On November 23, 2012, US Senator Richard Blumenthal, D-CT, introduced the Gift Card Consumer Protection Act of 2012. Blumenthal’s bill would strengthen current federal regulations by completely banning gift cards with expiration dates and non-use fees, forcing companies that file for bankruptcy to honor unredeemed gift cards, and prohibiting such companies from issuing new cards.

Under current gift card regulations pursuant to the Credit CARD Act of 2009, gift cards are permitted to expire five years after activation, and companies can charge non-use fees once a month after twelve months of dormancy. Some states have enacted stricter regulations, with Connecticut, for example, already prohibiting non-use fees. Likewise, Maine and Tennessee have passed legislation authorizing the states to seize any unused funds from consumer gift cards after only two years. Under existing law, however, gift card companies can circumvent state rules by issuing gift cards through federally chartered banks, which cannot be limited by state regulation.

Senator Blumenthal hopes to ban expiration deadlines and non-use fees altogether by creating a national policy that would unify these bans across all states. His bill also seeks to prevent consumers from getting stuck with worthless gift cards when a company goes out of business by requiring companies that file for bankruptcy to stop selling future gift cards and to honor gift cards that remain unredeemed. The bill would also prohibit the expiration of loyalty, promotion, and award cards, which consumers receive by redeeming credit card points or purchasing certain products. Under current law, these cards often have very short expiration dates (i.e., sometimes as short as 30 days), and the Gift Card Consumer Protection Act would subject these cards to the same protections as gift cards.

The National Retail Federation predicts that consumers will spend as much as $28.79 billion on gift cards this holiday season, and projects that over 80 percent of shoppers will purchase at least one gift card. With such a booming market for gift cards, any company involved in the sale of gift cards or the administration of customer loyalty or incentive reward programs should carefully consider the potential implications of this bill, and should have appropriate legal counsel review the company’s policies related to any such programs and products.

Arent Fox will continue to monitor the progress of this Act through Congress. For further information, please contact Sarah Bruno, Anthony V. Lupo, or Anthony D. Peluso.