Gift certificates are an attractive option for businesses looking to reach more customers. They can be perfect for shoppers who can narrow down their gift ideas to one store, but can’t make the final decision. However, before your business begins issuing gift certificates, there are several important rules that you must consider.
Gift certificates are regulated under state and federal law. Maine’s regulations, found under the Unclaimed Property Act, 33 M.R.S. §§ 1951-80 (2011), are stricter than their federal counterparts (the Credit Card Accountability, Responsibility, and Disclosure Act of 2009), and control in this area. The rules are fairly complicated, and even large companies run afoul of them. Groupon, for example, recently entered into a settlement agreement to address charges that it violated federal gift certificate laws.
Consider the following rules before issuing gift certificates. This covers most, but not all, of the most important rules. For more information, the Attorney General’s Consumer Law Guide is a good start.
No Expiration Date.
Under Maine law, gift certificates can’t have an expiration date. This means that you will have to honor a gift certificate’s remaining value until it (the remaining value) is zero. Further, you will probably still be responsible for a gift certificate’s remaining value even after you close your business. This is basically a function of the “no expiration date” rule in conjunction with the fact that gift certificate holders have a claim against your company for the value of the certificate. If the business is insolvent, the customer can make a claim in bankruptcy court. The Maine Attorney General takes the position that a customer can redeem a gift card even after a business shuts its doors and re-opens under a new name.
Unclaimed Amounts Remitted to the State.
Even though there’s no expiration date, under the Unclaimed Property Act, gift certificates become unclaimed if they are ignored for two years. At that point, if the value is greater than $50, you will have to notify the customer, report the unclaimed property to the state, and also remit 60% of the certificate’s value to the state. You can keep the remaining 40%, but with one stipulation: because a gift certificate has no expiration date, a customer can come redeem it at any time, even after you have reported and remitted its value. However, if this happens the state will reimburse you for the 60% you remitted. Other states have similar arrangements, where unclaimed amounts become property of the state, but as this 2007 Associated Press article describes, Maine was among the first. Currently, lawmakers in New Jersey are wrestling over a law similar to Maine’s.
No Fees.
The general rule is that you can’t charge any types of fees on gift certificates. The only exception is you can charge an initial fee when the customer first purchases the certificate, or each time the customer adds value to the certificate, as long as you disclose that arrangement beforehand. An issuer may impose a transaction fee on the initial issuance and any subsequent additions of value as long as the fee is disclosed in writing beforehand (either separately or on the certificate). But no other fees or charges may be imposed on gift certificates.
As noted above, there are other important rules that businesses should take into consideration before venturing into the gift certificate field. Please contact our office for more information.