South-Western Legal Studies in Business

Federal Bank Rules Trump State Bank Rules

Federal appeals court held that a New Hampshire law that restricted the sale of gift cards was in conflict with federal regulation of such cards, since they are issued by banks subject to federal regulation. The state law must give way to federal rules.


Consumer Protection

Key Words

Federal Preemption; Gift Certificates

C A S E   S U M M A R Y

Simon manages the three largest shopping malls in New Hampshire. It contracted with Bank of America (BoA) to sell stored value gift cards. Retail gift cards can only be used at the retailer named on the card. Bank-issued gift cards may be sold by a retailer but are issued by a bank and often carry a network logo such as Visa and can be used at any location that takes debit cards. BoA received an administrative fee for handling the bank-issued gift cards that were branded by BoA, but Simon was responsible for marketing, selling, and servicing the gift cards. New Hampshire passed a statute restricting the sale of gift certificates including stored value gift cards issued by banks that carry expiration dates or are subject to administrative fees. Ayotte, the Attorney General of New Hampshire, sued Simon and others for violating the state Consumer Protection Act (CPA) for unfair and deceptive practices for marketing the gift cards. Simon sued for injunctive relief against Ayotte in federal court. The district court held for Simon. Ayotte appealed.


Affirmed. Complete preemption exists when a federal cause of action has completely supplanted a state law cause of action and, thus, converts the state claim into a federal claim. Hence, the federal court has jurisdiction in this case. The New Hampshire CPA, that prohibited the sale of gift cards with a value of less than $100 that carried expiration dates or administrative fees, attempted to regulate activities of national banks that issued such gift cards. This is in conflict with the National Banking Act, which thereby preempted the state CPA on this issue. Since the state and federal rules are in conflict, the state rule must yield to the federal rules.


SPGGC v. Ayotte, 488 F.3d 525 (1st Cir., 2007)

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