Sorry for anonymous posting--this one is too hot to have my name on it!

Is anyone out there offering gift cards that require no PIN for access (yet are supposedly tied to Reg E rules)and have no purchase limit? And I am even told that once the cards go dormant, the money "automatically" becomes the property of the bank. Instant income.

I am in the process of looking at offering these services and during my research I have not come across no PIN required. But the dormant issue is true!!

What about state escheat rules?

My thoughts exactly. Since when does a person's property become the property of the bank because of inactivity. I definitely think the word "expires" should be used instead of "dormant" when referring to the termination of card rights. I think there is a case here for being deceptive and misleading.

Are your cards reloadable or nonreloadable? I'm assuming that if they're reloadable, this is the characteristic that makes them subject to Reg E?

We will be offering nonreloadable cards & have come to the conclusion that they are not subject to Reg E. From my understanding, our cards will primarily be signature based.

We have also concluded that remaining funds will be subject to state escheatment rules.

I am the Anonymous that posted this question--our cards are not reloadable.

Sorry, I left out part of my reply above. Visa told us the cards were subject to Reg E. And I agree, I think the card balances are subject to state escheat. I just have to prove that to management and the company selling us the program.

Can you educate me why they are subject to Reg E? I posed this question recently in the operations forum & I think we concluded that they were not subject to Reg E because they did not constitute an "account". (I'd post the link, but don't know how.)

I don't want to overlook anything, so any information would be appreciated.

Regarding state escheat, if you service charge the card a monthly 'inactivity' fee, then your breakage is then fee income instead. Nothing to escheat.

When I do the math, I can see that there is a remote possibility that we could have an escheatable gift card situation. Our fees would not cover the entire value of a $1,000 gift card in a five-year period.

I noticed that a number of banks are limiting the cards to $600. Does anyone know why?

Many of these cards have high fees once the cards reach a certain age. The fees eat the value of the cards pretty fast. If you ask the lawyers or sales people about escheat laws, they become strangely silent or change the subject.

Should gift card purchasers be given a privacy notice? The cards in question will not be personalized (i.e. a vaulted card program) and we will be documenting the purchaser. It is a type of continuing service. I can make an argument for yes and no!

We are not giving a privacy notice. Our gift cards will be short term (6 or 12 months) before they expire.

I am a Banker...however, my Bank where I transact personal business (National City Bank) does provide you a privacy notice on non-personalized Visa gift cards. I have bought a few of late there.....

Don't see that we ever saw a response on the Reg E question - our bank has also begun to look into branded VISA gift cards - do we have to send them statements? Are the subject to Reg E? Is there anyone currently involved with the issuance of these cards that could contact me?

Thanks

Without re-reading the entire thread, gift cards are generally under Reg. E when they are rechargeable.

You may get some info from the OCC paper on payroll cards as they are not too different.

Regulation E §205.2(b)(1):

Quote:

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Account means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.

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The key wording in the definition of account (highlighted above) can be used to bring these gift cards under the regulation pretty readily. Several years ago, the Fed published proposed amendments to Regulation E that would have explicitly brought many "stored value" cards under the aegis of the regulation, and the definition of "account" was used to get the discussion started. That proposal appears to have been abandoned (although the Fed has never said so; it's disappeared off the radar screen).

John, part of the question there is who actually "holds" the account. This also has FDIC implications. I think in some programs the bank doesn't maintain an account or at least under that customer.

It has been some time since we looked at these programs and I'm sure they're refined some now.

I agree, Andy. Of course, Regulation E also will reach out and grab even non-banks, because of its definition of "financial institution," which includes any person (in the legal sense) who directly or indirectly holds an account owned by a consumer, or issues an access device and agrees with a consumer to provide EFT services.

So it's not a stretch to say transactions effected with these gift cards are EFTs subject to Reg. E, and whoever issues the card (or holds the account, or both) has some Regulation E responsibility. It may be no more than delivering disclosures.

Based on our conversations with Visa's Compliance area, we took the approach that Visa gift cards that are not rechargeable are not subject to Reg E. So I really hope that is right! This product is so new it is not even in Visa's operating manuals yet.

Our cards are not reloadable & we've also taken the approach that they're not subject to Reg E.