January 14, 2003
GIFT CERTIFICATE LAWS
By: Daniel Duffy, Principal Analyst
You asked if any state regulates the sale of gift certificates.
California, Hawaii, Massachusetts, New Hampshire, New York, and Rhode Island all have laws regulating aspects of gift certificate sales. California requires gift certificates to state their expiration date and requires their sellers to honor them in the event of bankruptcy. Hawaii establishes a two-year minimum redemption period for certificates issued by restaurants. Massachusetts sets a minimum redemption period of two years and requires sellers to mark the expiration date on the certificates they sell. New Hampshire prohibits gift certificates worth $ 100 or less from expiring. New York requires the terms of the gift certificate to be clearly and conspicuously printed on the certificate itself. Rhode Island prohibits restaurant gift certificates from expiring and requires sellers to keep gift certificate records for at least two years.
California requires a gift certificate to have an expiration date printed in at least 10-point type on its face. A certificate without an expiration date remains valid until redeemed or replaced and must be redeemable in cash. The law exempts a certificate (1) distributed as part of an
awards, loyalty, or promotional program without anything of value being given in exchange for it, (2) sold below face value at a volume discount to an employer or nonprofit charity for fundraising purposes if the expiration date is not longer than 30 days, and (3) issued for food.
The law provides that a gift certificate constitutes value held in trust by the issuer on behalf of the beneficiary. Its value belongs to the beneficiary. It requires an issuer in bankruptcy to continue to honor the certificate on the grounds that it is trust property. It prohibits the terms of a gift certificate from making it invalid in the event of bankruptcy.
The law states that it does not require a seller to: redeem for cash, replace a lost or stolen certificate, or keep a separate account for funds used to purchase certificates. Further, it does not create (1) an interest in any specific property of the seller, (2) a fiduciary relationship, or (3) an obligation to pay interest on the certificate’s value (Cal. Civil Code § 1749. 5-1749. 51). According to Neil Ossen, an expert in bankruptcy law, such a state law would prevent the property from being part of the bankrupt estate thus protecting it from the merchant’s other creditors.
Hawaii establishes a minimum redemption period of two years for gift certificates issued by restaurants. It requires sellers to state the expiration on the face of a certificate that has an exportation date. A violation is an unfair trade practice (§ 481B-13).
Massachusetts requires gift certificates to have (1) a redemption period of at least two years and (2) a clearly marked expiration date on their face. A seller who violates the law is subject to a fine of up to $ 300. The law exempts sales of gift certificates in which the purchaser is not charged until the certificate is used (Mass. Ann. Laws Ch. 266 § 75C).
New Hampshire prohibits gift certificates with a value of less than $ 100 from being presumed abandoned and exempts them from the law concerning escheats (A legal concept that transfers abandoned property to the state if certain conditions are met. ) (N. H. Rev. Stat. Ann. § 471-C: 16).
New York requires the terms of a gift certificate to be clearly and conspicuously printed on it. The law prohibits gift certificate sellers from refusing to accept their gift certificates in payment for goods or services bought for personal use if the certificates are presented for redemption within their expiration period and according to their terms. It explicitly applies to goods or services advertised as on sale or being sold as part of a liquidation or closing out sale.
The law authorizes the attorney general to enforce it. A violator is subject to a civil fine of up to $ 1,000 (NY Gen. Bus. Law § 396-i).
Rhode Island requires gift certificate sellers to record the sales and keep an accurate and complete record of the sale for at least two years. The record must include: sale date, certificate value, identification number, and the state of sale. If the certificate’s value is more than $ 50, sellers must give purchasers a written and numbered receipt.
Rhode Island prohibits restaurants and other eating establishments from putting an expiration date on their gift certificates. Due to the unlimited redemption period, the state division of taxation must not escheat the funds paid for unredeemed gift certificates.
A violator is subject to a fine of up to $ 200 (R. I. Gen. Law § 6-13-12).