New York Attorney General Letitia James has announced a settlement with gift card company Simply Certificates, requiring the company to issue refunds to New York consumers who had purchased the company’s gift certificates over the last three years. The company had sold certificates with a one year expiration date and charged reissuance fees for expired cards, in violation of New York’s gift card law. In addition to paying refunds, it also must pay a $10,000 penalty to the state.
Although many states have long had gift card laws that are as strict or even stricter than the federal CARD Act, New York’s gift card statute used to be less strict, allowing for expiration dates. (The federal law prohibits non-exempt gift cards to expire earlier than five years from issuance or re-load.) It also used to allow for the imposition of dormancy fees after just one year of dormancy, i.e., one year of non-use. In 2016, the law was changed to prohibit expiration dates earlier than five years from the card’s issuance and dormancy fees prior to the twenty-fifth month of dormancy.
Further, under the current NY law, any monthly service fees applied after the twenty-fifth month of dormancy must be waived if the consumer uses the gift card within three years of the card's issuance date. In addition, the law requires the gift card's terms and conditions to describe the procedure for replacing a missing card, a provision not found in many states’ gift card laws (or the federal one).
Like the federal statute, as well as many other state gift card statutes, the New York law exempts promotional gift cards from the expiration date requirements. Promotional gift cards are those “distributed to a consumer or employee pursuant to an awards, rewards, loyalty, or promotional program without any consideration being given in exchange for the gift certificate by the consumer or employee.”
The Attorney General’s action signals that gift cards are still on the enforcement radar, especially now because of the economic hardship caused to consumers by COVID-19. It’s likely that the same is true in other states too. Further, it is well worth remembering that while the federal law provides for a “floor” for state gift card laws, stricter state statutes – like those prohibiting expiration dates altogether, as in some states -- are not preempted. Whether you're selling gift cards to consumers nationwide, or just locally in a state with a strict gift card law, it is important to be aware of the requirements, including those relating to expiration dates, whether and what fees can be charged, disclosure requirements, and whether any exemptions apply.