Editorial · November 8, 2013
Gift card rules retailers must follow: expiration and fees
Gift card rules retailers must follow come down to three things: how long the money lasts, when a store may charge a fee, and what the card must say. The money on a covered card must stay good for at least five years. A store may charge a dormancy, inactivity or service fee only after a year of no use. It may charge no more than one such fee a month. It must also have disclosed the fee clearly and conspicuously. These federal rules took effect on August 22, 2010.
This guide is for shops that sell gift cards this holiday season. American Express started Small Business Saturday in 2010, on the Saturday after Thanksgiving, to drive shoppers to local merchants.
Which cards the rules cover
The limits come from the Credit CARD Act, signed on May 22, 2009. The Federal Reserve issued the rules under Regulation E. The Federal Reserve says the rules generally cover retail gift cards and network-branded gift cards. Retail gift cards work at one merchant or a group of affiliated merchants. Network-branded gift cards work at any merchant that accepts the card brand. The rules apply to gift certificates, store gift cards and general-use prepaid cards sold or issued mainly for personal, family or household use.
The rules also reach codes and devices that are not in card form, such as a bar code or account number that opens stored funds. A code that a store emails, which a consumer can redeem for a set amount online or in the store, is covered too, unless an exclusion applies.
The duties fall on any "person" who sells or issues these cards or charges a fee. Regulation E defines a person as an individual or an organization, such as a corporation, a partnership or a proprietorship.
The five-year rule for expiration
The money on a card may not expire before the later of two dates. One is five years after the card was first issued, or last loaded if it can be reloaded. The other is the card's own expiration date, if it has one. A card does not count as issued or loaded until it is activated for use.
The card itself may expire before the money does, or while the money never expires. Then a note near the card's expiration date, just as prominent, must say the card expires but the money lasts longer, and that the holder may contact the issuer for a replacement. A card that cannot be reloaded may skip the note if its date is at least seven years after the day that date was printed on the card. The card must also give a toll-free number, and a website if one is maintained, for getting a replacement after the card expires. The issuer may not charge a fee for that replacement, or for paying out the balance another way, while the money is still good.
If a card or its money can expire, the card must say when the money expires, or that it does not. A line like "Funds expire 5 years from the date funds last loaded to the card" is enough. A store that sells cards with an expiration date must also have policies and procedures. These must give shoppers a reasonable chance to buy one with at least five years left before the card expires.
Limits on fees
The rule limits dormancy and inactivity fees, which are fees for non-use. It also limits service fees. These are periodic fees for holding or using the card, such as a monthly maintenance, reload or balance inquiry fee. A store may charge a dormancy, inactivity or service fee only if all three of these are true:
- The card has had no activity for the past year.
- No other such fee has been charged in the same calendar month.
- The card clearly and conspicuously (easy to understand and easy to notice) states the amount of the fee, how often it can be charged, and that it can be charged for inactivity. The buyer must also get those terms before buying.
Activity is any action that adds money to a card or takes it off. A fee, a balance check, a replacement card and a correction for an error or a reversed sale do not count.
A one-time fee, or one unlikely to repeat, is not a service fee. Examples include an issuance fee, a fee for an extra card and a replacement fee for a lost card. Each such fee must still be disclosed on or with the card and before the sale, with its type, its amount (or how it is figured) and its conditions. A card with any fees must also show a toll-free number, and a website if one is maintained, for fee questions. Fees and expiration terms, which must be disclosed before the sale, may not be changed after it. Terms required on the card itself do not count if they appear only in an accompanying terms document, on the packaging or on a sticker or other label.
Cards the rules leave out
The regulation lists six exclusions. Two follow.
- Paper certificates. A certificate is excluded when paper is the only way it was issued. A code or certificate sent to a consumer electronically is not paper only, even if the consumer prints it.
- Loyalty, award and promotional cards. A card issued in one of these programs is outside the limits on fees and expiration dates if it carries the required disclosures. The front must say the card is issued for loyalty, award or promotional purposes (a word such as "Reward" or "Promotional" is enough) and show the expiration date of the funds. If the card has fees, they must be disclosed on or with the card, and the card must show a toll-free number, and a website if one is maintained, for fee questions.
A state law on dormancy, inactivity or service fees, or on expiration dates, still applies when it gives shoppers more protection than the federal rules.