Compliance Alert: Redemption of Credit Card Reward Points under NY Bill S133B
NYS133B, which modifies New York’s General Business Law, was signed into law by the state’s Governor in 2021 and went into effect on December 10th, 2023. Specifically, it modifies Article 29-A of the NY GBL by adding a new section, Section 529-E, which requires that, for credit cards with rewards points or other rewards program perks, that NY resident card holders be granted a grace period to utilize their accumulated points or other rewards in the event their card account is modified, cancelled, closed or terminated. The law also requires that card issuers provide at least a 45-day notice to the cardholder, who will then have 90 days from the issuance of that notice to redeem, exchange, or otherwise use their accumulated points or rewards.
MCUL became aware of this bill when certain card processors began notifying their clients, and client credit unions began inquiring on its applicability outside of New York. Since becoming aware, MCUL has been coordinating with CUNA, as well as the NY Credit Union Association (NYCUA) and their outside counsel to determine such applicability. Given the complexity of interstate legal jurisdiction and given several open questions that will not be answered until legal action is pursued, certainty on this matter is yet to be had. However, based on reviews of the law and the surrounding context conducted by CUNA and NYCUA’s outside counsel, it has been determined that it is very likely that Michigan credit unions will need to comply with the law, if the following circumstances exist:
- You have members residing in the state of New York; and
- Those members have been issued credit cards with rewards programs.
CUNA has provided MCUL with the following reasoning:
- Article 29-A Section 511 is broad, but generally defines issuers as any persons issuing cards (no distinction between those located in or out of state).
- "Issuer" means a person who issues a credit card or a debit card.
- "Holder" means a person to whom such a credit card or debit card is issued or who has agreed with the issuer to pay obligations arising from the use of a credit card or debit card issued to another person.
- Article 29-A Section 520 includes provisions relating to mandatory disclosures required for card issuers (whether or not located in NY) who mail solicitations to residents within the state of New York for purposes of entering into card agreements. Thus, it references application to issuers out-of-state interacting with residents of NY.
- Article 29 Section 520-C also contains provisions regarding mandatory disclosures, to be contained in each billing statement, application, or solicitation, for “[e]very issuer [organized under laws of the United States or NY] of credit cards to natural persons residing in this state…” Granted, however, 520-C contains its own definitions section.
- It seems likely that (coupled with the construction of other 520 sections) 520-e would most likely apply to an out-of-state issuer and a member-resident of NY.
As noted above, we are not certain whether out-of-state compliance is required, but based on what we know at current, compliance seems more likely than not. Ultimately, if you have members residing in New York, MCUL recommends that you consult your own legal counsel to determine your best course of action.
- NYCUA has published a blog, as well as an FAQ, providing further details on the requirements of NYS133B:
- CUNA has prepared a series of FAQs, as well, which are included in Appendix A.
- Finally, MCUL’s Card Program Advisor, Nangela Piersall, notes that every processor will need to write/update code to assist in complying with this bill:
- The processor will need to write a qualification set based on the block codes that are eligible for this reward grace period.
- When the account is blocked for the cardholder that resides in New York, AND it is verified that the cardholder has rewards, a letter or statement message will be generated and sent to the cardholder notifying them of the grace period.
- In tandem, the loyalty platform will need to acknowledge the cardholder meets the criteria and allow for redemptions until the specified date.
- Once the date passes, loyalty will prevent any reward redemptions on the account.
- Terms and Conditions may not need to be changed because it’s in favor of the cardholder.
If you have further questions on this Alert, please contact Bradley.Willett@mcul.org
Appendix A: CUNA FAQ
Questions & Answers
Who are the covered consumers under section 520-e?
- New York residents who are credit card account holders (e.g., otherwise known as “qualified account holders”).
Does 520-e apply to out-of-state credit card issuers?
- Yes, the application of this section also applies to card issuers located outside of the state of New York who deal directly with qualified account holders.
What are the general obligations of a card issuer under 520-e?
- Credit card issuers must notify qualified account holders within 45 days of the cancellation, closure, termination or modification of any credit card account or rewards program. After the above notice has been provided, qualified account holders must be given 90 days (e.g., otherwise known as the “grace period”) from the date of issuer notice to exercise a redemption, exchange, or use of credit card points accumulated prior to the cancellation, closure, termination, or modification of any credit card account or rewards program.
What type of notice is required under section 520-e?
- Under the provisions of section 520-e, the specific type of notice required is not specified. Therefore, it may be sufficient to provide, among other means, electronic notice or notice by mail.
Should a credit card issuer provide notice and a grace period to a qualified account holder even when there are de minimis modifications made to its rewards program?
- Yes, section 520-e does not decipher between de minimis or material changes to credit card rewards programs when requiring a credit card issuer to provide notice and a grace period to a qualified account holder. Although broadly stated, any modification that reduces the value of credit card points, limits or reduces credit card rewards availability, or otherwise diminishes the value of the credit card rewards program will invoke action under section 520-e by a credit card issuer.
Does section 520-e allow a qualified account holder to exercise the rights provided under the section’s grace period under the credit card agreement’s original terms, prior to any cancellation, closure, termination or modification of any credit card account or rewards program?
- Yes, under section 520-e, a credit card issuer must allow a qualified account holder the ability to exercise a redemption, exchange, or use of credit card points accumulated under the original card agreement terms, as expressed prior to any cancellation, closure, termination, or modification of any credit card account or rewards program.
If a qualified account holder, on its own accord, closes its credit card account with its credit card issuer, does section 520-e entitle that account holder to exercise the rights provided under the section’s grace period?
- While the language in section 520-e is catered more towards credit card issuer-actions (e.g., a credit card issuer terminating an account or modifying a rewards program without the intervention of its account holder), the statutory language of the section is sufficiently ambiguous and thus a card issuer is encouraged to provide its account holders a 90-day grace period to exercise the redemption, exchange, or use of credit card points in the above circumstance.
Are there any instances where section 520-e does not apply to card issuers?
- Yes, under the provisions of the statute, section 520-e does not apply when there is the presence of fraud or misuse by the credit card account holder (e.g., otherwise known as “exceptions”). Credit card issuers, however, should consult with counsel to determine whether exceptions to the statute apply, since neither fraud nor misuse is defined in the provisions of section 520-e.
Does section 520-e have any impact on the card agreement terms between credit card issuers and account holders?
- Yes, section 520-e prohibits credit card issuers from including in their agreement terms any language providing for the forfeiture or cancellation of qualified account holder’s credit card points within the grace period.
Is there any ability for a qualified account holder to waive or limit its rights under section 520-e?
- No, the provisions of section 520-e make clear that the above circumstance is void as contrary to public policy.
Should there be any dispute, does a qualified account holder possess a private right of action under section 520-e?
- Although relief and other remedies are not expressly stated for violations of section 520-e, a qualified account holder is likely able to bring legal action against a card issuer for violations arising out of the provisions of section 520-e, consistent with the rights and obligations under other New York General Business Law provisions.
Are there any regulations that are expected to be implemented following the recent enaction of section 520-e?
- No, the provisions of section 520-e do not call for the promulgation of rules following implementation of the section.
Is section 520-e in any way preempted by federal statutes?
- 12 CFR § 701.21 addresses that the Federal Credit Union Act preempts any state consumer lending laws purporting to limit or affect (A) interest rates, (B) loan terms, and (C) enumerated loan conditions. However, the section does not expressly preempt state laws affecting aspects of credit transactions that may be regulated by other federal statutes, such as unfair credit practices, which instead should be determined pursuant to preemption standards of such other federal statutes. And, although 12 USC § 5531 may be applicable as a federal statute concerning card rewards programs in the context of unfair and deceptive trade practices, it does not specifically preempt state legislation concerning these programs.
- In the context of national banks, 12 U.S. Code § 25b also addresses the preemption of state law only when a state consumer finance law, among other things, discriminates against national banks as compared to state-chartered banks or interferes with national bank powers. Section 520-e, in the context of preemption of the above section, however, is unlikely to be viewed as discriminating against or interfering with the powers of national banks.