The Federal Reserve Board has issued a set of final rules regarding the fees that prepaid card companies can impose for certain prepaid products.
Most of the changes affect open- and closed-loop gift cards, and have been addressed in other new regulations.
The gift card provisions fall under the Credit Card Accountability, Responsibility and Disclosure Act and are part of Regulation E of the Electronic Funds Transfer Act.
"This is just the affirmation of what was already in the act," said Brian Riley, the research director in the bank cards practice at TowerGroup Inc., a Needham, Mass., consulting firm.
The Fed's final rules, released Tuesday, prohibit dormancy, inactivity and service fees on gift cards unused for at least one year. The rules also say that issuers may charge no more than one fee per month, starting a year after the cards are issued.
Other parts of the new rules stipulate that cards cannot expire within five years from being issued and that the terms of expiration must be clear and conspicuous.
The final rules take effect Aug. 22. Fee transparency is the most significant new rule, Riley said. "There was a lot of public outcry about it," he said.
Many gift and prepaid card providers are already complying with the new regulations.
Prepaid companies such as Green Dot Corp. and nFinanSe Inc., for example, have changed their packaging to better highlight fees and expiration dates.
Some prepaid marketers have eliminated fees.
GiftCards.com late last year dropped its expiration, transaction and replacement card fees on its Visa Inc.-branded gift cards, and last March the Pittsburgh company eliminated its monthly maintenance fees. First Gulf Bank of Pensacola, Fla., issues the cards.
American Express Co., which issues its own gift cards, in September announced that it had dropped a $2 monthly fee that was deducted from account balances starting a year after a card was purchased.
Amex and GiftCards.com cited consumer feedback as the primary reason for eliminating after-purchase fees.
The new policies still leave some issues unresolved, Riley said, notably "the integrity of the funds, particularly when they are not insured," as is the case when a retailer goes out of business.
Several high-profile retailers have gone out of business in recent years; Sharper Image Corp., for example, filed for bankruptcy in 2008 and stopped accepting its gift cards, and consumers lost funds on the cards.
Gift card holders are considered unsecured creditors in a bankruptcy, and are unlikely to receive reimbursement after secured creditors have been paid, Riley said. A similar problem arose with Linens 'n Things Inc., which also filed for bankruptcy in 2008.
"You're in line with your $100 [gift card] claim against creditors seeking $400 million in liability," Riley said. "You really have no chance of recovering that money."