but in the 13th month instead of in the seventh.
Michelle Thorton, senior product manager for CO-OP Financial Services, another CU gift card issuer largely agreed with Russell but suggested that CO-OP might have a slightly easier time complying with the new regulations because the CUSO issues gift cards in conjunction with FIS, the largest card vender to credit unions in the country.
"The final rule is pretty much what we thought it would be," Thorton said.