If you're a small or independent business in the US you'll find this post helpful. We will look at how you can sell gift cards, while still complying with the gift card expiration date federal law and at the state level. We will also discuss how the federal Credit Card Act affects your business and what types of gift cards are affected.
Please note! This post is just a general overview to help understand the federal act. It should no way be considered legal advice or considered legal counsel. We recommend after reading this article to get your own advisors on the law before proceeding.
(Otherwise known as the Credit CARD Act of 2009).
As of 2009, federal congress updated consumer protection law for the regulation of credit cards which includes gift cards and gift certificates.
It came about to prevent large companies from abusing the credit card system. In previous years these companies would jack up interest rates without warning to their customers. This was even extended to gift cards, where companies would apply inactivity fees on gift cards that weren’t used within a time frame. This resulted in many gift cards draining of their balance before consumers got around to spending them. It was also seen as unfair to put a short expiry date on gift cards, which resulted in many consumers having cards expiring before they finally got around to using them.
The biggest changes around selling gift cards are the lengthened expiry dates. All monetary gift cards have to be valid for a minimum of 5 years. The legislation has decided that a fair length of time to allow consumers to spend their gift cards is a minimum of 60 months.
There are some serious consequences to violating the terms of the Credit Card Act which can result in extortionate fines of between $500 and $5000 for each violation.
But don’t fret! Read on to see what you can do to sell gift cards ethically and lawfully to avoid those big fines.
To understand what you can do, first, we need to define gifts cards and establish the different types of gift cards that you will be selling for your business.
Gift cards are generally defined as the same thing across the whole of North America. But when it comes to laws and legislation it is important to review and pin down exactly what is meant by a gift card, because different rules can apply in different states. Let’s take a look.
Gift certificate means a card, code, or another device that is:
Store gift card means a card, code, or another device that is:
To make it easier to digest the law and legislation around gift cards we like to split our gift card types into two categories and simplify our definition:
Monetary gift cards (denominated)
Experience gift cards
A monetary gift card is a general-use prepaid card that has a monetary value (denomination amount) specified on the card. E.G a $50 gift card.
An experience gift card is a general-use prepaid card that doesn’t have a monetary value specified on the card, instead, it has the description of a service. E.G a 50-minute full-body massage.
This brings us to our next question. Which type of gift cards apply to the Credit CARD Act of 2009?
Gift cards with a specified denomination of dollar to spend MUST adhere to the Credit CARD Act of 2009!
To clarify: If you sell a gift card with a monetary amount (e.g $50 Dollars), you must now comply with federal law. But there are a few exceptions.
If you're in the service and experience industry you're in luck.
Experience gift cards are EXEMPT from the Credit CARD Act of 2009!
To clarify: Experience gift cards, (which are defined as gift cards or certificates issued for a specific good, service or experience that DO NOT have a specific monetary amount to spend) are EXEMPT from federal law.
However, exemption from federal law does still require you to abide by your own state law for further expiration restrictions. Check out your state law here by just typing your state into the search bar.
If your monetary gift cards are subject to the federal law, it may still qualify for an exclusion under these "statutory exclusions". Which are:
We must clarify: Issued in paper form is ONLY issued by paper form. If the gift card was printed via an electronic sale online or at a retailer’s physical location, where an electronic copy can be sent via email or printed, this does not qualify.
If your gift cards are exempt from the federal Credit Card Act, then you MUST refer to your individual state law.
You need to do some homework and find out if your state law is more or less restrictive on expiration dates than the federal law of 5 years (60 months).
If your state law has a longer expiration date than 5 years, then the federal law won’t be affecting you much, and you’ll need to adhere to your state law.
Generally, federal law does pre-empt state law. But in the case of consumer protection, the Credit Card Act only pre-empts state law when they are inconsistent with its protections. For example, states like California and Florida have prohibited expiration dates. In these cases, expiration dates are not allowed on gift cards as this gives the best situation for consumers, not businesses.
If your state law has a shorter expiration date on monetary gift cards (denominated amount) than the federal law, then there are a few things for you to consider:
E.g If your state expiration date is two years, an experience gift card such as a “50-minute massage” (with no monetary value specified on the gift card), can expire in a year. But you’ll need to allow the amount paid for the gift card to be available for the two years’ expiration date, required by states minimum term.
However, you MUST clearly clarify the expiration date on the gift experience card.
Setting the expiration dates on your gift cards is a very important aspect and one not to get wrong. If you don’t display an expiry date, then according to some states there is no expiry date.
Here are some ideas on how you can set your expiration dates to comply with gift card legislation and law.
Set only one expiry date clearly on your gift card, at either the federal five-year amount or your states minimum term (if it is longer than five years).
Exceptions are the states who prohibit expiration dates, unfortunately you won’t be able to set an expiry date if this is the case.
For service or experience gift cards you could consider two dates.
E.g 12 months is an appropriate length of time to let service or experiences expire as it gives a fair amount of time for the consumer to use the gift card.
E.g New Jersey has a minimum expiration of 24 months following the date of the sale.
For states with no expiry required, you only need to apply the initial expiration date of the service.
E.g The state of Utah only requires you to make the expiration date clear on the gift card. In this case, only the first expiration date needs to apply.
we will soon be writing a post on the expiry date on gift vouchers law for the UK and Canada.
If you have been put off by the laws and legislation around gift cards, then don’t let it frighten you. The benefits of selling gift cards and gift experiences far outweigh the initial research and legal advice you need to seek to begin your journey.
One of our clients The Celtic Manor Resort has grown experience gift card sales from $850k to $2.9 million per year! As you’ll see the results are worth it.
At Enjovia, we provide solutions to your gift card problems and help you get on the right track. Just get in touch and you can begin selling your services as gift experiences today!