The store credit that is not a refund

Three defined devices, and everything turns on which one applies

The rule opens with definitions rather than obligations, because the obligations only reach devices that match one of them.

A gift certificate is a card, code or other device 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 redeemable on presentation at a single merchant or an affiliated group of merchants.

A store gift card is the same thing except that the amount may be increased or reloaded. A general-use prepaid card is the version redeemable at multiple, unaffiliated merchants, or usable at automated teller machines.

Three defined terms sit alongside them. A dormancy or inactivity fee is a fee for non-use of or inactivity on such a card. A service fee is a periodic fee for holding or using one. Activity means any action that increases or decreases the underlying funds, other than a fee or an adjustment for an error or a reversal.

Those definitions do the sorting. A balance a seller holds for a buyer is either inside one of them or it is not, and the protections described below travel with the classification rather than with the word the seller uses.

The exclusion list is where most arguments end

Six categories are excluded from all three definitions by name, and reading them is not optional.

A device usable solely for telephone services is out. A device that is reloadable and not marketed or labeled as a gift card or gift certificate is out, and the rule says a temporary non-reloadable card issued solely in connection with a reloadable one counts as reloadable for this purpose.

A loyalty, award or promotional gift card is out, subject to its own separate disclosure conditions. A device not marketed to the general public is out. A device issued in paper form only is out. And a device redeemable solely for admission to events or venues, or for goods and services in conjunction with such admission, is out.

Several arrangements a seller might describe as store credit sit squarely on that list. Credit that is reloadable and never marketed as a gift card, credit issued as a promotional award, and credit not offered to the public at all are each named.

No claim is made here about how any particular seller's credit is classified. The point is narrower and more useful: the classification is what decides whether any of the following applies, and the exclusion list is where that gets settled.

What the rule does to fees

For devices inside the definitions, no person may impose a dormancy, inactivity or service fee unless three conditions are all met.

There has to have been no activity on the certificate or card in the one-year period ending on the date the fee is imposed. So a balance cannot begin eroding in the first year, and any use resets what counts as inactivity.

The amount of any such fee, how often it may be assessed, and the fact that it may be assessed for inactivity, all have to be stated clearly and conspicuously on the certificate or card itself.

And not more than one dormancy, inactivity or service fee may be imposed in any given calendar month.

The disclosure condition is stricter than it first reads. A disclosure made in an accompanying terms and conditions document, on the packaging, or on a sticker or label affixed to the card does not count as a disclosure on the card. For an electronic certificate or card, the disclosures have to be provided electronically on the device given to the consumer.

What the rule does to expiry

No person may sell or issue one of these devices with an expiration date unless four conditions are satisfied.

The issuer has to have established policies and procedures to give consumers a reasonable opportunity to purchase a device with at least five years remaining until its expiration date.

The expiration date for the underlying funds has to be at least the later of five years after the certificate was initially issued, or the date funds were last loaded to a store gift card or general-use prepaid card, and the device's own expiration date if it has one.

The device has to disclose the funds expiration date, or the fact that the funds do not expire; a toll-free number and any website for obtaining a replacement after the device expires while funds may remain; and, except where a non-reloadable device carries an expiration at least seven years from manufacture, a statement in close proximity and equal prominence that the device expires but the funds either do not expire or expire later, and that a replacement can be requested.

No fee or charge may be imposed for replacing the device, or for providing the remaining balance in some other manner before the funds expiration date, unless the device was lost or stolen.

Fees and terms and conditions of expiration that have to be disclosed before purchase may not be changed after purchase. That is the sentence that turns the disclosures into commitments rather than notices.

Why a credit balance is a worse outcome than a reversal

Even where every protection above applies, a credit balance is not the same as money returned to the instrument that paid.

Money returned to a card or an account can be spent anywhere. A balance held by a seller can be spent only with that seller, which means its value depends on the seller continuing to sell something the buyer wants, at a price the buyer accepts, and continuing to exist.

It also changes what the payment rules can reach. The federal dispute procedures described elsewhere on this site attach to the original transfer or the original credit transaction. A balance sitting on a seller's books is not a transfer or an extension of credit, and the timetables that govern those do not describe it.

In a cash-pay category where a purchase is often discontinued for ordinary reasons, that difference is worth pricing. The question to settle before paying is not only whether a seller refunds, but in what form.

Where a seller offers credit rather than a reversal, the checkable facts are the ones the rule turns on: whether any fee can be imposed and on what schedule, when the underlying funds expire, whether that is disclosed on the credit itself rather than in a linked document, and whether the terms can be changed after the fact.

Sources

Each document below is named as it names itself, with the date printed on that document rather than the day it was read.

1. Title 12 Code of Federal Regulations Section 1005.20, Requirements for gift cards and gift certificates, Regulation E, read paragraph (a) through paragraph (h) — the three definitions and the fee and activity definitions at (a), the six exclusions at (b), the form and pre-purchase disclosure rules at (c), the fee conditions at (d), the expiration conditions at (e), and the additional fee disclosures at (f) — Electronic Code of Federal Regulations, Office of the Federal Register, December 2011