[Federal Register Volume 77, Number 162 (Tuesday, August 21, 2012)]
[Proposed Rules]
[Pages 50404-50407]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-20531]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1005

[Docket No. CFPB-2012-0036]


Electronic Fund Transfers; Intent To Make Determination of Effect 
on State Laws (Maine and Tennessee)

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Notice of intent to make preemption determination.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
publishing notice of its intent to consider and address requests 
received to determine whether certain provisions in the laws of Maine 
and Tennessee relating to unclaimed gift cards are inconsistent with 
and preempted by the requirements of the Electronic Fund Transfer Act 
and Regulation E.

DATES: Comments must be received on or before October 22, 2012.

ADDRESSES: You may submit comments, identified by Docket No. CFPB-2012-
0036, by any of the following methods:

[[Page 50405]]

     Electronic: http://www.regulations.gov. Follow the 
instructions for submitting comments.
     Mail/Hand Delivery/Courier: Monica Jackson, Office of the 
Executive Secretary, Bureau of Consumer Financial Protection, 1700 G 
Street NW., Washington, DC 20552.
    All submissions must include the agency name and docket number for 
this notice. In general, all comments received will be posted without 
change to http://www.regulations.gov. In addition, comments will be 
available for public inspection and copying at 1700 G Street NW., 
Washington, DC 20552, on official business days between the hours of 10 
a.m. and 5 p.m. Eastern Time. You can make an appointment to inspect 
the documents by telephoning (202) 435-7275.
    All comments, including attachments and other supporting materials, 
will become part of the public record and subject to public disclosure. 
Sensitive personal information, such as account numbers or social 
security numbers, should not be included. Comments will not be edited 
to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT: Gregory Evans or Courtney Jean, 
Counsels, Division of Research, Markets, and Regulations, Bureau of 
Consumer Financial Protection, at (202) 435-7700.

SUPPLEMENTARY INFORMATION:

I. Background

    The Electronic Fund Transfer Act (EFTA), as amended by the Credit 
Card Accountability and Responsibility and Disclosure Act of 2009, and 
as implemented by the Bureau's Regulation E, authorizes the Bureau to 
consider and address requests received to determine whether any 
inconsistency exists between the EFTA and State law ``relating to,'' 
among other things, ``expiration dates of gift certificates, store gift 
cards, or general-use prepaid cards.'' \1\ Regulation E provides that 
State law is inconsistent with the requirements of the EFTA and 
Regulation E if, among other things, the State law ``requires or 
permits a practice or act prohibited by the federal law.'' \2\ If the 
State law is inconsistent, Federal law will preempt the State law only 
to the extent of the inconsistency.\3\ Furthermore, Federal law will 
not preempt a State law if the State law affords consumers greater 
protection than the Federal law.\4\ The EFTA and Regulation E provide 
that the Bureau shall make a preemption determination upon its own 
motion, or upon the request of any State, financial institution, or 
other interested party.\5\
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    \1\ 15 U.S.C. 1693q; 12 CFR 1005.12(b). In this notice, these 
three categories are referred to collectively as ``gift cards.''
    \2\ 12 CFR 1005.12(b) (emphasis added).
    \3\ 15 U.S.C. 1693q.
    \4\ Id.
    \5\ Id.; 12 CFR 1005.12(b).
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    The Bureau has received three requests for determinations as to 
whether provisions in the EFTA and Regulation E relating to gift card 
expiration dates preempt unclaimed property law provisions in Maine, 
Tennessee, and New Jersey relating to gift cards.\6\ The New Jersey 
request has been rendered moot by a subsequent change in State law.\7\ 
Therefore, the Bureau intends to issue a final determination in 
response only to the Maine and Tennessee requests after further 
considering the relevant provisions of Federal and State law as set 
forth below, as well as any comments received in response to this 
notice.\8\
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    \6\ The requests relating to New Jersey's and Tennessee's laws 
came from payment card industry representatives. Maine's Office of 
the State Treasurer submitted a request relating to Maine's law to 
the Board of Governors of the Federal Reserve System. The Board did 
not respond to Maine's request before the Board's powers and duties 
relating to consumer financial protection functions transferred to 
the Bureau on July 21, 2011. The Bureau thus inherited 
responsibility for responding to Maine's pending request. The Maine, 
Tennessee, and New Jersey requests are available for public 
inspection and copying, subject to the Bureau's rules on disclosure 
of records and information. See 12 CFR Part 1070.
    \7\ The New Jersey request sought a determination as to whether 
Federal law preempted the application to gift cards of New Jersey's 
unclaimed property law, which deemed gift cards abandoned after two 
years of nonuse. On June 29, 2012, however, New Jersey amended its 
unclaimed property law to lengthen the period after which a gift 
card would be presumed abandoned from two years to five years. Given 
the intervening amendment to State law, the Bureau views the New 
Jersey request as moot and does not intend to issue a response.
    \8\ The Bureau issues this notice pursuant to the authority 
granted to it by section 922 of the EFTA, 15 U.S.C. 1693q; 
Regulation E, 12 CFR 1005.12(b); and sections 1022(a) and 1022(b)(1) 
of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 
U.S.C. 5512(a), (b)(1).
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II. The EFTA and Regulation E

    Regulation E, which implements the EFTA, generally prohibits any 
person from selling or issuing a gift certificate, store gift card, or 
general-use prepaid card with an expiration date unless, among other 
things, the expiration date for the underlying funds is at least the 
later of (i) five years after the date the card was issued (or, in the 
case of a reloadable card, five years after the date that funds were 
last loaded onto the card) or (ii) the card's expiration date, if 
any.\9\ In addition, under the EFTA and Regulation E, such a card 
generally may not expire unless the terms of expiration are disclosed 
on the card.\10\
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    \9\ 15 U.S.C. 1693l-1(c)); 12 CFR 1005.20(e). Certain categories 
of cards--notably gift certificates that are issued in paper form 
only and reloadable cards that are not marketed or labeled as gift 
cards or gift certificates--are exempt from the expiration date and 
other gift card provisions in the EFTA. See 15 U.S.C. 1693l-
1(a)(2)(D); 12 CFR 1005.20(b). The Bureau's preemption determination 
would not apply to any such categories of cards.
    \10\ 15 U.S.C. 1693l-1(c)); 12 CFR 1005.20(e).
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III. States' Unclaimed Property Laws as Applied to Gift Cards

    General. States' unclaimed property laws set forth specific periods 
of time after which custody of particular categories of unclaimed 
personal property transfers from the entity holding that property to 
the State for safekeeping. In some States, unclaimed gift cards are one 
such category of property. The Supreme Court has articulated rules of 
priority that determine which State is entitled to claim unclaimed 
intangible property. Such property is transferred presumptively to the 
State of the last known address of the property owner. If that State 
does not provide for the transfer of the category of property at issue, 
or if the property owner's address is unknown, then custody is 
transferred to the State of incorporation of the entity that is 
obligated to make payment on the property.\11\ The Bureau understands 
that, when the address of a gift card owner (i.e., the gift card 
recipient) is unknown, unclaimed gift card funds typically transfer to 
the State of incorporation of the entity that issued the gift card.
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    \11\ See Delaware v. New York, 507 U.S. 490 (1993).
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    Maine's Unclaimed Property Statute. Section 1953 of Maine's Uniform 
Unclaimed Property Act (the Maine Act) provides that a gift obligation 
or stored-value card is presumed abandoned two years after December 31 
of the year in which the obligation arose or the most recent 
transaction involving the obligation or stored-value card occurred, 
whichever is later, including the initial issuance and any subsequent 
addition of value to the obligation or stored-value card.\12\ A 
business (e.g., a gift card issuer) that has issued gift cards that 
Maine presumes to be abandoned as of the end of a calendar year must 
report

[[Page 50406]]

and transfer the gift card funds to Maine by May 1 of the following 
year.\13\ Maine thereafter assumes custody of and responsibility for 
the unclaimed gift cards, and the Maine Act states that the gift card 
issuer is relieved of all liability arising thereafter with respect to 
the property.\14\ A business that has transferred unclaimed gift card 
funds to Maine may elect to make payment to the apparent owner of the 
card (i.e., may honor the gift card) and may request reimbursement by 
filing an affidavit with the State.\15\ The Bureau understands that, if 
an issuer were to decline to honor the gift card, the consumer could 
attempt to reclaim his or her property by submitting an unclaimed 
property claim form to the Office of the State Treasurer of Maine. To 
properly submit an effective claim, the consumer would need to 
determine that Maine is the appropriate State to contact, which might 
not be obvious if the consumer lives and uses the card in another 
State. Based on outreach, the Bureau understands that Maine collects 
approximately $2.6 million per year in funds relating to unclaimed gift 
cards.
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    \12\ 33 M.R.S. Sec.  1953 (2011). The terms ``gift obligation'' 
and ``stored value card'' are defined in detail in the Maine Act and 
may differ in some respects from the terms ``gift certificates, 
store gift cards, or general-use prepaid cards'' as used in the 
EFTA. Id. Sec.  1952. Under the Maine Act, ``prefunded bank cards,'' 
which generally include cards issued by a financial organization and 
usable at multiple merchants, are deemed abandoned after three years 
of non-use. Id. Sec.  1953.
    \13\ Id. Sec.  1958. Under Maine's law, only sixty percent of 
the gift obligation's or stored-value card's face value is 
reportable as unclaimed property. Id. Sec.  1953. In addition, a 
gift card sold on or after December 31, 2011, is not presumed 
abandoned if it was among those sold by an issuer that sold no more 
than $250,000 in gift cards during the preceding calendar year. Id.
    \14\ Id. Sec.  1961.
    \15\ Id.
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    Tennessee's Unclaimed Property Statute. Section 66-29-135 of 
Tennessee's Uniform Disposition of Unclaimed (Personal) Property Act 
(the Tennessee Act) provides that a ``gift certificate'' \16\ issued in 
the ordinary course of an issuer's business is presumed abandoned if it 
remains unclaimed by the owner upon the earlier of: (1) The expiration 
date of the certificate; or (2) two years from the date the certificate 
was issued.\17\ A gift certificate is exempt from the Tennessee Act if 
the issuer of the certificate does not impose a dormancy charge and 
when the gift certificate (1) conspicuously states that the gift 
certificate does not expire; (2) bears no expiration date; or (3) 
states that any expiration date is not applicable in Tennessee.\18\ An 
issuer of gift certificates that Tennessee presumes to be abandoned as 
of the end of a calendar year must report and transfer the gift 
certificate funds to Tennessee by May 1 of the following year.\19\ 
Tennessee thereafter assumes custody and responsibility for the 
unclaimed gift certificates, and the issuer is relieved of all 
liability arising thereafter with respect to the property.\20\ A 
business that has transferred unclaimed gift certificate funds to 
Tennessee may elect to honor the gift certificate and may request 
reimbursement by filing a request with the State.\21\ The Bureau 
understands that, if an issuer were to decline to honor the gift 
certificate, the consumer could attempt to reclaim the funds by 
submitting an unclaimed property claim form to the Tennessee Department 
of Treasury. As is true for Maine, to properly submit an effective 
claim, the consumer would need to determine that Tennessee is the 
appropriate State to contact, which might not be obvious if the 
consumer lives and uses the gift certificate in another State. The 
Bureau does not have precise data concerning the amount of money that 
Tennessee collects each year in funds relating to unclaimed gift 
certificates. Given the limited card types that appear to be subject to 
Tennessee's law, however, the Bureau believes that the amount is likely 
to be relatively small.
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    \16\ Pursuant to Tennessee's Consumer Protection Act, the term 
``gift certificate'' excludes prepaid telephone calling cards and 
prepaid cards usable at multiple, unaffiliated merchants or at 
automated teller machines (i.e., ``open-loop'' gift cards). Tenn. 
Code Ann. Sec.  47-18-127(e) (2012). In this discussion of 
Tennessee's statute, ``gift certificate'' refers to the concept as 
used in Tennessee law. Aside from the exclusion for ``open-loop'' 
gift cards and prepaid telephone calling cards, the Bureau believes 
that ``gift certificate'' for purposes of Tennessee law generally 
includes gift cards and other similar electronic devices. However, 
the Tennessee definition of ``gift certificate'' may differ in some 
respects from that used in the EFTA.
    \17\ Id. Sec.  66-29-135.
    \18\ Id.
    \19\ Id. Sec.  66-29-113. The amount presumed abandoned is the 
price paid by the purchaser, except that for gift certificates 
issued after December 31, 1996, and redeemable in merchandise only, 
the amount presumed abandoned is sixty percent of the purchase 
price. Id. Sec.  66-29-135. The Bureau notes that a Tennessee trial 
court held in 2001 that Tennessee law requires transfer only of the 
right to claim merchandise by using the gift card (i.e., not 
transfer of funds). Service Merchandise Co. v. Adams, No. 97-2782-
III, 2001 WL 34384462 (Tenn. Ch. Ct. June 29, 2001). The statute 
nevertheless appears to require the transfer of funds.
    \20\ Id. Sec.  66-29-116.
    \21\ Id.
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IV. Request for Comment

    Pursuant to the EFTA, the Bureau intends to consider and address 
the requests received to determine whether the application of Maine's 
and Tennessee's unclaimed property statutes to gift cards is 
inconsistent with the EFTA and Regulation E. In making its 
determination, the Bureau will consider whether Maine's and Tennessee's 
statutes may afford consumers greater protection than Federal law. The 
Bureau invites interested persons to submit comment on all or any 
aspects of this notice.
    Maine's and Tennessee's laws presume gift cards to be ``abandoned'' 
and release businesses from the obligation to honor the gift cards 
during a time period when, pursuant to Federal law, consumers should be 
able to use the cards. The Bureau seeks public comment on whether there 
is any inconsistency between these provisions of state law and the 
expiration date provisions of the EFTA and Regulation E and, if so, on 
the nature of the inconsistency. As a related matter, the Bureau 
solicits public comment on whether and how gift card issuers can comply 
with both Federal and State law, for example by honoring unclaimed 
cards and requesting reimbursement from Maine or Tennessee.
    The Bureau further seeks comment on whether Maine's and Tennessee's 
unclaimed property statutes as applied to gift cards afford consumers 
greater protection than Federal law. For example, the Bureau notes 
that, once the funds corresponding to a consumer's unclaimed gift card 
transfer to Maine or Tennessee, those funds presumably are protected 
from the risk of loss in the event that an issuer later files for 
bankruptcy. Unclaimed gift cards that have transferred to Maine or 
Tennessee also should be protected from any inactivity fees that might 
otherwise be assessed on an unused card, to the extent permitted by 
Federal or State law.\22\ Finally, a consumer would have an indefinite 
opportunity to attempt to reclaim his or her unclaimed gift card funds 
from the State and, if successful, might be entitled to receive cash 
from the State, rather than the right to obtain merchandise.
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    \22\ Pursuant to the EFTA and Regulation E, inactivity fees or 
other service charges generally may not be assessed on gift cards 
unless there has been no activity on the gift card during the 12-
month period ending on the date on which the fee is imposed. 15 
U.S.C. 1693l-1; 12 CFR 1005.20(d). State laws may protect unused 
gift cards from inactivity fees for longer periods or indefinitely. 
For example, Maine law provides that fees or charges may not be 
imposed on gift obligations or stored-value cards, except that the 
issuer may charge a transaction fee for the initial issuance and for 
each occurrence of adding value to an existing gift obligation or 
card. 33 M.R.S. Sec.  1953. Under Tennessee law, inactivity fees or 
other service charges are prohibited for two years after a gift 
certificate is issued. Tenn. Code Ann. Sec.  47-18-127(b). Based on 
industry outreach, the Bureau understands that inactivity fees are 
rare in today's market, particularly for closed-loop cards (i.e., 
cards usable only at a particular merchant or group of merchants).
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    On the other hand, if unclaimed gift card funds were transferred to 
Maine or Tennessee after two years of non-use, and if issuers were not 
required to honor the card, then a consumer might

[[Page 50407]]

only be able to redeem his or her property by submitting an unclaimed 
property claim form to the State. At a minimum, a consumer first would 
need to determine that the card should still have been usable, and then 
would need to determine which State to contact to reclaim funds 
corresponding to the unclaimed gift card. As discussed above, when an 
issuer has no record of the gift card owner's name, unused funds for 
the card will transfer to the State of incorporation of the gift card 
issuer. Thus, for example, a consumer who purchases and uses in New 
York a gift card that was issued by a company incorporated in Maine or 
Tennessee may be required to contact Maine or Tennessee, rather than 
New York, to attempt to claim funds that have transferred to the State. 
It is not clear, however, how the consumer would know to do this. In 
addition, the consumer would be required to spend time and perhaps 
money completing and submitting any required claim form(s), as well as 
to wait perhaps several weeks or months to receive his or her property. 
Finally, the Bureau understands that Maine's and Tennessee's existing 
processes for claiming unclaimed property generally rely on property 
owners' names and addresses. It may be difficult for gift card owners 
to locate and successfully claim their property under those processes, 
particularly if gift card issuers do not know, and thus do not report 
to the State, the names of the consumers who own the unclaimed cards 
(i.e., the gift card recipients).
    The Bureau notes that at least one judicial decision has weighed 
the relative benefits to consumers of the EFTA and Regulation E and 
States' unclaimed property laws as applied to gift cards. In January 
2012, the U.S. Court of Appeals for the Third Circuit upheld a decision 
by the U.S. District Court for the District of New Jersey that declined 
to preliminarily enjoin the application to gift cards of New Jersey's 
unclaimed property law, which at the time presumed gift cards abandoned 
after two years of non-use.\23\ The District Court concluded, and the 
Third Circuit agreed, that the plaintiffs were unlikely to prove that 
Federal law preempted New Jersey's unclaimed gift card law. The Third 
Circuit identified certain benefits of New Jersey's law that, in the 
court's view, weighed in favor of a conclusion that New Jersey's law 
was more protective of consumers than the EFTA and Regulation E.\24\ 
Specifically, once New Jersey received unclaimed gift card funds, it 
would have held them for consumers indefinitely (i.e., not merely for 
the minimum five years required under Federal law). In addition, a 
consumer who submitted a successful claim for his or her funds would 
have received cash back from the State, as opposed to a card solely 
redeemable for goods or services.\25\ The Bureau notes that the court 
reached its conclusion in the absence of any specific guidance or 
determination from the Board of Governors of the Federal Reserve System 
or from the Bureau.
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    \23\ See N.J. Retail Merchants Ass'n v. Sidamon-Eristoff, 669 
F.3d 374 (3d Cir. 2012), reh'g denied (3d Cir. Feb. 24, 2012).
    \24\ Id.
    \25\ Id.
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    As noted, the Bureau invites public comment on all or any aspects 
of this notice, including on the application of Maine's and Tennessee's 
unclaimed property laws to gift cards, on the nature of any 
inconsistency between those laws and the expiration date provisions of 
the EFTA and Regulation E, and on whether Maine's and Tennessee's laws 
afford consumers greater protection than Federal law. After the close 
of the comment period, the Bureau will analyze any comments received, 
conduct any further analysis that may be required, and will publish a 
notice of final action in the Federal Register.

    Dated: August 16, 2012.
Richard Cordray,
Director, Bureau of Consumer Financial Protection.
[FR Doc. 2012-20531 Filed 8-20-12; 8:45 am]
BILLING CODE 4810-AM-P