Last week, the CFPB issued final determinations as to whether certain Maine and Tennessee laws relating to unclaimed gift cards are preempted by federal law on gift card expiration dates.  The rulings represent the CFPB’s first preemption determinations.  The Tennessee determination was requested by payment card industry representatives and the Maine determination was requested by Maine’s Office of the State Treasurer.   

Under the unclaimed property laws of Maine and Tennessee, certain types of gift cards are presumed abandoned after two years.  However, the Electronic Fund Transfer Act (EFTA) and Regulation E generally prohibit the sale of a gift card that expires sooner than five years after the card is issued, or five years after the date when funds were last loaded onto the card.  The Dodd-Frank Act transferred authority for interpreting Reg E to the CFPB, including authority to make preemption determinations.  

Maine’s Office of the State Treasurer had advised the CFPB that, properly interpreted, Maine law requires an issuer of gift cards presumed to be abandoned to continue to honor the cards indefinitely and allows the issuer to request reimbursement from the state. Because Maine law thus did not interfere with consumers’ ability to use gift cards at the point-of-sale for at least as long as they are guaranteed that right by the EFTA and Reg E, the CFPB determined that it had no basis for concluding that the Maine law was inconsistent with, and therefore preempted by, federal law. 

However, the CFPB found that Tennessee law was inconsistent with the EFTA and Reg E and therefore preempted to the extent it permitted issuers to decline to honor gift cards as soon as two years after issuance.  Unlike Maine law, there was no provision requiring issuers to honor abandoned gift cards after they have transferred the cards’ unused value to Tennessee.  

Because the CFPB’s determination does not relieve issuers of the requirement under Tennessee law to transfer the unused value of gift cards within the state-mandated timeframe, the CFPB observed that complying with the Tennessee  requirement while at the same time having to honor gift cards until the underlying funds are permitted to expire under federal law “imposes possibly burdensome obligations on gift card issuers.”  It appears that an issuer who honored a card after it transferred the card’s value to the state would have to seek reimbursement from the state.  The CFPB also expressed “no opinion on the constitutional due process concerns raised by certain commenters, because the Bureau’s role is solely to determine whether State law [is] inconsistent with the requirements of the EFTA and Regulation E, not to determine whether State law is constitutional.”

In August, the CFPB issued a notice seeking public comment on its plans to determine whether certain provisions of Maine and Tennessee laws relating to unclaimed gift cards are preempted by federal law on gift card expiration dates.  We were pleased to see that the CFPB had invited public input and, in response to that invitation, the American Bankers Association submitted a comment letter earlier this week urging the CFPB to issue a broad preemption ruling. 

More specifically, the ABA wants the CFPB to establish a rule preempting any state abandonment or escheat laws applicable to gift cards that would trigger transferring funds to states prior to the expiration date of the funds underlying the card.  According to the ABA, such a ruling “would avoid conflict with the Regulation E requirement that the funds remain available for at least five years and protect consumer interest.”

 

 

The CFPB intends to determine whether certain provisions of Maine and Tennessee laws relating to unclaimed gift cards are preempted by federal law on gift card expiration dates.  The CFPB’s rulings will represent the agency’s first preemption determinations.  According to the CFPB’s “notice of intent to make preemption determination” submitted for publication in the Federal Register, the Tennessee determination was requested by payment card industry representatives and the Maine determination was requested by Maine’s Office of the State Treasurer.  

Under the unclaimed property laws of Maine and Tennessee, certain types of gift cards are presumed abandoned after two years.  However, the Electronic Fund Transfer Act and Regulation E generally prohibit the sale of a gift card that expires sooner than five years after the card is issued, or five years after the date when funds were last loaded onto the card.  The Dodd-Frank Act transferred authority for interpreting Regulation E to the CFPB, including authority to make preemption determinations.  In the notice, the CFPB describes the operation of the Maine and Tennessee laws and discusses the issues the CFPB will consider in assessing whether those laws are inconsistent with or provide greater protection to consumers than federal law. 

The notice also discusses the Third Circuit’s decision earlier this year in N.J. Retail Merchants Association v. Sidamon-Eristoff that rejected the gift card issuers’ argument that New Jersey’s two-year abandonment period was preempted by federal law.  (New Jersey has since amended its abandoned property law to increase the period after which gift cards are presumed abandoned from two to five years.)  The CFPB “notes that the court reached its conclusion in the absence of any specific guidance or determination from the [Fed] or from the Bureau.” 

We are glad to see that the CFPB has invited public input on the notice, since the CFPB does not appear to be obligated to do so.  Comments will be due no later than 60 days after the date the notice is published in the Federal Register.  According to the notice, the CFPB will then “analyze any comments received, conduct any further analysis that may be required, and will publish a notice of final action in the Federal Register.