The Increasingly Regulated World of Gift Cards and Loyalty and Award Programs After FinCEN Final Rule and Credit CARD Act of 2009

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1 The Increasingly Regulated World of Gift Cards and Loyalty and Award Programs After FinCEN Final Rule and Credit CARD Act of 2009 Melissa Krasnow, Partner William Hughes, Associate This presentation was created by Dorsey & Whitney LLP, 50 South Sixth Street, Suite 1500, Minneapolis, MN This presentation is intended for general information purposes only and should not be construed as legal advice or legal opinions on any specific facts or circumstances. An attorney-client relationship is not created or continued by sending and/or receiving this presentation. Members of Dorsey & Whitney will be pleased to provide further information regarding the matters discussed in this presentation. 1

2 FinCEN Final Rule Financial Crimes Enforcement Network ( FinCEN ) of the Department of the Treasury final rule amends the Bank Secrecy Act Imposes regulations applicable to money services businesses regarding stored value, which is now known as prepaid access. Providers of prepaid access and sellers of prepaid access are now subject to new requirements and compliance deadlines, as money services businesses. 2

3 Prepaid Access and Prepaid Program Definitions Prepaid access Access to funds or the value of funds that have been paid in advance and can be retrieved or transferred at some point in the future through an electronic device or vehicle, such as a card, code, electronic serial number, mobile identification number or personal identification number. For example, gift cards. Prepaid program An arrangement under which one or more persons acting together provide(s) prepaid access. 3

4 Not a Prepaid Program and Not Subject to the FinCEN Final Rule Arrangements that provide: A) closed loop prepaid access (prepaid access to funds or the value of funds that can be used only for goods or services in transactions involving a defined merchant or location or set of locations, e.g., a specific retailer or retail chain, a college campus, or a subway system, to funds not to exceed $2,000 maximum value that can be associated with a prepaid access device or vehicle on any day; B) prepaid access solely to funds provided by a Federal, State, local, Territory and Insular Possession or Tribal government agency; C) prepaid access solely to funds from pre-tax flexible spending arrangements for health care and dependent care expenses or from health reimbursement arrangements for health care expenses; or D) (1) prepaid access solely to: (i) employment benefits, incentives, wages or salaries or (ii) funds not to exceed $1,000 maximum value and from which no more than $1,000 maximum value can be initially or subsequently loaded, used or withdrawn on any day through a device or vehicle and (2) the arrangement does not permit: (i) funds or value to be transmitted internationally; (ii) transfers between or among users of prepaid access within a prepaid program or (iii) loading additional funds or the value of funds from non-depository sources. 4

5 Provider of Prepaid Access Definition Provider of prepaid access A provider of prepaid access is the participant within a prepaid program that agrees to serve as the principal conduit for access to information from its fellow program participants. The provider of prepaid access is the person with principal oversight and control over the prepaid program, which is a facts and circumstances determination. 5

6 Seller of Prepaid Access Definition Seller of prepaid access Any person that receives funds or the value of funds in exchange for an initial loading or subsequent loading of prepaid access if that person: (i) sells prepaid access offered under a prepaid program that can be used before verification of customer identification or (ii) sells prepaid access (including closed loop prepaid access) to funds that exceed $10,000 to any person during any one day and has not implemented policies and procedures reasonably adapted to prevent such a sale. 6

7 Compliance Deadlines for Providers of Prepaid Access September 27, implement an anti-money laundering program ( AML program ) - file suspicious activity reports with the U.S. Treasury Department - comply with certain record-keeping requirements March 31, have a written AML program in place - comply with certain record-keeping requirements - register with FinCEN as a money services business - prepare and maintain a list of agents 7

8 Compliance Deadlines for Sellers of Prepaid Access March 31, have a written AML program in place - establish procedures to verify the identity of a person who obtains prepaid access to funds that exceed $10,000 during any one day and obtain specified information about the person - file suspicious activity reports with the U.S. Treasury Department - comply with certain record-keeping requirements 8

9 Enforcement of FinCEN Final Rule No FinCEN enforcement actions before March 31, 2012 for violations of the Final Rule No FinCEN civil money penalties for violations of the Final Rule before March 31,

10 Credit Card Accountability, Responsibility, and Disclosure Act of 2009 Electronic Funds Transfer Act ( EFTA ), implemented by Regulation E, and as amended by the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 ( CARD Act ) covers: Disclosure requirements Limitations on fees or charges Limitations on expiration dates 10

11 Gift Certificate, Store Gift Card and General-Use Prepaid Card Definitions Gift Certificate - a card, code, or other device that is: (1) issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount that may not be increased or reloaded in exchange for payment and (2) redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services. Store Gift Card - a card, code, or other device that is: (1) issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment and (2) redeemable upon presentation at a single merchant or an affiliated group of merchants for goods or services. General-Use Prepaid Card - a card, code, or other device that is (1) issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in a specified amount, whether or not that amount may be increased or reloaded, in exchange for payment; and (2) redeemable upon presentation at multiple, unaffiliated merchants for goods or services, or usable at automated teller machines. 11

12 Exclusions From Gift Certificate, Store Gift Card and General-Use Prepaid Card Definitions Any card, code, or other device that is: Usable solely for telephone services; Reloadable and not marketed or labeled as a gift card or gift certificate, including a temporary non-reloadable card issued solely in connection with a reloadable card, code, or other device; A loyalty, award, or promotional gift card; Not marketed to the general public; Issued in paper form only or Redeemable solely for admission to events or venues at a particular location or group of affiliated locations, or to obtain goods or services in conjunction with admission to such events or venues, at the event or venue or at specific locations affiliated with and in geographic proximity to the event or venue. 12

13 Definition of Loyalty, Award, or Promotional Gift Cards A card, code, or other device that: - Is issued on a prepaid basis primarily for personal, family, or household purposes to a consumer in connection with a loyalty, award, or promotional program; - Is redeemable upon presentation at one or more merchants for goods or services, or usable at automated teller machines and - Sets forth the following disclosures, as applicable: A statement indicating that the card, code, or other device is issued for loyalty, award, or promotional purposes, which must be included on the front of the card, code, or other device; The expiration date for the underlying funds, which must be included on the front of the card, code, or other device; The amount of any fees that may be imposed in connection with the card, code, or other device, and the conditions under which they may be imposed, which must be provided on or with the card, code, or other device; and A toll-free telephone number and, if one is maintained, a Web site, that a consumer may use to obtain fee information, which must be included on the card, code, or other device. 13

14 Related State Laws State Gift Card Laws State Escheat Laws State Money Transmitter Laws 14