Answer:
The reload fee is one of the fees included under the definition of "service fees" in the regulation (see Comment 20(a)(6)-1 in Supplement I to Regulation E). Although imposing a fee is not considered activity under the rule (Comment 20(a)(7)-1), reloading value on a card is activity (Comment 20(a)(7)-1).
There is a flaw in the statement from your vendor. It says you can charge a reload fee in September, because the prohibition extends only to inactivity fees. That is incorrect. The prohibition against fees within one year of activity extends to dormancy, inactivity and service fees as a group. [Section 205.20(d)(1)] In this case, each reload or use of the card pushes that one-year no fee period further out.
If you are depending upon the vendor to keep your fee impositions compliant with the regulation, you are at risk of a violation unless the vendor corrects its interpretation of the rule (and/or its software), or you take special steps to ensure you don't impose non-compliant fees. See the Comment 20(d)(1) for further illustration of this concept.
A new law recently signed by the president delays the effective date of some of the provisions of the rule addressing some gift cards, gift certificates and general prepaid cards until January 31, 2011. For details, review the applicable rule in BOL's ABC Soup.
First published on BankersOnline.com 7/26/10
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