WASHINGTON - A new set of guidelines from the Office of the Comptroller of the Currency on gift cards is the first step toward preempting state laws governing the increasingly popular product, several observers said Wednesday.
Though the OCC said the guidance was intended to "get out in front of the issue," becoming the first federal agency to outline new disclosures for the cards, critics and industry analysts said the guidance will let national banks avoid compliance with the 14 related state laws.
The guidelines also sowed division within the industry, with some representatives calling them unnecessarily burdensome and others praising them as a helpful clarification.
"It's very much analogous to what the OCC has done in all of its preemption decisions. ... It defines a national standard that includes more consumer protection than the industry generally would like, but it is often less than is possible under certain state law and simultaneously creates a uniform framework," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc.
The guidelines, issued Monday, provide a checklist of disclosure requirements for banks, including that information on any expiration date or fees that would diminish the card's value be attached to the card or printed on it.
But L. Richard Fischer, a partner with the law firm Morrison & Foerster LLP, said the guidelines are just as notable for what they do not say.
"There is no mention whatsoever in the guidance about compliance with state laws," he said. "That's a very hot issue, and the key when you look at the guidance is that it really does focus on what a national bank gift card is and what is a product of a national bank."
Some observers drew a connection between the OCC guidance and a federal court ruling Aug. 1 that said third parties, such as retailers, may ignore state regulations when selling gift cards issued by a national bank or thrift.
In that case, New Hampshire Attorney General Kelly A. Ayotte argued that the fees charged on gift cards sold by the country's largest shopping mall owner, Simon Property Group Inc., violated her state's Consumer Protection Act.
But the U.S. District Court for New Hampshire in Concord ruled in Simon's favor, saying that the cards are protected by preemption, because they were issued by a national banking company (U.S. Bancorp of Minneapolis) and a federal savings bank (MetaBank of Storm Lake, Iowa).
"I can't believe the coincidence that right after the New Hampshire decision, the OCC comes out with this thing," said Edmund Mierzwinski, the director of consumer programs at the U.S. Public Interest Research Group. The "softball regulation" OCC requirements are "extremely weak" and allow banks to do anything as long as they disclose it, he said.
"The states were regulating this product. Now the OCC is virtually unregulating it," Mr. Mierzwinski said.
The Conference of State Bank Supervisors said the guidance is a clear sign that the OCC is staking another preemption claim. John Ryan, the group's executive vice president, noted that the Office of Thrift Supervision already claimed preemption of state gift card laws in a legal opinion issued June 9.
By issuing guidelines for national banks, "the assumption is that they have preempted all the consumer protections," Mr. Ryan said.
Some industry sources that the OCC's guidance could be followed by a more obvious preemption claim, such as an interpretive letter or a brief in the New Hampshire case if an appeal is filed as expected by Sept. 1.
"If gift card litigation arises, particularly at the appellate level … I think they'll get involved if in fact they see an appropriate timing for a letter that deals with other gift card issues," Mr. Fischer said. "There's got to be a part two, and this is part one, and part one says when you are in the gift card business, do it in the right way."
But some observers said the OCC did not need to issue new guidelines if it wanted to preempt state laws.
"The OCC's position and the position of the courts on preemption couldn't be more clear that when national banks are involved in the lending process they are subject exclusively to federal law and I don't see this as any new signal," said Howard Cayne, a partner in the Washington office of Arnold & Porter LLP.
Robert Garsson, the OCC deputy comptroller for public affairs, said the guidance was not driven by preemption.
"It's a growing market, and we want to make sure that as our banks get into it, they understand our expectations. We are at a point right now where we aren't getting all that many consumer complaints," he said.
Of the 70,000 complaints the OCC received last year, only 106 were related to gift cards, versus 33 logged in 2003.
"Our point was to just get out in front of the issue and provide guidance that will help banks minimize the types of misunderstandings and problems that can result in complaints," Mr. Garsson said. "Our concern here is to make sure that if the courts do decide that state laws are preempted, we don't end up with a vacuum ... where there is no law that applies if a state law is preempted for national banks, and there's just nothing to take its place."
The guidelines also have divided the banking industry.
Wayne Abernathy, the executive director of financial institutions policy for the American Bankers Association, said the guidelines were overly restrictive and would hurt national banks.
The number of consumers choosing gift cards as their favorite payment choice has doubled every two years since 2001, according to ABA surveys on the topic, he said.
"I would posit that most of the problems they are trying to address are not with the cards that the banking industry is offering and where there are any problems. ... The OCC already has tremendous amount of tools to go and address any deceptive practices that there might be," Mr. Abernathy said. "We need to be careful that we don't stifle what is a payment program that is very popular among customers."
The guidelines also attracted the attention of the mainstream news media. In a blog on washingtonpost.com, underneath a headline "Cracking Down on Gift Cards," the reporter Caroline Meyer said the guidelines proved that "finally, the government is doing something about gift cards."
But most industry groups did not view the guidelines negatively. The Consumer Bankers Association, America's Community Bankers, and the Independent Community Bankers of America said they welcomed the guidance.
"It's actually very helpful guidance. There's been a lot of confusion with some of these lawsuits that have been coming down," said Robert Rowe, a regulatory counsel with the ICBA.
