Gift Card Laws: The Basics You Need to Know for Your Business
Jul 22, 2019
Gift card laws exist to help protect your right to offer and sell gift cards as part of your business. They also help protect your customers from disappearing balances, inactivity fees and unexpected card cancellations. As a business owner, it’s critical to understand your legal requirements to avoid unnecessary and costly legal action.
The CARD Act: A Federal Gift Card Law
The Credit Card Accountability Responsibility and Disclosure Act of 2009 is a federal law which protects consumers. The act applies to store-bought gift cards, gift certificates and gift cards with a MasterCard, Visa, American Express or Discover logo. Some of the most important excerpts include:
- Expiration dates cannot be less than five years. If you choose to place an expiration date, it must be fully disclosed on your gift cards and must be no less than five years.
- Businesses cannot charge fees for one full year. If you wish to charge customers an inactivity fee, you must wait until there’s no activity on the card for 12 full months. You’re only allowed to charge one fee per month and must disclose the fees before the purchase.
- Replacement cards must be an option. For gift cards that expire with money still attached, you must allow customers to ask for replacement cards at no extra charge.
These regulations do not apply to reloadable prepaid cards, cards used for telephone services or those redeemable for specific events. If you choose to offer a gift card as part of a promotion, such as offering a free gift card for a certain purchase amount, the law doesn’t apply.
What Happens to Unused Gift Cards?
Around $1 billion in gift cards go unused every year. When gift cards go unused for a certain period of time, the money left over moves to a new owner, a process called “escheatment.” The laws governing escheatment vary depending on the state your business operates in.
For open-loop gift cards—those that are redeemable anywhere that accepts the brand—the business owner and the issuing bank must comply with both federal and state law. For closed-loop cards—those that are only redeemable in one store—it’s the business owner’s responsibility to comply.
Consider Both Federal & State Law Before Creating Your Gift Cards
The best rule of thumb is this: disclose all policies and gift card practices on the back of your gift card. Create your policies based on careful consideration of federal and state laws before you start selling your gift cards for optimum protection.
We recommend seeking out the knowledge of an attorney to ensure you fully understand your rights and responsibilities.
Ready to Sell Your Own Custom Gift Cards?
Gift cards can help you grow your business and increase customer loyalty. To learn more about creating your own custom gift cards or to get started, us a message.
