What Are the Changes to Gift Certificate Expiration Laws
Special Promotions, Give Aways and Gift Giving
Those who own any kind of business often use gift certificates or gift cards as a cost-effective method of promotion. One of the reasons they remain so popular is they are a great way to introduce potential new customers to products or services a business provides. They are easy to create in nearly any word processing program and if they are used, they can drive new customers in the door.
Many small businesses often provide gift certificates to local Lions Clubs, Rotary Clubs and other civic organizations to use for raffles and other fundraising events. In these cases, the certificates may be issued several months ahead of when they are actually going to be presented to the end user.
Consumers enjoy giving and getting gift certificates - they are a “one size fits all” gift that can please the most difficult gift recipient. The National Retail Federation estimated that gift card sales in 2004 were approximately $17.24 billion, in 2006 they were $24.81 billion dollars, expected to continue growing. This is largely due to the convenience factor and the fact people seem to have less time to shop for appropriate gifts. In 2011, Graduation gifts made by gift cards are expected to reach $3.9 billion a slight decrease over 2010, primarily due to the size of the gifts being given. The popularity of these gifts is evident from these numbers and industry analysts continue to believe the sales of gift cards will continue to prosper.
There are a variety of types of gift cards and certificates. Some are specific to a store, others are specific to a mall or group of malls that operate under one umbrella and still others are more open and carry the MasterCard or Visa logo. Gift certificates may be good for a “one time” use or may be rechargeable by the consumer. All of these possible options results in a significant amount of confusion about the laws regarding giving, getting and issuing of gift certificates or gift cards. Deciphering regulations is not always easy, especially when there are overlapping federal and state laws.
Confusing and Contradictory Laws
E-commerce sites and other online business ventures often have to deal with complicated state and federal rules regarding the issuance of gift certificates and gift cards. Unfortunately, the new laws may simplify some of this while in some cases, it may complicate it even further. Those who do not do inter-state commerce will have an easier time dealing with the new laws than those who trade across state lines.
Examples of some of the issues that might be faced by those who issue gift certificates include:
Fees on gift certificates - Pennsylvania, Wyoming, Wisconsin and South Dakota place no restrictions on fees. The new federal law states that gift certificate holders may be charged an inactivity fee if the card is not used within one year which means the federal laws would supersede the state laws.
Gift certificate expiration - Pennsylvania, New York and Nevada allow vendors to define the certificate expiration dates. California does not allow any expiration dates on gift cards or certificates. The new federal law states that cards must be good for at least five years and consumers who request the balance be transferred to a new card must be allowed to do so without incurring any additional fees.
Escheatment laws - Most states have escheatment laws that state if the owner of a financial instrument cannot be located within a certain amount of time, the funds are turned over to the state and placed in their unclaimed property division account for the benefit of the owner, heirs or estate. Most states do not consider gift cards or gift certificates as something that is owned, nor do they consider them an asset. One exception to this rule is New Hampshire law which states any gift certificate or gift card with a value of over $100 must be turned over to the unclaimed property division if the card remains inactive under their laws. They are the only state with these rules.
Specifics of the Rules
While the state laws on fees and expiration dates of gift certificates will be valid providing they go further than the federal laws, the basic changes to the gift certificate laws are as follows:
A) Expiration dates - Gift certificates and cards may not expire prior to five years after the date of issue. In cases where the balance may be added to by the owner, new funds would start the clock again at five years. Expiration dates must be printed on the card or certificate.
B) Allowable fees - Fees on gift cards and gift certificates are allowed to be charged on a monthly basis if inactive. However, these fees must be disclosed at the time of the sale of the card and may not be charged before one year. Vendors may charge a fee for replacement of a lost or stolen card but not for transfer of balances left at the time of expiration.
These were the two primary changes to the laws and it is important to note some of the changes do not apply to all types of cards. For example, telephone minute cards are not subject to these new rules. It is important for both consumers and business owners to find out about the state and federal gift certificate expiration laws that apply to them.
Resources
Sources:
- Gift Card Spending National Retain Federation (PDF) https://www.nrf.com/modules.php?name=Documents&op=viewlive&sp_id=603
- Graduation gifts have hefty (as in, $4 billion) price tag Grannis, Kathy NRF Spokesperson https://blog.nrf.com/2011/05/23/graduation-gifts-have-hefty-as-in-4-billion-price-tag/
- Consumers Union State Gift Card Consumer Protection Laws https://www.consumersunion.org/pub/core_financial_services/003889.html
Image credits:
- Gift Cards purchased via istockphoto.com/alexsl
- Confusion purchased via istockphoto.com/skvoor
