Gift Cards: The Sleeping Dog

Many of you may have read about the federal Credit Card Accountability, Responsibility, And Disclosure Act of 2009 (the “CARD Act”). While the CARD Act largely regulates the terms and conditions for credit cards, it also provides certain protections for purchasers of gift cards that will go into effect on August 22, 2010. But many people may not be aware that the CARD Act does not preempt or otherwise supersede state laws on gift cards, either before August 22 or afterwards.

There are many states that have gift card laws that bar the use of expiration dates on purchased gift cards, prohibit or set restrictions on imposing inactivity fees or other charges with regard to gift cards, and/or require disclosures regarding fees and expiration dates. Some of these laws are enforceable by the attorneys general of the states and/or through suits brought by consumers.

Moreover, most of these laws are enforceable against online retailers, even if the online retailer doesn’t have nexus or a physical presence in the state. Constitutional “Due Process” standards permit suits against a company that might nevertheless be insulated from tax obligation under the Commerce Clause. As long as the online retailer sells to a customer in the state, the online retailer will be subject to the provisions of the state’s gift card statute.

Finally, there are several states that require the “escheat,” or payment over to the state, of the value gift certificates and gift cards that have not been redeemed within a prescribed period of time set by statute. These so-called “unclaimed property” statutes are designed to preclude a retailer from obtaining an advantage through such “breakage” and require the payment of all or a portion of the face value of the gift cards to the state.

The point is not to throw your hands up in defeat and either ignore the applicable statutes or take measures that do not make sense from a business standpoint. Rather, a prudent online retailer should review its gift card program in light of the various state statutes. This will be particularly important prior to the effective date of the CARD Act on August 22, 2010, so that the retailer can understand its obligations with respect to gift cards issued before and after the new requirements of the CARD Act take effect.