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!