by Richard Alderman
The First Circuit has held, in Metabank v. Ayotte, that a state cannot regulate the terms of stored value, or gifts cards, issued by a bank and sold by a third party retailer. This decision does not bode well for legislative attempts to protect consumers who often unknowingly purchase gift cards that have hidden charges or early expiration dates.
In its opinion, the court noted that the case was “about the power of a state to regulate activities of national banks and national thrifts if these activities are carried out by third-party agents.” At issue was a New Hampshire statute restricting the sale of "gift certificates," including stored value giftcards issued by national banks and national thrifts that carry expiration dates or are subject to administrative fees. New Hampshire Consumer Protection Act, N.H. Rev. Stat. Ann. § 358-A:2 ("New Hampshire CPA"). The district court granted summary judgment to plaintiff’s concluding that the New Hampshire CPA was preempted as applied to products sold by national banks and thrifts. The First Circuit affirmed.
The court noted that stored value gift cards come in two varieties: retail giftcards and bank-issued giftcards. Retail giftcards are similar to traditional gift certificates in that they are issued by a retailer, are serviced by a retailer or its agent, and can only be used at that retailer Bank-issued giftcards may be sold by a retailer, but they are issued by a bank, typically carry the logo of a payment network such as Visa or MasterCard, and can be used at any location that accepts debit cards of the same payment network. The giftcards at issue issued by were bank-issued giftcards. These cards carried an expiration date and were subject to administrative fees that reduced the redeemable value of the card after a certain period of time or after certain events, such as the loss and replacement of the card. The cards, therefore, were subject to the New Hampshire CPA.
To determine whether the National Bank Act preempts the enforcement of the New Hampshire CPA, the court first determined whether a national bank's enumerated and incidental powers include the issuance of stored-value giftcards with expiration dates and administrative fees and the marketing and sale of those giftcards through third party agents. If a national bank has these powers, we must then determine whether the CPA limits the bank's ability to exercise that power.
The court noted that “There is little dispute in this case that a national bank has the power to issue stored value cards that carry expiration dates and administrative fees. The OCC has determined that the issuance and sale of electronic stored value systems, such as giftcards, is an activity incidental to the business of banking.” Therefore, the question was whether the New Hampshire CPA frustrates the exercise of that power. The court concluded that it did, and, therefore, was pre-empted.
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