The “federal gift card rule” and what it means for you
In 2010, the Federal Reserve Board issued a new gift card rule (known as the “federal gift card rule” or the “CARD act”) that affects gift cards sold on or after August 22, 2010. According to the Federal Reserve Board, this new rule applies to “gift certificates, store gift cards, and general-use prepaid cards.”
- Retail gift cards, which can be used at a single merchant (like a Target gift card) or group of merchants (like a SIMON mall gift card)
- Network-branded gift cards, which are redeemable at any merchant that accepts the card brand (like a VISA gift card)
It does not include:
- Other types of prepaid cards, including re-loadable prepaid cards that are not marketed or labeled as a gift card or gift certificate
- Prepaid cards received through a loyalty, award or promotional program (for example, a J.Crew rewards gift card received for spending a certain amount of money on your J.Crew credit card).
Here are the basic tenants of the rule:
- Dormancy, inactivity, and service fees can only be assessed for a gift certificate or card if:
- (1) there has been at least one year of inactivity on the certificate or card
- (2) no more than one such fee is charged per month
- (3) the consumer is given clear and conspicuous disclosures about the fees.
- Also, the rule prohibits selling or issuing a gift certificate, store gift card, or general-use prepaid card that has an expiration date of less than five years.
What this rule means for you:
- If you receive a gift card, spend it (or at least a part of it) within one year of its issuance date. This way you can avoid any dormancy, inactivity and service fees, which the company is legally allowed to assess only after one year of inactivity. To remember this one-year deadline, I recommend putting a reminder in your calender at the 11-month mark.
- If you are assessed any kind of dormancy, inactivity, or service fees before the one year mark or you were assessed more than one such fee each month after the one year point, report this to the store manager and mention that it is in violation of the federal gift card rule. If the manager refuses to refund the fees charged, contact the Federal Trade Commission.
- If it’s past the one year point and a monthly fee is being assessed on your gift card, spend your gift card ASAP. Every month you wait, the more the value on your card declines. If you don’t see anything you like at the store, see if the store allows you to buy another gift card with your gift card. If so, this buys you another year of time. You could also sell your gift card to a gift card reseller website or donate it (see this post for more information).
- If you are given a gift card that expires less then five years after the gift card is issued or the date the funds are last loaded, contact the store manager and mention that this is in violation of the law. They will need to replace your gift card with one that does not expire for at least 5 years. If they don’t, contact the Federal Trade Commission.
The California “no expiration date” loophole
It is against California state law for most types of gift cards to have an expiration date. Exceptions to this rule include a gift card that:
- Can be used with several different unaffiliated stores (like a SIMON mall card)
- Was issued to a consumer for free under an awards, loyalty or promotional program
- Was donated or sold at a volume discount to employers or nonprofit and charitable organizations for fundraising purposes, if the expiration date is 30 days or less after the date of sale
- Was issued for perishable food products.
For example, I found a $250 dollar Bloomingdale’s gift card that expired on December 31, 2007 while cleaning out my great grandmother’s “junk” drawer in her Florida home. The Bloomingdale’s in Florida wouldn’t accept it because it was expired, so I sent the card to my little sister in Los Angeles. Since it’s illegal in California for gift cards to have expiration dates, she was able to use it at a Bloomingdale’s there. If you don’t happen to live in California, consider gifting your expired gift cards to a friend or family member who lives in California. Don’t know anyone in Cali? Save it for a a future trip to the Golden State or sell it to someone who lives in California using Craiglist for California cities. To be on the safe side, you should contact a California location of the store and inquire about the status of your “expired” gift card first.