It is the time of year when clients are thinking about holiday gift promotions. Sometimes, the holidays inspire clients to add gift cards into their  promotions. Gift cards can be a wonderful way to gain exposure to new customers, and to capture those holiday gifting dollars. Before you jump into offering gift cards, be sure to check out the regulations around gift cards. To make matters bit complicated within these regulations, every US state & the federal government has their own rules on gift cards, so if you are targeting customers across the country with online sales, be sure to comply with all state regulations.  The four top legal issues for gift cards are:

1. Expiration Dating
2. Redeemability for Cash
3. Service & Maintenance Fees
4. Escheat Laws- the reporting of unused gift cards, and the transfer of the property to the state government

Like all Law On The Runway posts, this is just general information to help you get started on research, not legal advice. Because writing about all 50 states would be overly complex and likely not helpful in a blog format, I am going to cover California state laws and federal laws, since Law On The Runway is located in California. This is to give you a sense of the types legal issues that surround gift cards.  To research deeper into your specific situation, please contact an attorney.

First, lets get our terminology clear. As I was discussing this blog topic with a friend, she asked, “what’s the difference between a gift card and a gift certificate?”  The California Department of Consumer Affairs sees gift cards and gift certificate, except that gift cards can be used at multiple unaffiliated retailers or service providers, and gift certificates are to be limited to one retailer or service provider.

Expiration Dating 

In general, you cannot allow the gift card or certificate expire. For most fashion-startups, this simply means knowing and planning for the redemption of gift cards, long after their issuance. While these gift cards become a liability that you are expected to provide products in exchange for, you are not required to keep the funds you received from gift certificates in a separate account or to replace stolen or lost cards.

There are some exceptions to the rule, the most popular being the multiple retailers exception. If the gift card can be used at multiple unaffiliated retailers (such as a mall-wide gift card), then the gift card may expire.

Federal laws require that gift cards are good for at least 5 years. Therefore, combined with the California rules, even if you have gift card that can be used at multiple unaffiliated retailers, this gift card must not expire for at least 5 years from the purchase date.

The federal laws also clarify that gift cards that are given as promotional tools (such as a free $15 gift card with a store purchase), which aren’t purchased separately, can expire, so long as you clearly state this to the customers.

Redeemability for Cash 

In California, if a gift card holder has a gift card worth less than $10, the gift card holder may request the monetary value of the gift card, instead of using it towards a purchase. When creating gift cards, encourage your gifters to purchase gift cards for values that parallel your price points, so that you are less likely to have gift card holders with small balances remaining on their cards, which could prompt a request for the remaining cash value.

Service & Maintenance Fees

California law prohibits service and maintenance fees, but it does allow what is called a dormancy fee. Dormancy fees may be applied to gift cards in limited circumstances.

• the value remaining on the gift card is $5.00 or less; and
• the dormancy fee is $1.00 per month or less; and
• the card has been inactive for 24 consecutive months; and
• the card is reloadable, meaning the holder can add value to the card.

Escheat Laws 

Escheat laws cover the transfer of property from an individual, to the state government. Like the expiration dating, California in general does not require gift cards to escheat to the state, so long as there is no expiration date. Otherwise, if the gift card has an expiration date, and it is unclaimed by any owner within three years (meaning no one claims ownership of the card itself), then the card reverts to the state (California).

Above are just the basics on gift cards, specific to federal laws and California laws. Please use this advice only for starting your research into this area. This is a complex area of law, and so if you are considering offering gift cards as part of your holiday gift line, do contact an attorney. To reach out to Law On The Runway with questions, please email [email protected]