Aug. 25, 2020

This paid piece is sponsored by the South Dakota Retailers Association.

When COVID-19 caused businesses across the state to shut down for a period of time, loyal customers and local organizations in many communities decided to show support by purchasing gift cards.

Following on the heels of the high volume of gift card purchases, retailers have been asking the South Dakota Retailers Association, or SDRA, whether their gift cards can contain an expiration date.

Under federal law, gift cards generally must be good for at least five years.

The Credit Card Accountability Responsibility and Disclosure, or CARD, Act provides that gift cards sold on or after Aug. 22, 2010, cannot expire within five years from the date they were activated or the date that funds were last loaded on to the gift card, whichever is later.

The restriction applies to store gift cards that can be used only at a particular store or group of stores; gift cards with a MasterCard, Visa, American Express or Discover brand logo; and other general-use prepaid cards.

Under the federal law, gift certificates, store gift cards and general-use prepaid cards may contain an expiration date only if the terms of expiration are clearly and conspicuously stated.

It’s also important to note that money from expired gift cards and gift certificates may be subject to South Dakota’s unclaimed property law.

Exemptions

• Reloadable prepaid cards that are not marketed as or intended to be used as gift cards or gift certificates are not covered under the federal expiration date law since these types of cards are generally intended to be used more like a checking account.
• Prepaid cards given as a reward or as part of a loyalty or promotional programs are not covered — such as a free $15 gift card given by a store if a customer purchases merchandise or services of a certain amount.
• While gift certificates and store gift cards are covered under the rule, the federal regulations exempt devices that are issued in paper form only — including for tickets and events — meaning they do not have to be good for at least five years.
• For information on what is excluded from the federal law, refer to (D) EXCLUSIONS on Page 20 here.

Dormancy, inactivity or service fees on gift cards

The final rule that implemented the gift card provisions of the CARD Act restricts dormancy, inactivity or service fees with respect to gift certificates, store gift cards or general-use prepaid cards sold on or after Aug. 22, 2010.

Dormancy, inactivity and service fees may be assessed for a certificate or card only if:

• There has been at least one year of inactivity on the certificate or card.
• No more than one such fee is charged per month.
• The consumer is given clear and conspicuous disclosures regarding the fees.

Fees subject to the restrictions would include monthly maintenance or service fees, balance-inquiry fees and transaction-based fees, such as reload fees, ATM fees and point-of-sale fees.

Unredeemed gift cards

Money from the sale of an unredeemed gift card or gift certificate may have to be turned over to the state of South Dakota as unclaimed property.

If a gift certificate, gift card or a closed-loop prepaid card contains an expiration date or if it has dormancy fees or other fees associated with it, state law 43-41B-15 provides that if the card or certificate isn’t redeemed within three years, the money reverts to the state Unclaimed Property Fund, handled by the state treasurer’s office.

Gift cards, gift certificates and closed-loop prepaid gift cards, which are redeemable at a single specific business or affiliated group of businesses, are exempt from the state unclaimed property law if they contain no expiration date and have no fees associated with them.

State law 43-41B-43 defines a closed-loop prepaid card as an electronic payment device that meets the following conditions:

• Is purchased or loaded, or both, on a prepaid basis in exchange for payment for the future purchase or delivery of goods or services.
• Is redeemable upon presentation to a single merchant or an affiliated group of merchants for goods and services. “Smith’s Cafe” or “Jane’s Book Store” would be examples of a single merchant. Target or Hy-Vee would be examples of an affiliated group of businesses.

Keep this in mind

South Dakota’s Division of Consumer Protection often receives calls from shoppers who are angry that a store didn’t honor an expired gift certificate. Before deciding to include an expiration date on your store cards or certificates, weigh the pros and cons. Keep in mind you may be potentially alienating a loyal customer or a potential new customer.

This article is intended for general information and reflects SDRA’s understanding of state and federal laws. It is not intended as legal advice. SDRA does not have an attorney on staff and can’t provide legal advice on handling of gift cards, gift certificates or other issues.