Update: Beginning January 1, 2008, California law requires merchants to provide cash back to the purchaser or holder of any gift certificate with a balance less than $10.
Here's some legal news you can use, just in time for the Holidays! Having a hard time deciding what to get everyone on your gift list? Wish you could just buy gift cards and let everyone decide for themselves, but you've heard all those horror stories about gift cards expiring or charging service fees and the gift recipient actually ending up owing money? Well, the good news is that one of the benefits of living in California during the Holidays, besides the great weather, is that most gift cards sold here cannot expire or charge a service fee. The bad news is the law, as always, has several loopholes.
The biggest of these loopholes is that if the card can be used to buy goods or services from multiple unrelated stores, such as an American Express™, MasterCard™, or Visa™ gift card, that card is not covered by the California law. Luckily, federal law governing nationally chartered banks requires that such cards prominently display any expiration date on the front of the card, and the fact that there is a monthly fee and how to obtain additional information (by providing a toll free number or website address, for example) on the back of the card.
The second biggest loophole is that while gift cards cannot have an expiration date, they can have a redemption date, which is a date by which the recipient of the card must use it. What is the difference, you may ask? Well, a seller that chooses to put a redemption date on a gift card must give the purchaser a full refund of the amount paid for the card if the recipient does not redeem it by the redemption date. So at least you haven't just thrown your money away if the recipient of your gift is a little slow.
The third biggest loophole is that while gift cards cannot charge a service fee, they can charge a dormancy fee for non-use. Again, the difference? Well, a dormancy fee can only be charged if:
- 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 (for example, no purchases, "reloading," or balance inquiries); and
- the holder may reload or add value to the card.
The card must contain a statement in at least 10-point type stating that the fee is triggered by inactivity, the amount and frequency of the fee, and at what point the fee will be charged. This statement may be on the front or the back of the card, but it must be visible to the purchaser prior to purchase. So at least you know what you're buying before you buy it.
Finally, the California law doesn't apply to prepaid calling cards, cards distributed to consumers without charge under an awards, loyalty or promotional program; cards sold below face value at a volume discount to be used for fundraising purposes if the expiration date is 30 days or less after the date of sale; or cards issued for food products or grocery items.
For tips for both gift card purchasers and recipients, visit the California Department of Consumer Affairs website.
By Kelly Browne, Assistant Director for Public Services
updated 1/2009