By now the popularity of gift cards in Canada should be no surprise to retailers and consumers. Statistics Canada reported that the proportion of large retailers offering gift cards in Canada grew from 53 percent in 2003 to 82 percent in 2005. More recently, a Retail Council of Canada poll showed that use of gift cards for Valentine's Day is increasing, suggesting the strength of gift card usage is extending past the Christmas season. Many retail franchise systems have implemented gift card programs.
With this growing importance of gift cards to the retail business comes increased scrutiny by legislators. This is in part a welcome phenomenon, as the present legislative regime leaves some ambiguity as to the regulation of gift cards. Until recently, gift cards have not received specific mention in Canadian laws, even though they are captured by certain statutes and common law principles. Depending on their setup, most gift card programs are probably already caught under provincial statutes governing unclaimed property and consumer transactions.
Unclaimed property legislation deals with property held by a person who is not the rightful owner and which property remains unclaimed for a certain period. The statutes primarily set out mechanisms to protect the owner of the property. Provinces that have such legislation are Alberta, British Columbia, Prince Edward Island and Quebec. Under the British Columbia and Quebec statutes, the scope of legislation does not include situations where an owner does not have a right to a cash refund. So in the case of a gift card where no refund is provided, unclaimed property legislation should not apply. The comprehensive Unclaimed Intangible Property Act of Ontario was passed into law in 1990, but was never proclaimed in force
As gift card agreements generally involve consumers, the agreements would also be governed by the various provincial consumer protection acts. Some of these acts provide for extensive disclosure requirements in respect of consumer contracts. In certain jurisdictions, like British Columbia, the disclosure requirements do not apply if the value of the subject transaction is below a monetary threshold. Hence a gift card transaction with a denomination below such a threshold would be exempt from disclosure.
However, agreements with an Internet component may still be subject to extensive disclosure requirements, notwithstanding their monetary value. This would impact those gift card programs that allow replenishment of gift card values online.
A number of consumer protection statutes govern future performance agreements. The definition of a future performance agreement closely recalls the typical gift card arrangement. In future performance agreements, the customer pays money and receives in return a promise to provide goods or services in the future.
The Ontario Legislature has recently confirmed that gift card agreements are but a subset of future performance agreements. On December 12, 2006, the Ontario Legislature passed into law Bill 152, An Act to Modernize Various Acts administered by or affecting the Ministry of Government Services. Among other things, this act amends the Consumer Protection Act of Ontario (the "CPA") to provide that:
- The Lieutenant Governor in Council may make regulations, for the purposes of Part IV of the CPA (which governs rights and obligations respecting specific consumer agreements), governing future performance agreements including gift card agreements;
- The Lieutenant Governor in Council may make regulations:
- imposing restrictions, including prohibiting expiry dates, on future performance agreements, including gift card agreements;
- governing the fees that a supplier may charge or is prohibited from charging to the consumer under a future performance agreement, including a gift card agreement;
- allowing the consumer under a future performance agreement, including a gift card agreement, to cancel the agreement if the supplier does not disclose those matters that the regulations specify, and governing the cancellation of the agreement;
- providing that any provision of the CPA or the regulations applies to future performance agreements, including gift card agreements, with the modifications specified in the regulations.
While these amendments to the CPA have not yet been proclaimed in force, they show an intention to specifically regulate aspects of gift card transactions, and helpfully confirm that gift card agreements are indeed future performance agreements and thus subject to provisions governing future performance agreements. Interestingly, however, the amendments did not include a definition of "gift card agreement".
Gift card providers should be aware that the amendments allow for regulations prohibiting expiry dates on gift card agreements. Also, gift card providers who charge fees after a certain period of non-use of a gift card may soon face restrictions on such fees. Non-use fees on gift cards, which usually aim to deplete the balance on gift cards that are dormant, have already been prohibited in a number of American states.
Soon after the Ontario government announced its intention to ban expiry dates on gift cards, the Manitoba government stated that it too was considering banning expiry dates on gift cards sold in the province. Any legislation introduced to this effect will probably be similar to that of Ontario. With gift cards becoming an ever larger part of the Canadian economy, the trend of increased and specific regulation of gift cards is likely to continue.