If you're a small or independent business in the US, you'll find this post helpful. In this blog post, we discuss the gift card expiration law.
(For UK gift card law, see here).
Find out how to sell gift cards while complying with federal and state gift card laws.
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 in no way be considered legal advice or legal counsel. We recommend that you get your advisors on the law before proceeding.
Gift cards expire for a simple reason: the company can make more revenue from unused cards.
However, federal protection is in place for consumers for up to 5 years after purchasing the gift card.
Why did Congress introduce gift card expiration date Federal law?
Federal Congress introduced the Credit Card Accountability Responsibility and Disclosure Act of 2009.
(Otherwise known as the Credit CARD Act of 2009).
As of 2009, federal congress updated consumer protection law to regulate credit cards, including gift cards and gift certificates.
It came about to prevent large companies from abusing the credit card system.
These companies jacked up interest rates in previous years without warning their customers. This practice was even extended to gift cards, where companies applied inactivity fees on gift cards that weren’t used within a certain time frame.
This resulted in many gift cards draining 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' 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 in the US. 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 severe consequences for violating the terms of the Credit Card Act, which can result in excessive fines of between $500 and $5000 for each violation.
But don’t fret! Read on to learn how to sell gift cards ethically and lawfully and avoid those big fines.
To understand what you can do, we first need to define gift cards and establish the different types of gift cards you will sell for your business.
Gift cards are generally defined as the same thing across North America. However, reviewing and pinpointing precisely what a gift card means regarding laws and legislation is essential because different rules can apply in various 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:
There are also state definitions. Here are a few examples of definitions by states
Any certificate where the issuer has received payment for the total face value of the certificate for future purchases or delivery of goods or services and any other medium that evidences the giving of consideration in exchange for the right to redeem the certificate, electronic card, or other medium for goods, food, or services of at least an equal value.
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:
A monetary gift card is a general-use prepaid card with a monetary value (denomination amount) specified on the card. For example, a $50 gift card.
An experience gift card is a general-use prepaid card with no monetary value specified; instead, it describes a service, such as 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 dollars 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), you must now comply with federal law. However, there are a few exceptions.
If you're in the service and experience industry, you're lucky.
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 still requires you to abide by your 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 federal law, they 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, you MUST refer to your state law.
Read more about gift card 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 five years, then the federal law won’t affect 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 is best 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:
For example, 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.
However, you must allow the amount paid for the gift card to be available for the two-year expiration date, which is required by state minimum terms.
However, you MUST clarify the expiration date on the gift experience card.
Setting the expiration dates on your gift cards is a very important aspect and one you should not get wrong. If you don’t display an expiry date, then, according to some states, there is no expiry date.
Here are some ideas for setting expiration dates that comply with gift card legislation and law.
Please clearly set only one expiry date on your gift card, either the federal five-year amount or your state's minimum term (if it is longer than five years).
Exceptions are states that 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.
For example, 12 months is an appropriate length of time to let service or experiences expire, as it gives the consumer a fair amount of time to use the gift card.
For example, New Jersey has a minimum expiration date 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.
For example, 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.
According to New York State Law, gift cards purchased on or after December 10, 2022, remain valid for 9 years from the date of purchase.
Pennsylvania law follows the Federal Law on gift card expiration date. This means that gift cards legally have to follow a 5-year expiration date from the day of purchase.
If the expiration date expires after 5 years the issuer has no legal obligation to honour the gift card.
Wisconsin follows the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which requires sellers to put an expiry date of 5 years on gift cards or certificates from the date of purchase.
The state of Illinois follows Federal Law on Gift Cards.
Also, according to Illinois state law, no post-purchase fees are allowed to be set on a gift certificate post-purchase.
When selling a gift certificate in Michigan, a person involved in the retail sale of goods or services is prohibited from offering a certificate that expires in less than five years.
When a gift certificate is given as a charitable contribution, it may have an expiration date of at least three years. On the other hand, if it is provided as a benefit under programs like employee-incentive, consumer-loyalty, or promotional programs, it may have an expiration date of not less than one year. However, in both cases, the issuer should not receive any consideration from the consumer, and the expiration date should be disclosed in writing to the consumer at the time of issuance.
If a gift certificate is part of a larger package associated with a convention, conference, vacation, or sporting or fine arts event that has a limited duration, it may have an expiration date. However, the majority of the value paid by the recipient must be related to the event. Furthermore, an issuer may decide to honor a gift certificate that has already expired on or before the effective date of this act.
The short answer is yes. If they are monetary value gift cards, their expiration date must be set at least 5 years in advance.
Experience gift cards don’t have to comply with the Federal Credit CARD Act of 2009. This means you can choose your own expiration date when selling services as gifts.
If your gift card has expired, there is not much you can do as a consumer. Some companies may look at individual circumstances and, as a gesture of goodwill, provide an alternative option of extending the validity of your gift card.
Some companies will allow you to purchase a gift card extension for a few months to give you time to use your gift card.
If you have been put off by the laws and legislation surrounding gift cards, don’t let them 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 solve 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!
