Can Gift Cards Expire?

As the holidays approach many people are thinking about buying gift cards for friends and family. Some may be concerned about whether or not the cards will expire and what fees, if any, are associated with them. A new federal law, the Card Act, has made it illegal for companies to charge expiration dates or fees on retail and restaurant gift cards. However, some state laws still allow them to do so.

The Card Act says that gift cards cannot expire for at least five years or have fees during the first year. This is to protect consumers. If a company charges inactivity fees after a year the funds on the card must be transferred to another gift card or cash. However, the law does not prohibit retailers from offering incentives like discounts or free merchandise to encourage consumers to spend their gift cards.

A recent case was brought against a chain of restaurants that allegedly charged an inactivity fee on their gift cards after one year of inactivity. The lawsuit claimed that the restaurants were using the inactivity fees to make money and to discourage customers from spending their gift cards. The judge ruled in favor of the customers and ordered the chain to stop charging the inactivity fees on its gift cards.

There are seven statutory exemptions from the Card Act’s prohibition on expiration dates. For example, gift certificates and gift cards issued for loyalty or customer rewards programs, charitable giving, or for products or services provided to the military or veterans are exempt. However, even if a business qualifies for one of these exceptions, the Card Act’s rules require them to disclose all fees and terms and conditions before a consumer purchases a card or certificate.

It is also important to understand that a business can not exceed the minimum of the Card Act’s rules for expiration dates or fees for cards and certificates that do not qualify for an exemption. This means that for a dollar valued gift certificate or card that does not meet an exemption there can be only one expiration date and it must be the greater of five years or your state’s minimum.

For service, or experience gift cards or certificates, such as a spa treatment or a meal in a restaurant, you can consider putting two expiration dates on your cards; the first for the promotion and the second being the minimum of your state’s minimum for the underlying funds. This will help avoid confusion and provide your customers with the best possible customer experience.

Both physical and digital gift cards are popular, but it’s important to check them before purchasing or adding them to your mobile wallet. Hopefully, the Card Act will prevent more consumers from becoming the victims of deceptive gift card practices in the future. In the meantime, if you are planning to purchase a card, check it for an expiration date or any fees and make sure that the holder can register the card with a toll-free number and website if they want to.