Q: We like to sell gift certificates at our agency, as it helps our cash flow and builds customer loyalty. I just heard about a new federal law governing "gift cards," and I wonder if that law applies to us. If not, what other legal restrictions are there on the terms and conditions that we can impose on gift certificates? For example, can we state that they expire after one year? Can we charge a service fee for gift-certificate redemption or issuance of a ticket against a gift certificate?
A: When I wrote a Legal Briefs column on this subject in 2004, only six states regulated the terms of gift certificates, and there were no federal laws dealing with the subject. Now, 36 states have laws governing gift-certificate terms and conditions, and a federal law taking effect on Aug. 22 will apply to gift cards and gift certificates.
However, the new federal law will not apply to most gift certificates issued by travel agencies. Gift certificates issued on paper, which is the format used by most small businesses, including most travel agencies, are exempt from the new federal law.
To qualify for the federal exemption, the gift certificate must be originally issued by the merchant on a piece of paper. So, if you send the gift certificate as an email or email attachment, the exemption will not apply, and you must comply with the federal law.
If the federal law applies to your gift certificates, then: (a) they can expire in not less than five years after the date the certificate was purchased; (b) you can charge an inactivity fee only if the certificate hasn't been used for at least one year; (c) only one service charge or inactivity fee can be charged per calendar month; (d) all expiration and fee information must be displayed on the certificate; and (e) the person selling the certificate must explain the rules before selling it.
The federal law also states that, if your state has its own law regulating gift certificates, and if the state law provides more consumer protections than the federal law does, then the state law applies. For example, if your state requires that gift certificates cannot expire in less than seven years (or cannot expire at all), then your state law supersedes the federal law.
Under the laws of California, Connecticut, Florida, Maine, Minnesota, Montana, Oregon and Rhode Island, gift certificates never expire. Most of the rest of the states prohibit expiration for periods that vary between two and seven years. You can find a good summary of these laws at www.consumersunion.org (search for "fact sheet on state gift card protection laws").
In my view, states that prohibit expiration or that impose a long expiration requirement discourage travel agencies from issuing gift certificates. The burden of tracking and accounting for unused or partially used gift certificates for so many years probably outweighs the benefits to be gained. If you find your state's requirements too burdensome, nothing requires you to offer gift certificates if you don't want to do so.
Some states allow service fees for redeeming gift certificates, some don't, and some allow fees only if the terms are printed on the certificate. Regardless of those laws, you can always charge a fee for your work in issuing a ticket.
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email him at [email protected].