California Gift Card Law – Legal Guide for Businesses & Consumers

California’s gift card laws are some of the strongest regulations in the United States and have been established to protect consumers.  

Since the invention of gift cards, they have been highly vulnerable to various inconvenient and unfavorable terms, including expiry, dormancy fee, etc.

However, California’s gift card law limits the downside of gift cards, making them favorable for consumers.  

With fairness and transparency central to these laws, purchasers of gift cards are assured of using their balances without concern about hidden fees, expiration dates, or depreciation over time.  

Important protections center on themes such as forbidden service fees, redemption of low balances automatically required in cash, and disclosure requirements that provide a much better consumer experience.  

California regulations also govern promotional, loyalty, and general-use gift cards, with explicit laws requiring businesses to operate to protect consumers.  

These laws build a rampart against charging fees for inactivity or deducting balances due to dormancy. Hence, this legal framework gives the impression of being passed to establish consumer trust and fair and transparent business operations.  

This article will delve into critical aspects of gift card laws in California, including: 

• What businesses are required to do to comply with the laws? 
• Penalties to the companies that do not comply with these laws 
• Consumers’ rights while dealing with issues related to the gift cards.  

Learning the ins and outs of this legal framework enables consumers and businesses to navigate the gift card industry with renewed confidence.  

Intrigued? Let’s get straight into it without further ado.  

California Gift Cards Law- Legal Framework & Restrictions 

California enacts the best gift card regulations in the United States.  

These laws are intended to protect consumers from losing some or all value from gift cards due mainly to certain unfair business practices. 

This legal framework includes laws related to expiration dates, service charges, and lack of restricted options for redemption.  

Furthermore, it is pertinent to note that these laws are applied to both physical and e-gift cards. 

A few key aspects regarding gift card laws in California are discussed below: 

Expiration Laws  

According to California Civil Code Section 1749.5, unless gift cards sold in California may not bear an expiration date in certain unusual instances.  

In most situations, this ensures that a consumer will be able to use a gift card whenever he chooses and not lose the monetary value it represents just because of the passage of time. 

 However, there are a few exceptions:  

• Promotional or bonus gift cards (for example, gift cards given as part of promotion) may expire if it is disclosed when the card is issued.  

• Loyalty program gift cards given out as rewards may have expiration dates but only under specific conditions that the retailer sets.  

Businesses must follow the law for regular purchased gift cards; they cannot have an expiration date printed or implied on the card.  

That said, it is crucial to note that gift card expiry is also subject to international brands’ terms and policies. In such cases, state laws have limited intervention in the expiry process.  

Cash Redemption  

One of California’s most important consumer protections grants the individual the right to take cash for low balances.  

According to California Civil Code Section 1749.5, when any gift card has a value of less than $10, the person is entitled, by law, to cash back instead of applying the balance toward the purchase of goods.  

This will ensure the consumer is not left with a measly, unspendable amount while allowing one to redeem every cent spent on a gift card. The consumer goes to the retailer with the gift card and requests cash back.  

If the balance on the card be $9.99 or less, California law provides that the retailer refund almost that entire amount to the consumer as cash.  

Complaints can be lodged with the California Attorney General’s Office or the Department of Consumer Affairs for failure of compliance by the business.  

Service fees and dormancy fees  

California law does not allow charging of service fees, dormancy fees, or maintenance fees on gift cards.  

This means that a consumer’s balance cannot be taken away because of inactivity as long as they possess the card.  

This fact differs from other states, which allow companies to reduce their gift card balances after a specified duration.  

California permits keeping the gift card balance whole without any cut for an unlimited time.  

Key restrictions:  

• No inactivity fees whatsoever irrespective of how long the card is out of use.  
• No charges for checking balances or using the card for transactions.  
• No maintenance fees that may lessen the value of the gift card over time.  

To make sure consumers are informed about purchasing gift cards, California businesses state these card restrictions, terms, or conditions before the consumer purchases the gift card.  

Disclosure Requirements 

Such disclosures, among others, include whether the card allows cash redemption while the balance is less than $10, any exemptions to expiration laws such as promotional gift cards and loyalty program gift cards, and any special conditions regarding card usage limitations.  

If the business fails to give these disclosures to consumers, the latter have a right to complain to the proper regulatory agency.  

Bankruptcy 

In California, the laws don’t guarantee protection of gift card holders in case of bankruptcy. However, the law encourages businesses to honor outstanding gift cards whenever possible.  

If a business files for bankruptcy, here’s what a consumer can do:  

• Research: In some cases, businesses may continue to honor gift cards during bankruptcy. Hence, proper research is crucial in this situation.  

• File a claim in the bankruptcy court. If a company refuses to honor a gift card, consumers can file a claim with the bankruptcy court.  

• Wait for Acquisition: Sometimes a new company that purchases the bankrupt business may agree to honor existing gift cards.  

Refunds  

Legally in California, gift cards sold for cash or using means of credit are, in the main, non-refundable.  

However, one big exception to this rule applies: where the balance left in a gift card is between $5.00 and $10.00, the consumer can ask the retailer for a cash refund.  

This ensures that consumers are not left with tiny balances they cannot use and that they can reclaim that money when necessary.  

Third-Party Resellers  

California’s legal protections may not apply to the purchase of gift cards from a third-party reseller (such as online marketplaces, auction sites, or discount gift card websites).  

Some potential risks behind buying from third-party resellers include the following:  

• The card might have an expiration date or hidden fees attached. Expenses may be illegal in California for cards purchased directly, but such fees may be allowed in resale.  

• The consumer might get a gift card that was previously lost or stolen. In such cases, the retailer might refuse to honor the card if it was bought fraudulently or outside authorized channels.  

What must Businesses do to Comply with California Law? 

Having discussed that, California has some of the most progressive gift card laws in the United States that ensure consumer protection.  

Here are a few things businesses must do to comply:  

1. No expiration date 

This means either no expiration date for gift cards or, more accurately, that expiration dates apply only to promotional cards or loyalty cards and must be indicated.  

2. Cash redemption for small balances  

If the balance on the gift card is less than $10, the law mandates the business to provide redemption for cash upon request.  

3. No fees authorized 

The business cannot charge a gift card for inactivity, maintenance, or service-related costs.  

4. Clearly disclose terms and conditions 

In the consumer’s purchase of a gift card, all stated terms and conditions must be fully disclosed and reachable, clearly lessening the likelihood of customer assumptions or misunderstandings.  

5. Have clear refund and bankruptcy policies 

For consumer protection, clear refund policy should be there, and what it will do in case of bankruptcy. Not following these policies might cause penal actions, such as fines, which will be elaborated on in the following section.  

Penalties for non-compliance: 

Any business found to be non-compliant with California Civil Code Section 1749.5 may have to face dire consequences, such as:  

1. Fines & Penalties:  

Businesses might have to pay state regulators fines and penalties due to non-compliance with one or more sections of the gift card law. Some examples of state regulators are California Department of Consumer Affairs, California Department of Justice, etc.  

2. Lawsuits 

A lot of times, when the retailers do not follow the gift card laws, the customers bring forth lawsuits, either sealed or in a collective lawsuit, against them. Such lawsuits frequently come with many consequences for the retailers.  

3. Reputational Decline 

There could be dire negative impacts in terms of reputational decline and damage. This damage also affects the workforce and monetary aspects of a business, as no one wants to associate with a firm that might have lost credibility with consumers and either its brand image or reputation.  

Consumers who encounter non-compliant businesses can report violations through the following channels: 

• California Attorney General’s Office – https://oag.ca.gov/contact 
• California Department of Consumer Affairs – https://www.dca.ca.gov/ 

California Gift Card Law vs. Federal Gift Card Law 

California’s gift card regulations provide stronger consumer protection than federal laws under the CREDIT CARD Act 2009.  

Below is a detailed comparison of key differences between California and federal regulations regarding gift cards. 

Key Differences Between California and Federal Gift Card Laws 

Here is a table outlining the main difference between California and Federal gift card laws: 

Laws such as California gift card laws provide more financial security and are a source of consumer confidence than federal standards.  

As for dormancy, inactivity, service fees, or expiration dates on gift certificates, store gift cards, or general-use prepaid cards, federal law preempts-state law if it is inconsistent with a state law, under the Board of Governors of the Federal Reserve System 12 CFR 205.12. Such may be preempted, even if the Board has made no official determination.  

Detailed Legal Comparisons 

Here is a detailed legal comparison between 12 CFR 205.20 and 1749.45-1749.6.  

Federal Gift Card Categories 

The CREDIT CARD Act of 2009 categorizes gift cards into four types, each with different regulations: 

While federal laws allow for some expiration dates and fees, the California regulations offer much more rigid rules to protect consumers from losing value on their gift cards.  

Businesses must acknowledge similar distinctions to comply with the corresponding laws while helping consumers use many of their gift card balances.      

The Bottom Line 

The state of California fairly ranks first among the states with the strongest consumer protection laws regarding gift cards.  

It restricts unreasonable expiration periods, hidden fees, and insistent policy on redemption. 

Therefore, cash redemption for the small balance of any gift card would be required, consideration against service fees, and clarification on what needs to be disclosed-all these according to the laws of the State.  

These laws act as a line of defense for preventing consumers from having a loss in value for their gift card. Primarily, any California commercial establishment needs to follow these laws to run away from civil liability and to maintain the trust of their customers.  

Furthermore, by knowing their rights under Civil Code Section 1749.5, consumers are to have been educated on possible actions if a business does not comply. When consumers and businesses stay informed and take a stand, they can facilitate their navigation through the waters of gift cards with confidence and fair play.