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As gift cards continue to rise in popularity among consumers, the regulations and laws that companies must follow in issuing and accepting them continue to increase as well.

Beyond the extensive requirements of the new federal gift card law - Regulation E - one of the issues just starting to gain traction with state legislatures is the idea of requiring retailers to give customers "cash back" on a gift card once the balance falls below a particular level.

New Jersey recently became the second state to formally join the movement when on July 29, 2012, Governor Chris Christie signed Senate Bill 1928 into law.

As of September 1, 2012, all retailers in New Jersey must allow any customer holding a gift card with a balance below $5.00 to redeem the gift card for cash upon request.

A violation can result in a statutory penalty of up to $500 per violation, so the failure to comply can get costly pretty quickly.

Notably, there are a few exceptions, such as the fact that retailers do not have to provide cash back if the initial value of the card was below $5.00, or if the card is redeemable at multiple unaffiliated merchants (such as a mall gift card). Otherwise, however, retailers in New Jersey must provide cash back to any customer who asks once the value of the card has dropped below $5.00.

Oregon is the only other state that currently requires retailers to provide cash back to customers on gift cards where the value has decreased to below $5.00, but similar legislation is also currently pending in Illinois, and has been considered in various other states during the past two years.

So, you can likely expect similar laws to continue to crop up elsewhere in the country. Until then, if you are not operating in Oregon or New Jersey, you are not required to provide customers cash back on your gift cards.

If you have question about this or any of the Federal Gift Card Regulations, please contact me for quick and practical advice.

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With all the attention on customer loyalty programs, Evan Shuman writes about a Disloyalty Program.

"The idea was for the retailer to give customers an actual Dis-Loyalty Card, with the names, addresses and some of the logos of 10 rivals. 

The consumer would be sent to those 10 locations, where the rival would be expected to stamp the card and send the consumer back to the original shop and be rewarded with a free coffee."
What if instead of a disloyalty cardboard card, this approach became a disloyalty mobile app
Perhaps an iPhone app? 
Instead of forcing the rival store to do anything, the phone's GPS (geolocation) kicks in and confirms that consumers are where they claim to be when they click an icon for that rival retailer."
The basic idea was that the store owner could show the superiority of his or her shop by sending their customers out to rivals to compare.
The credible commitment was the reward, after the comparison shopping had been done.
But even the announcement of such an offer is more than a cheap talk signal.  It signals a commitment to pay customers for going elsewhere - nobody actually ever has to take the retailer up on the program.  (This is why the digital version because it is easier to implement is actually worse than the paper version.)
All in all, a clever idea - at least in theory.
Assortment of gift cards

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The rules protect consumers from certain unexpected costs and require that gift card terms and conditions be clearly stated.

The final rules prohibit dormancy, inactivity, and service fees on gift cards unless:

(1) the consumer has not used the certificate or card for at least one year; 

(2) no more than one such fee is charged per month; and 

(3) the consumer is given clear and conspicuous disclosures about the fees.

 Expiration dates for funds underlying gift cards must be at least five years after the date of issuance, or five years after the date when funds were last loaded.

The Board's rules generally cover retail gift cards, which can be used to buy goods or services at a single merchant or affiliated group of merchants, and network-branded gift cards, which are redeemable at any merchant that accepts the card brand.

The final rules are issued under Regulation E to implement the gift card provisions in the Credit Card Accountability Responsibility and Disclosure Act of 2009.

The notice that will be published in the Federal Register is attached. The final rules are effective August 22, 2010.

Attachment (333 KB PDF)

Highlights of Final Gift Card Rule (13 KB PDF)

2010 Banking and Consumer Regulatory Policy

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