MODEL BILLS

Prepaid Card Consumer Protection Act

Summary: The Prepaid Card Consumer Protection Act prohibits card issuers from charging fees or designating expiration dates.

Background: The 2009 federal CARD Act restricted fees, prohibited expiration in less than five years, and imposed strict disclosure requirements. In November 2014, the federal Consumer Financial Protection Bureau proposed a series of requirements for prepaid consumer product. However, there areadditional protections that states have imposed, like the model below.

SECTION 1. SHORT TITLE

This Act shall be called the “Prepaid Card Consumer Protection Act.”

SECTION 2. FINDINGS AND PURPOSE

(A) FINDINGS—The legislature finds that:

1. While the use of prepaid cards is growing rapidly, consumers are often unaware of these cards’ fees and expiration dates.

2. By having use of funds without the payment of interest, gift card issuers already benefit from outstanding balances. Prepaid card issuers also benefit by knowing that outstanding balances will eventually be spent in their stores rather than elsewhere in the marketplace.

3. Fundamental fairness requires that customers be allowed to spend their prepaid card balances without unwarranted fees or expiration dates.

(B) PURPOSE—This law is enacted to ensure a fair marketplace by protecting the interests of the state’s consumers.

SECTION 3. PREPAID CARD CONSUMER PROTECTION

(A) DEFINITION—In this section, “prepaid card” means a record evidencing a promise, made for monetary consideration, by a seller or issuer that goods or services will be provided to the owner of the record to the value shown in the record. A “prepaid card” includes, but is not limited to, a record that contains a microprocessor chip, magnetic strip or other storage medium that is pre-funded and for which the value is adjusted upon each use, a gift certificate, a stored-value card or certificate, a store card, or a prepaid long distance telephone service that is activated by a prepaid card that requires dialing an access number or an access code in addition to dialing the phone number to which the user of the prepaid card seeks to connect.

(B) CONSUMER RIGHTS

1. Except as provided in paragraph 3, it shall be unlawful for any person or entity to:

a. charge any fee, including a maintenance, service or inactivity fee, on a prepaid card, or

b. place an expiration date or otherwise limit the time for the redemption of a prepaid card.

2. Except as provided in paragraph 3, when a prepaid card has a cash value of $10 or less, the card issuer shall redeem the card for cash at the customer’s request.

3. A prepaid card need not be redeemable for cash, and may contain an expiration date if that date is disclosed clearly and legibly on the gift card, if the gift card was:

a. issued pursuant to an awards or loyalty program where no money or thing of value was given in exchange for the prepaid card, or

b. donated to a charitable organization without any money or other thing of value being given in exchange for the prepaid card.

(C) ENFORCEMENT

Any person or entity that violates this section shall be punished by a fine of not more than $1,000 for each violation.

SECTION 4. EFFECTIVE DATE

This Act shall take effect on July 1, 20XX and apply to prepaid cards sold on or after July 1, 20XX.