If you can’t handle change…get out of the electronic payments industry! First there were credit cards, then ATM cards, then debit cards and now gift cards. Or is it prepaid card, or stored value card, or gift certificate? With each different payment instrument comes change and unique rules that must be followed. Nearly every check-out line you go through contains gift cards for sale. Many merchants now use gift cards for rebates and loyalty rewards in addition to basic stored value. Statistics confirm that the gift card industry is growing.
    If you are thinking that offering a gift card program could be great for business, make sure that you know the details before jumping into the market. In addition to debit and credit card concerns, gift cards require unique compliance considerations. A little preplanning will keep you ahead of the competition. Below are five questions you should bear in mind as you build your gift card program.

In which states is the merchant or issuer doing business?

    All 50 states have some variation of law or pending legislation related to gift cards. Most gift card programs are executed in more than one state. So what might be acceptable in California may not be acceptable in Florida. A bit of research before the launch of the program can ensure that the program complies with all of the applicable state laws.

Will your gift card have an expiration date?

    Ok, so you decide that after 2 years each gift card issued will expire, meaning the customer will not be able to redeem the gift card for merchandise. What happens to the remaining balance on the card? Will the customer be frustrated when she discovers that because her gift card lay dormant at the bottom of a drawer it no longer has any value? Be careful here: it’s a violation of Connecticut (and other states’) laws to have an expiration date. In Louisiana, it is unlawful for any person to sell a gift card that has an expiration date that is less than 5 years from the date of issuance. Still, if there is no expiration date will the gift card forever be unclaimed funds that just remain on your books as a liability until your business terminates? Sometimes yes, sometimes no. Don’t worry…some states have enacted escheat laws to ensure that unclaimed funds are sent to the state for safekeeping until the customer claims the funds.

What is an escheat law?

    Many states have unclaimed property statutes, also referred to as escheat laws. These laws mandate that abandoned property be turned over to the state. The trick is determining when property has been deemed “abandoned”. Every state has a different rule. The next trick is making your way through the cumbersome process of identifying and turning over the abandoned property to the state. Theoretically, the state then “holds” the property until its rightful owner claims it. Luckily some states, such as Minnesota, specifically exclude gift cards from their escheat laws. Complying with all of the different laws is not easy, but with advance planning you can manage it and ensure that you don’t unwittingly violate state law.

Will fees be assessed?

    Another revenue generating area in gift cards are fees. Fees come in all shapes and sizes including: dormancy fees, service fees, expiration fees, replacement card fees, cash-out fees, account maintenance fees, activation fees, and reactivation fees. No matter what the fees are called, some states absolutely prohibit them. In New Hampshire, any administrative fees that reduce the face value of a gift card are prohibited. In Kansas, fees are prohibited until 12 months after the gift card has been issued. In Kentucky, no fees may be charged until the expiration date of the gift card. Again, each state has different fee rules.

Are disclosures required?

    If the merchant plans to charge a fee or have an expiration date and the law permits it, how will this be communicated this to the customer? First of all, who is the customer? Gift cards often are purchased by one individual to be “gifted” to someone else. Therefore, if the disclosure information is placed on the packaging or on the receipt, the ultimate customer may never receive it. In Georgia, the law requires that the issuer of the gift card include all terms in the packaging that accompanies the gift card, as well as making the terms available upon request; and the issuer must also conspicuously print the amount of any fee on the gift card or on a sticker affixed to the gift card. In Hawaii, the issuer must include the expiration date (which may not be less than two years after issuance, and fees are not allowed) on the face of the gift card, or if an electronic card then clearly printed on the sales receipt. This may cause some difficulty in preprinting gift cards with expiration dates.
    As is always the case, “some exceptions may apply” so it is critical that each state in which the gift card may be used is considered when developing a gift card program. Every year more and more gift cards are being issued and it’s not slowing down. With a little preplanning and research, you can reap the benefits of this upward trend while also ensuring that your program complies with the applicable laws.

This article does not contain legal advice; for answers to specific questions, contact legal counsel.

Jill M. Miller is an attorney at Jaffe, Raitt, Heuer & Weiss, PC. She represents merchant acquiring and payment systems businesses on contractual and regulatory matters. You may reach her at jilmil@jaffelaw.com.