The Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 has resulted in a number of changes for prepaid card providers and retailers – including the need to completely separate merchandising and marketing of gift cards from other reloadable prepaid financial service and telecom cards.

For card providers and retailers alike, this will result in a massive financial investment in labor, time and material to change in-store signage, as well as produce new cards, packaging and other marketing materials.

In the short term, it could also result in the need to destroy hundreds of thousands of already existing gift cards and financial services cards – unless prepaid players and their lobbyists can convince the Senate in the next month to extend the date by which they must replace old cards. Extending that date would allow retailers to sell off their current card inventory as they produce and stock new cards that follow the CARD Act’s provisions.

“We are talking to Congress now about allowing retailers who have created these cards to communicate [changes from the law] with signage rather than having to destroy those cards,” said Talbott Roche, senior vice president at card provider and distributor Blackhawk Network. If all of the outdated cards were to be discarded, they would take up “the equivalent of eight football fields, 12 feet deep in plastic to be destroyed,” she added.

The CARD Act – which is mainly aimed at traditional credit card reform and consumer protection – also places a number of restrictions on gift cards, including requiring that they don’t expire until at least five years after the date of issue and that they not charge inactivity fees. There must also be full disclosure of these rules to consumers. The law also eliminates services fees and non-use fees on general purpose reloadable prepaid cards, as well as consumer disclosure of the new rules.

As part of these regulations, card providers and retailers must make clear the difference between gift cards and other general purpose prepaid cards by selling them on completely different shelves or racks, and by changing packaging and marketing material to clearly delineate the difference in types of cards, as well as spell out the new rules.

In large part, major distributors like Blackhawk believe the Act will be a positive change for the industry, but it’s the bumps along the way that cause some concern.

“The Act will lead to a deeper understanding [that there are different] prepaid products that serve different consumer segments and needs, so it benefits the entire industry if we more clearly delineate,” said Roche. “At the end of the day we don’t want a consumer to inadvertently purchase a reloadable product because the consumer experience [with that card] is different.”



The Legislative Struggle

The new rules go into effect August 22, so retailers are under pressure to change their stock and store design quickly. In the meantime, though, they’ll work on the Senate for an extension. The House already approved 357-0 what is known as the ECO-Gift Card Act, which changes the CARD Act’s effective date to January 21, 2011 for those cards produced before April 1, 2010. Now a similar bill must be introduced and approved in the Senate. It is expected that retailers could sell off existing inventory by the end of the winter holiday season.

Kirsten Trusko, president and executive director of the Network Branded Prepaid Card Association (NBPCA), said the goal is to prove to the Senate that the cards will begin to follow the new rules immediately, even though they are in old packaging.

“What you really want is that the terms comply with the spirit of the Act,” said Trusko.

One way to do that is to begin to explain the changes on new signage even as old cards sit on the shelves.

“We think signage communicating to consumers to make them aware of their rights in store is not a bad strategy,” said Roche. “You also have to be assured that you have clearly delineated [between the types of cards] as the law requires.”

While the Senate bill has not yet been sponsored by a representative, it’s not too early to reach out to legislators.

“The best way that retailers can help is to reach out to their own house and senate representatives [and ask them to support the prepaid transition period],” said Trusko, adding that retailers should request their own legislators forward the issue to the Senate Banking Committee.

Contacting legislators is especially important since most don’t understand the impact this bill has on prepaid players because it has mostly been aimed at traditional credit card reform.

“You put a glass of wine in them [legislators] and they say, ‘We’re really sorry but nobody really cares. We’ve got huge banks we’re dealing with,’” said Trusko. Yet, the success on the house side largely came from the NBPCA and its retailers remaining engaged with legislators.



Retailers Must Invest in Change Now

In the meantime, retailers must begin to invest in card program changes and in-store redesign now. And that will be a mighty investment.

“This will take additional investment that will be incurred by different players in the value channel. The retailer needs to commit space and money to racks and merchandising. It’s not just the cost of the new fixture and labor associated with moving, it’s also the inventory. There’s cost around new marketing material and new signage and we support all these changes with training for store personnel,” said Roche.

Even if an extension is granted, retailers have to begin functioning as if the laws go into effect in August, just in case.

“They need to be ready in case this doesn’t pass – ready for the worst case scenario,” said Trusko. And if the extension does pass, the new cards will be ready, but they won’t lose out on selling the old cards.

To help prepare retailers for this transition, Blackhawk is actively educating them on the new requirements and strategies for change.

“What we like to do is educate the store employees through computer-based training or in-person training where available so they have a deep understanding of the difference between gift cards and prepaid financial and prepaid telecom products,” said Roche, explaining that the store employees can then pass the information along more clearly to customers.



Is There A Difference For Online Retailers?

Because so many prepaid financial services cards and gift cards are sold through websites or online card malls, these companies must also comply with the new CARD Act rules. Obviously in-store racks don’t need to be changed, but websites must clearly explain the kind of cards they are selling and should market gift cards and other prepaid products on separate pages or through different tabs on a website.

The good news for online card malls is that it is much more cost efficient to merchandising materials and to meet the requirement of spelling out new rules and consumer information as The Act requires.

“The CARD Act really revolves around disclosure – disclosing [the regulations] prominently to the consumer. In fact, they recommend that you have a website and a toll-free number [associated with the cards], so if you’re going with a digital format, it’s all there already and it’s a lot more cost effective,” said David Stone, CEO of CashStar, a digital gift card and incentives company. Stone added that destroying plastic inventory is not a problem for digital gift card programs either. What’s more, since The Act also requires that promotional cards have wording on the front that indicate what they are, digital card providers can more easily meet those demands as well.

Still, regardless of the type of company providing the card, the new rules will require attention and time for transition. Over time, it is likely that the new requirements will only make these products clearer in the minds of consumers, improving loyalty and increasing the overall user base. The road to that end may be a bit bumpy.