Gift Card Consumer Protection

More than 140 million Americans spent over $70 billion on gift cards during the past year.1 Almost 75 percent of American consumers said they planned on purchasing at least one gift card during the 2005 holiday season, a substantial increase from the previous year.2 But nearly two-thirds of those consumers were not aware that gift cards may expire before fully used and may contain hidden fees.3 Because of service fees and expiration dates, consumers lose at least 10 percent of the value of gift cards each year—a loss of more than $7 billion.4

Many retailers begin to charge service fees between six and 24 months after a gift card is purchased. The fees generally range from $1.50 to $2.50 per month until the card’s value is completely extinguished. An estimated 23 percent of retailers issuing gift cards impose such fees, and two-thirds fail to disclose service fees when the cards are purchased.5

Many retailers place expiration dates in fine print on the back of gift cards, cutting off the cards’ value after six months or a year. In some states, unused cards are treated as lost property and their value escheats to the state. In other states, retailers can keep customers’ money after gift cards expire. For example, the nation’s second-largest retailer, Home Depot, announced that it made $43 million in 2005 from the sale of gift cards it did not expect to be redeemed.

Gift cards are now the most common gift purchased in America.6 They are tremendously beneficial to retailers because they get the money up front—the store can use the funds for some period of time without paying interest. Gift card recipients don’t return these gifts, so retailers don’t have to worry about refunds. In addition, gift cards guarantee that customers will come into their stores in the future, often visiting for the first time, giving retailers the opportunity to gain long-term clients. And once in a store, half of gift card holders spend more than the amount on the gift card—providing even more profit.7

Six states (CA, CT, ME, MT, RI, WA) have enacted laws which prohibit gift card expiration dates. In addition, 15 states (HI, ID, KS, KY, LA, MA, MD, NJ, NY, ND, OH, OK, SC, TN, VT) have laws that require expiration dates to exceed a minimum period ranging from one to seven years. New Hampshire has no expiration date for gift cards worth less than $100, and a five year minimum expiration period for cards worth more than $100. Nine states (CT, HI, IL, KY, MT, NH, ND, RI, VT) have laws prohibiting any type of service fees, and four states (CA, LA, OK, WA) have such laws with minor exceptions. Eight states (KS, MD, NJ, NV, NY, OK, TN, TX) have laws preventing fees over a given period. For those states without prohibitions, or with limited prohibitions, some require that gift cards clearly indicate expiration dates (AZ, GA, IL, LA, NE, NJ, NY, SC, TX) and any applicable fees (AZ, GA, IL, ME, NE, NJ, NY, SC).

California’s law prohibits expiration dates and fees, with the exception of dormancy fees after 24 months of inactivity of no more than one dollar. Montana’s law prohibits all fees and expiration dates, but limits the definition of gift card to exclude prepaid phone cards and multi-store gift cards. The Rhode Island law concerning consumer protection in gift cards is the strongest. It outlaws both expiration dates and any type of fee, including dormancy fees. This law covers any type of gift card or stored-value card, including pre-paid telephone cards.