Both merchants and card holders should know state laws when it comes to how they can use cards. Gift cards, in particular, hold a unique place in Colorado law.
Since 2010 there have been several restrictions specific to Colorado about how merchants can handle long-since issued gift cards. Our Colorado State statute 6-1-722 states that;
- When a merchant issues a gift card there can be no inactivity, dormancy, maintenance, or service fee attached to the card. These fees are legal in many states. They encourage card holders to use the full balance on the card before too long.
- If the balance on a gift card is less than $5, the gift card holder can redeem it for cash. Although this is not a substantial amount in the eyes of gift card holders, they should be thankful. There are only 12 states that have this redemption law. California, for example, allows redemption of cards with less than $10. Connecticut’s gift card redemption law requires a balance of less than $3.
- Gift certificates that are good for cash (as opposed to specific food, goods, products or services) are subject to collection by the government after 5 years of abandonment. As a holder, it is useful to know that you should use that gift card at least once within a 5 year span.
As a business owner, you must know that most things are not just this simple. There are federal, not just state laws that play a part in gift card use.
- The federal gift card laws require that gift cards cannot expire less than 5 years after activation.
- The gift card should display the expiration date, if any.
- When the gift card expires, the holder does have the right to request a replacement. In Colorado, the gift card holder may just request a replacement, use all but $5, then ask for the cash back.
- Where Colorado law simply says that it is unlawful to have fees attached to gift cards, federal law states that this is only unlawful if the fee is charged within the first year of activation.
- The card issuer is allowed to charge only 1 of those fees per month.
What is an Open and Closed-Loop Card?
Although the Colorado gift card laws listed above are exclusive to closed-loop cards, the federal regulations could include open-loop exceptions. A closed-loop card is one that can only be used at the location or chain that distributed the card. Alternatively, open-loop cards are those that can be used at many locations. You can consider Visa or MasterCard prepaid cards when thinking “open-loop”.
Merchant or card holder, gift cards probably play an active role in your life and you should know the Colorado gift card laws surrounding them. For more information on card laws that you should definitely know, read our surcharge or Visa and MasterCard settlement blogs too!
Thank you for the info. Curious about prepaid services such as a series of laser hair removal at a spa. Paid upfront and not used completely. And in this case partially because of Covid shut down and very poor customer service. It’s been less than five years since they were purchased three radiators then we got shut down. And now they’re telling me it’s expired so several hundred dollars wasted for the ones I used as well as several hundred dollars they’re saying they don’t have to give me back as a credit or anything..
I guess the question is do the card gift certificate laws apply to prepaid services. They also refused to give me a copy of the agreement because it was all done digital in their office and I didn’t get a copy. Only thing I can do was show proof of payment. Any info would be helpful thank you!
I wouldn’t assume that gift card laws automatically apply to pre-paid services, but you may need to consult with an attorney for the answer to that. If the business is closed down, then you’re probably out of luck. However, if the business is still open, then it might depend on your method of payment. If you paid via debit/credit card, you can contact your bank and request to dispute the charge for pre-paid services if the services were never received. If you originally paid by check or cash and you can’t receive services from the business, then you may need consider taking them to small-claims court.
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I would like to donate my services in the way of a gift card for a non Perot’s fundraising (silent auction). Does the five year rule still apply? Thank you.
Hello Cindy,
I do not know of any exception to the consumer protections of gift cards if the card is donated rather than purchased, as many gift cards are given as gifts to 3rd parties. If you choose to donate a gift card issued by your business to a charity, I would recommend that your business be willing to stand behind the fulfillment of such services to whomever the recipient becomes, for at least 5 years, assuming you are still in business for that period of time. This should not be construed as legal advice as you will need to contact an attorney in your state for legal advice. More information here: https://www.fdic.gov/consumers/consumer/news/december2019.html#:~:text=Federal%20Law%20Offers%20Protections&text=Bank%20gift%20cards%2C%20which%20carry,the%20date%20it%20was%20activated.
Hi there, I order the gift cards my company gives away as a sales incentive for customers and we have a 3 month expiration date. I reached out to the gift card company we order through and found out I need to renegotiate our contract in order to extend the expiration date (that’s what the gift card company told me anyway). I found when reviewing the contract that the expired funds are split between the GC company and the company I work for titled as “breakage”. My question is, in CO is this all legal? I though gift cards had to have a 5 yr expiration date and through escheat wouldn’t the government take the unused funds as unclaimed property? Also if anyone happens to know, is it normal for a gift card company to split the expired breakage funds? Seems odd for them to take any percentage of that instead of that unused money coming back to the company that issued the money on the GC.
Hello John,
Thank you kindly for posting your question here to PayFrog. I’d like to point you towards a document: https://www.leg.state.co.us/clics2005a/csl.nsf/billcontainers/F8C3667462D4756D87256F6D007A864C/$FILE/1144_01.pdf
There are nuances to your situation that I can tell in reading this document such as you’re not selling the gift cards:
“(3) SUBSECTION (2) OF THIS SECTION SHALL NOT APPLY TO ANY OF THE FOLLOWING GIFT CERTIFICATES OR GIFT CARDS ISSUED ON OR AFTER THE EFFECTIVE DATE OF THIS SECTION, IF AN EXPIRATION DATE THAT IS NOT LESS THAN FIVE YEARS AFTER THE DATE THE CARD OR CERTIFICATE WAS ISSUED APPEARS IN CAPITAL LETTERS IN AT LEAST TEN-POINT TYPE ON THE FRONT OF THE GIFT CERTIFICATE OR GIFT CARD: (a) GIFT CERTIFICATES OR GIFT CARDS THAT ARE DISTRIBUTED BY THE ISSUER TO A CONSUMER
PURSUANT TO AN AWARDS, LOYALTY, OR PROMOTIONAL PROGRAM WITHOUT ANY MONEY OR OTHER THING OF VALUE BEING GIVEN IN EXCHANGE FOR THE GIFT CERTIFICATE OR GIFT CARD BY THE CONSUMER
”
Since you’re not selling the gift cards, different rules apply. However, one might question as they are given away for a “sales incentive” if that constitutes an “OTHER THING OF VALUE” as the customer may be receiving. Aren’t the customers paying your company to purchase products/services along with this promotional gift card credit? Isn’t it a package deal they are paying for? What is the intent of the extremely short 3 month expiration? How is this serving your customers?
From being a company that works with gift card issuers and merchants who enable gift cards in their businesses, I’ve never seen a gift card issuer charge a % of a breakage balance. So I would not say this is industry norm. At the very least, you probably have a poor gift card issuing contract in place that is worth shopping out with other providers. From a customer service perspective, I would be concerned with how this process benefits the customer and what would happen to brand reputation of the company if customers get upset when their promotional gift cards expire so rapidly, especially if it was a tool to clench the deal.
We are not attorneys and cannot give legal advice and we recommend contacting an attorney in your state regarding the legality or illegality of this business practice.