Virtual assets 102: gift card regulations, virtual currency & virtual property

We’ve recently discussed the elements of virtual currency and virtual property in online games. But what types of regulations might apply to virtual goods and currency? There are some interesting ones that many game developers or publishers may not consider, but they should. In the last post, I discussed money laundering. Today’s post will cover gift cards. Exciting stuff.

Another financial regulation that may apply to virtual goods and currency in the video game industry relates to the legal treatment of gift cards.

The Credit Card Accountability Responsibility and Disclosure Act of 2009 (the CARD Act, get it?) and the regulations put forth under its authority apply to gift certificates, prepaid cards, and other stored value in the form of a card, code or other devices.

How does this apply to video games? Well, imagine a consumer buys a vanity skin or a mount for their avatar in a game. They buy the item with, for example, a credit card on the company’s website and they receive a code to redeem the item in-game. Until that particular item is redeemed, it is legally considered a gift card subject to the CARD Act. The Act specifically does not require any physical card, but this is a good example of how the regulation applies. Redemption of purchased virtual goods should be instantaneous and result in a license to use the virtual item.

The CARD Act involves a lot of requirements. But the critical piece is on the terms of how stored values may expire and what notices have to be sent to consumers. The law specifically prohibits companies from charging certain dormancy fees, setting expirations of less than five years on actively used cards, and imposes strict definitions on what an actively used card is. It requires clear and conspicuous notice of the information about the terms and conditions governing the card. The notice must be made prior to purchase, in a form that it can be retained by the individual and readily understandable by consumers.

Of note: the CARD Act is the baseline for requirements. State laws can impose more restrictive conditions. California, for example, has nearly prohibited the expiration of gift cards and the imposition of service fees. California also requires that if there is less than $10 in stored value, it must be redeemable in cash.

Game developers and publishers need to be careful when introducing any stored values and especially careful if implementing virtual wallets or direct currency purchases in games.