Attorney General's Opinion

Attorney General, Richard Blumenthal

June 15, 2006

The Honorable John P. Burke
Department of Banking
260 Constitution Plaza
Hartford, CT 06103

Dear Commissioner Burke:

          You have requested an opinion whether, under Conn. Gen. Stat. § 42-460(a), a Connecticut bank may sell or issue a gift card for which the agreement governing the card provides that the card’s value will not expire and that no inactivity fee is imposed, although the card itself contains an expiration date.  As discussed below, even though any remaining value on the card can be recovered by seeking a refund from the bank, the proposed gift card violates § 42-460(a) because the gift card cannot be used after the expiration date. 

You further request an opinion whether the application of state law to gift cards issued by a national bank is preempted by federal law.  As discussed below, the requirements of state law are preempted under federal law only with regard to gift cards sold by a national bank, but not as to gift cards issued by a national bank but sold by an entity other than a national bank.

Background

            You describe the following facts, to which this opinion is strictly limited.  A Connecticut bank, within the meaning of Conn. Gen. Stat. § 36a-2(12),¹ intends to market Visa gift cards to its customers.  According to Visa’s operating requirements, an expiration date must be present on the card as one of its security features.  The Connecticut bank intends to issue the Visa gift card with an expiration date on the card itself, after which the card may not be used. The customer agreement will notify the customer how any remaining value on the gift card may be redeemed after the expiration date.  Specifically, the customer is required to contact the bank’s data processor to request a refund of the card’s remaining value. 

            You also indicate that a national bank is presently issuing cards with an expiration date and an inactivity fee and that the national bank takes the position that Connecticut law is preempted as to its cards.

            Section 42-460(a) of the General Statutes provides that “[n]o person may sell or issue a gift certificate, as defined in section 3-56a, that is subject to an expiration date.  No gift certificate or any agreement with respect to such gift certificate may contain language suggesting that an expiration date may apply to the gift certificate.”²  In addition, Conn. Gen. Stat. § 3-65c provides that “a dormancy charge or fee, abandoned property charge or fee, unclaimed property charge or fee, escheat charge or fee, inactivity charge or fee, or any similar charge, fee or penalty” may not be imposed on a gift card. Thus, Connecticut law precludes any person from selling or issuing a gift card that is subject to an expiration date or to an inactivity fee. 

            A bank chartered under state law is subject to the state law restrictions on gift cards found in §§ 42-460 and 3-65c.  The statutes contain no exemption for banks, and the broad statutory language indicates that the General Assembly intended that the restrictions apply to any seller or issuer of gift cards.  Cogan v. Chase Manhattan Auto Fin. Corp., 276 Conn. 1, 7 (2005) (unambiguous language to be given its plain meaning).

            In this instance, an expiration date is required by Visa to be on the card,  after which the gift card can no longer be used.  Instead, the customer is instructed in the agreement he receives when he purchases the gift card how to request a refund check for any remaining value on the card after the expiration date. 

            The purpose of § 42-460(a)’s prohibition on expiration dates is to ensure that the holder of the card does not at some point lose the use of the card - for which the issuer has already been paid - merely because of the passage of time, resulting in a windfall to the card's issuer.  See Bell Atlantic NYNEX Mobile, Inc. v. Commissioner of Revenue Services, 273 Conn. 240, 250 (2005) (statute should be interpreted in light of its purpose).  The proposed gift card would violate this prohibition.  The card holder - typically someone other than the customer purchasing the card but who instead has received it as a gift - is unable to use the card after the passing of the expiration date.  Affording the customer the opportunity to affirmatively claim a refund after the expiration date does not ameliorate the card’s illegality.  First, § 42-460(a)’s overriding purpose is to preserve the gift card’s value indefinitely so that the recipient of the gift may continue to use the gift card until its value - not some time period - is exhausted.  The proposed gift card does not permit this.  Second, placing the burden on the customer to seek a refund of any unused value is plainly at odds with the statutory language and purpose.  Third, because in almost all cases the user of the gift card is someone other than the card’s purchaser, it is unreasonable to assume that the actual user of the gift card would have adequate notice of either the nonexpiration provision of the customer agreement or the instructions for obtaining a refund.  Rather, most users would naturally believe that upon passage of the expiration date embedded on the card, the card would lose its value.  This would result in the very windfall to the card issuer that §42-460(a) was enacted to prevent.  In sum, as proposed, the gift card would be “subject to an expiration date,” and the customer agreement “contain[s] language suggesting that an expiration date may apply to the gift certificate,” both in violation of Conn. Gen. Stat. § 42-460(a).  

Federal Preemption of Gift Cards Issued by National Banks

            On their face, §§ 42-460(a) and 3-65c apply to any seller or issuer of a gift card, and there is no exception for national banks.  However, because nationally chartered banks are subject to federal regulation under the National Bank Act, 12 U.S.C. §§ 24(Seventh) & 484, certain state laws may be preempted in their application to national banks. 

            To determine whether a state law is preempted, we “start with the assumption that the historic police powers of the States [are] not to be superseded by [federal law] unless that [is] the clear and manifest purpose of Congress.”  Rice v. Santa Fe Elevator Corp., 331 <st1:country-region>U.S.</st1:country-region> 218, 230 (1947).  Moreover, Congress must be presumed not to exercise its preemption powers lightly.  Medtronic, Inc. v. Lohr, 518 <st1:country-region>U.S.</st1:country-region> 470, 485 (1996).  Consumer protection laws, such as §§ 42-460 and 3-65c, are an exercise of a state’s historic police powers and an area traditionally regulated by the states.  Florida Lime & Avocado Growers, Inc. v. Paul, 373 <st1:country-region>U.S.</st1:country-region> 132, 135 (1963); SPGGC, Inc. v. Blumenthal, 408 F. Supp. 2d 87  (D. Conn. 2006). 

            Preemption may occur in one of three ways:  (1) when the federal statute’s language reveals an explicit intent to preempt state law; (2) when the federal statute’s purpose and structure clearly imply that Congress intended to leave no room for state law; and (3) when federal and state law conflict, either because it would be a physical impossibility to comply with both or because state law stands as an obstacle to achievement of the federal law’s purposes. Barnett Bank v. Nelson, 517 <st1:country-region>U.S.</st1:country-region> 25, 31 (1996). Because the National Bank Act neither explicitly preempts state consumer protection laws nor implicitly preempts the field to the exclusion of state law, it is the last category - conflict preemption - that is at issue here.  Id. at 33.  Where a state law interferes with a power that national banks are authorized to exercise, the state law is preempted.  Id. at 31.

            There is little question that national banks have the power under federal law to sell gift cards and that such activity is regulated by the federal Office of the Comptroller of the Currency.  Federal law authorizes national banks to provide electronic stored value systems, such as the gift cards in question here.  12 C.F.R. § 7.5002(a)(3).  It further authorizes national banks to charge its customers fees.  12 C.F.R. § 7.4002.  A court presented with this question may well conclude that the application of §§ 42-460 and 3-65c to gift cards sold by a national bank is an obstacle to the full exercise of a national bank’s powers under federal law and is therefore preempted.  See Smiley v. Citibank (South Dakota), N.A., 517 <st1:country-region>U.S.</st1:country-region> 735 (1996) (state laws prohibiting late-payment fees for credit cards preempted as to national bank); Marquette Nat’l Bank of Minneapolis v. First of Omaha Service Corp., 439 <st1:country-region>U.S.</st1:country-region> 299 (1978) (state usury laws preempted as to national banks); Wells Fargo Bank of Texas, N.A. v. James, 321 F.3d 488 (5th Cir. 2003) (state law prohibiting fee for check cashing preempted as to national banks).

            This is different, however, from the case in which the seller of the gift card is someone other than the national bank that issued the gift card.  As the federal district court recently held, when the seller of the gift card is a person other than a national bank or its operating subsidiary, even though the gift card has been issued by a national bank, the seller may not claim federal preemption.  SPGGC, Inc. v. Blumenthal, 408 F. Supp. 2d 87  (D. Conn. 2006).  A non-bank seller of a gift card issued by a national bank is not the subject of federal regulation under the National Bank Act and does not acquire national bank status merely by having a contractual relationship with the national bank.  Id. 

            We trust this answers your questions.

Very truly yours,

RICHARD BLUMENTHAL

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