New rules involving the sale of pre-paid gift cards and incentive offers, including limitations on expiration dates and dormancy fees, went into effect Sunday as a result of federal legislation adopted earlier this year.

The legislation, which affects gift cards sold or issued on or after Aug. 22, is designed to address concerns raised in recent years by consumers, who are increasingly buying gift cards.

***** Don’t destroy your non-compliant gift cards just yet though! Congress passed the ECO-Gift CARD Act recently. The Act postpones the effective date of certain gift card provisions from August 22, 2010 to January 31, 2011. The bill provides… additional time for gift card issuers and retailers to sell or dispose of existing gift cards produced prior to April 1, 2010 which do not meet the marking or disclosure of the new gift card regulations. To be eligible for the extension, companies must agree to eliminate the cards’ expiration date and consumers would be entitled to receive a free replacement card or certificate when there are funds remaining. During the transition period and beyond, card issuers must notify consumers of their rights through in-store signage, messages during customer service calls, Web sites, and general advertising. *****

For the first half of 2010, the number of restaurant gift cards sold rose 12.4 percent over the same period last year in the quick-service segment alone, according to a study by Atlanta-based First Data Corp., an electronic commerce and payment processor. At casual-dining restaurants, gift card sales increased 6.1 percent for the first half of the year. The sale of gift cards overall, including those offered by retailers, rose 2.7 percent.

Under the new rules, gift cards must be good for at least five years from the purchase date. Any money later added to the card must also be good for at least five years, said David Koenig, director of tax and profitability for the National Restaurant Association.

In addition, consumers may be able to use the unspent money on a card even after it expires. If the card expires in five years, for example, but the money left on the card doesn’t expire for seven years, consumers can request a replacement card at no cost.

The new rules also place limits on fees for dormancy or inactivity, as well as usage or maintenance fees. Generally, fees can be charged if the card has been inactive for at least 12 months, for example, but a fee can be charged only once per month after that. Restaurants are allowed to charge fees for replacing a lost or stolen card.

Restaurant companies must disclose the card fees and expiration dates clearly on the card or packaging, though Koenig said the rules do not specify how such disclosures must be made.

Rebekka Rea, associate director of the Retail Gift Card Association in Oklahoma City, said the new rules are not likely to have much of an impact on the gift card industry as most retailers and restaurants have long eliminated expiration dates and dormancy fees.

“Our industry has already been self-regulated to be more consumer friendly,” Rea said.

The Retail Gift Card Association, which represents about 33 companies and 60 brands — including major restaurant companies such as Subway, Dunkin’ Brands, Darden and Brinker International — asks members to abide by a code that includes limiting fees and eliminating expiration dates, she said.

“The biggest impact for restaurants will be the way gift cards are packaged,” Rea said. “They need to be sure the terms and conditions are clearly visible, and we would recommend that they also be stated on their websites.”

The new rules do not apply to some reloadable pre-paid cards that are not intended or marketed as gifts, said attorney Amy Pierce with Pillsbury Winthrop Shaw Pittman in Sacramento, Calif.

Chain operators have to be careful, however, because if any location markets the card as a gift — even a picture of a bow on the card could be a problem — the entire chain’s cards would lose the exemption and must comply with the new rules, Pierce said.

Also not covered are cards given as a reward or part of a promotion, Koenig said. For example, a $15 gift card given by a restaurant if consumers purchase $100 or more may have fees and an expiration date of one year, rather than five. Regardless, however, restaurants must clearly disclose the terms, he said.

Also excluded are cards that might offer a free meal or a percentage off the next visit — so long as they do not mention a specific value.

Pierce said restaurant operators must also be careful to comply with state laws regarding gift cards, as the federal rules do not pre-empt local requirements, so long as the state requirements are more protective of consumers.

In California, for example, gift cards can’t have expiration dates, but cards are exempt when no money has been exchanged, such as for a loyalty or reward card. So retailers can set an expiration date on such cards, but, according to state law, it must be printed in all caps in 10-point font on the card, Pierce said.

“The devil’s in the details,” she said.

Contact Lisa Jennings at ljenning@nrn.com.