It's fair to say that the terms of some gift vouchers make for a pretty rotten deal. Yet the annual spend on gift vouchers in Ireland is estimated at €600m, involving 41% of Irish consumers, and there is plenty of evidence of consumer detriment. So I sympathise with the Irish government's new laws to impose certain conditions on their supply. As ever, however, there's devil in the detail. For instance, it might be relatively easy for some traders to make changes to avoid the new restrictions, the scope might collide with EU payments regulation and prove ineffective to cover some of the targeted vouchers, while the need to redeem partial voucher balances for cash might present a golden opportunity for the less respectable among us... I've summarised my general views on the scope of the new laws below, but you should seek specific legal advice on the status of any specific voucher.
The scope of the new "gift voucher" requirements
As a result of the Consumer Protection (Gift Vouchers) Act 2019, the Consumer Protection Act 2017 (CPA) now requires certain terms to be included in a "gift voucher contract" - a contract between a relevant trader and another person for the supply of a "gift voucher".
Broadly, the CPA requires gift voucher contracts to include certain terms relating to expiry, redemption, access to remaining balances, named customers and replacement. The CPA deems terms relating to expiry, access to remaining balances, named customers and replacement to be included where they are absent and the deemed provision prevails over any inconsistent provision. A trader commits an offence by failing to comply, which is subject to substantial fines and/or imprisonment.
Where a gift voucher contract contains a term that is contrary to the CPA requirements, that term is not binding on the customer or any person to whom the customer transfers the voucher to which the contract relates (transferee); the contract continues to operate (if it is capable of continuing in existence without the offending term); and the transferee can exercise all rights under the contract on the same terms as the original customer.
A key challenge for the government is defining "gift voucher" and "gift voucher contract" to fall outside the scope of both the (second) EU Directives on E-money (EMD) and Payment Services (PSD). That's because these are 'maximum harmonisation' directives, so there are only explicit opportunities for member states to implement these Directives inconsistently with other EEA countries (although inconsistencies in interpretation and enforcement do arise!). If a directive is not transposed correctly, the European Commission can initiate infringement proceedings in the Court of Justice of the EU (ECJ), and this can enable individuals to rely on the directive in proceedings against the country's government and/or to obtain compensation.
The scope of the EMD and PSD is both positive (in declaring what is regulated) and negative (in declaring what is not, through express exclusions). Therefore, a payment service or instrument might be out of scope of each directive altogether, or in scope but excluded to some degree (partially regulated), or in scope and more fully regulated.
The Irish government's initial Consultation Information Note on regulating gift vouchers did not refer to the maximum harmonisation issue, merely citing a preference to avoid "undesirable double regulation". And a subsequent review by the Office of the Attorney General, the Department of Finance and the Central Bank of Ireland focused only on vouchers that are 'e-money instruments', as explained in the Regulatory Impact Assessment.
What is a "gift voucher"?
"Gift voucher" is defined in the CPA to mean "any voucher, coupon or other document or instrument, including in electronic form, that is intended to be used as a substitute for money in the payment, in whole or in part, for goods or services or otherwise exchanged for goods or services", subject to a list of exceptions.
The definition seems to be drawn from the CPA definition for "goods" which includes: "any voucher, coupon or other document or thing intended to be used as a substitute for money in the payment, in whole or in part, for a product or otherwise exchanged for a product." This pre-dates the current EMD and PSD.
Can a "substitute for money" be used for "payment"?
This element of the definition of a "gift voucher" seems problematic. The word "payment" is not defined in the CPA, EMD or PSD (or the Interpretation Act), so we must look to the ordinary dictionary meaning. The dictionary definition of "pay" is "to give somebody money for work, goods, services, etc."
It follows that a "substitute for money" could not be used for "payment". At any rate, if a voucher is not a "substitute for money" it must be "otherwise exchanged" for goods or services.
Could a Gift Voucher Be a "Payment Instrument"?
There's a long list of exceptions to the meaning of "gift voucher" in the CPA (set out further below), including one for vouchers that fall within the definition of "electronic money" in the EMD. But there is no exception in the CPA that reflects the definition of "payment instrument" in the PSD.
Typically, a voucher itself is not a store of value, but is linked or associated with value, goods or services - or the right to value, goods or services - held elsewhere.
This is similar to a prepaid card, which is held by the cardholder, and the associated e-money balance in the e-money issuer's systems (the corresponding funds are typically held in a segregated bank account, but may be covered by insurance). A prepaid card is a payment instrument regulated under the PSD, while the corresponding value in the card issuer's systems is e-money under the EMD. The Consultation Information Note suggested that a prepaid card is itself an "e-money product", but that is not strictly the case (although from an authorisation perspective, an e-money institution is entitled to undertake the "payment service" of "issuing of payment instrument" ancillary to its e-money activity, rather than having to treat it as unrelated payment service).
Again, definition means the voucher itself might not be intended to be used as a substitute for money in the payment for goods or services, but otherwise be exchanged for goods or services. So in order to avoid the scope of the PSD, the voucher should not be used to initiate a 'payment order' (i.e. a request for the execution of a 'payment transaction' such as a transfer of 'funds') as defined in the PSD (even if the voucher benefits from an express exclusion for doing so under the negative scope).
It should therefore be necessary for both the definition of E-money under the EMD and "payment instruments" under the PSD to be reflected in the CPA exceptions in order to meet the maximum harmonisation requirements.
The 'Limited Network Exclusion' Under the PSD
Allied to the previous point is that "gift cards" are among the payment instruments that the Central Bank of Ireland (CBI) interprets as being likely to benefit from the "limited network exclusion" under the EMD and PSD - meaning they are in scope but not to be regulated (except that the network operator must register a programme if the volume of executed payment transactions exceeds €1m in the preceding 12 month period).
The recitals to the PSD also include a reference to "vouchers" in this context.
Note, however, that the UK's Financial Conduct Authority changed its view in 2018, and now considers 'basic' gift cards to be outside the scope of the UK regulations. It would help the Irish government's cause in this context if the CBI were to adopt the FCA's interpretation.
The PSD exclusion for certain "paper-based vouchers"
Similarly, the CPA should probably also include an exception from the definition of 'gift voucher' to match the PSD exclusion for payment transactions based on a "paper-based voucher" drawn on a payment service provider with a view to placing funds at the disposal of a payee.
Gift voucher contracts as PSD "framework contracts"
There's also a requirement under the PSD for payment service providers to have a "framework contract" in place with their customers (or a more limited contract for a single transaction or one-time use of a payment service). So a gift voucher contract for the supply of a gift voucher that falls within the scope of PSD and is not expressly excluded, should only need to comply with the relevant content requirements for contracts under the PSD (chapter 3 of the Irish regulations).
Overlap with PSD exclusions?
Some of the other exceptions to the definition of 'gift voucher' seem to map partially to PSD exclusions. They do not use the same language as the PSD, which is apt to confuse, and could leave gift vouchers that fit a PSD exclusion in scope of the CPA, which could be deemed inconsistent with the EMD and/or PSD. Equally, the CPA exceptions might also represent relatively easy ways to remove a gift voucher from the scope of the CPA.
Specifically, the definition of 'gift voucher' does not include a voucher, coupon or other document or instrument, including in electronic form:
(a) that is redeemable only for the purposes of the purchase, at a discounted price, of specified goods or specified services, from a specified trader or traders—(i) on a specified date, or (ii) for a specified period of a limited duration not exceeding 3 months [compare with the EMD/PSD limited network exclusion];
(b) that is supplied under a customer loyalty scheme [compare with the EMD/PSD limited network exclusion];
(c) that is supplied in connection with a promotional scheme that is connected to the purchase of specified goods or specified services [compare with the EMD/PSD limited network exclusion];
(e) that is redeemable only in exchange for goods or services relating to telephone services, internet services, fuel, electricity, heating or any other utility [compare with the PSD limited network exclusion and public communications network exclusion];
Other ways to remove some gift vouchers from the CPA?
Other CPA exceptions might not cut across the PSD, but may nevertheless present relatively easy ways to take a gift voucher outside the scope of the CPA requirements. Specifically, the definition of 'gift voucher' does not include a voucher, coupon or other document or instrument, including in electronic form:
(d) that is supplied [only/exclusively?] by way of a refund for goods returned to a trader;
(h) that is not supplied, marketed, provided or otherwise made available to be given as a gift (i.e. not transferable by the [initial?] purchaser).
Risks of redeeming partial gift voucher balances for cash...
Worryingly, there is a requirement under the CPA for a relevant trader to reimburse any balance of €1 or more left on a gift voucher either in cash by electronic transfer or by way of another gift voucher, if the gift voucher contract prevents a voucher balance being redeemed in another transaction.
In my experience, redemption for cash is avoided in most gift card/voucher programmes, not only to potentially take advantage of unredeemed value (or 'breakage') but also to avoid 'opening the loop' to create E-money, remove the temptation for theft and money laundering and avoid the potential for retail branches inflating sales and so on.
There is also an inherent inconsistency in converting vouchers that avoid being a store of monetary value into cash.
While such 'redeemability' is a requirement in relation to E-money under the EMD, in that context it is supported by certain controls that are not present in relation to gift vouchers under the CPA, chiefly:
- redemption must be immediate;
- corresponding funds must be safeguarded (either by insurance or segregation in a bank account separate from the issuer's own money);
- payment details must be handled securely;
- e-money issuers are subject to compliance with the anti-money laundering regime.
If consumers are to get their surplus balances back under the CPA, then this redemption obligation should be within a certain time of a request and, to the extent they are asked for card or bank details for electronic transfers, these details should have to be handled securely by the trader (whether or not they are treated as personal data).
In addition, without an upper limit on the value per voucher, top-ups or the amount of gift vouchers that might be purchased (particularly anonymously) and the proportion that must then be redeemed for cash, it is conceivable that quite large amounts of money could be used to purchase gift vouchers, each of which is only partially used for small purchases, with the major proportion then being redeemed for cash. This opens up the potential for theft, money laundering and so on, as mentioned above.
Other Voucher Contract Requirements
In addition to the residual cash redemption requirement, gift voucher contracts must:
- Provide that the gift voucher supplied has either no expiry date, or expires at least 5 years from the date on which the contract was entered into [problematic where the contract is to supply multiple gift vouchers, e.g. to other businesses for onward sale or supply]
- not contain a term requiring the full value of a gift voucher to be redeemed in a single transaction.
- not contain a term that places a limit on the number of gift vouchers that a person is permitted to redeem in a single transaction.
If a gift voucher contract contains a term requiring a gift voucher to be redeemed by a named person, the contract must contain a term permitting:
(i) the named person to redeem the voucher notwithstanding a difference between that person’s name as it appears on, or in connection with, the gift voucher, and as it appears on that person’s passport, driving licence, or any other form of personal identification, and
(ii) the named person’s name as it appears on, or in connection with, the gift voucher to be amended or changed without a fee being charged.
Where a gift voucher contract contains a term relating to the replacement by a relevant trader of a gift voucher that has been lost or stolen, that term must provide that the replacement gift voucher will not expire before voucher it replaces.
The trader must specify either on the gift voucher or on a ‘durable medium’ supplied with it, either that there is no expiry date; or the voucher expiry date (if any); or the date on which the gift voucher contract was entered into and the period during which the related gift voucher is redeemable. A ‘durable medium’ is any medium on which information is provided and stored that renders the information accessible for future reference for a time adequate for the purposes of the information, and allows the unchanged reproduction of the information (like a pdf, for example).
I sympathise with the government's efforts to ensure fairness in the supply of gift vouchers, however, it would seem there is a bit more work required to ensure that the new CPA provisions are more precisely targeted and further limit the scope for abuse and other unintended consequences.
A key challenge for the government is defining "gift voucher" and "gift voucher contract" to fall outside the scope of both the (second) EU Directives on E-money (EMD) and Payment Services (PSD).