March 1, 2003

Subject: Gift Certificates

Selling on the Internet means selling in interstate commerce. It is practically impossible to know who will buy and where they are. As a result, a business with an Internet presence will suddenly find itself dealing with issues it never faced before. One of them is the law on gift certificates which varies from state to state.

Several states have specific statutes governing the use and appearance of gift certificates. Under these laws, any violation, regardless how minor, can give the purchaser or holder a right to sue. A violation of the law will often also be a violation of the state’s consumer protection law. These consumer protection laws often allow class action law suits, double and triple damages and awards of costs and reasonable attorneys’ fees to a prevailing party.

There has been an increase in class action suits based on alleged violations of these laws. Companies who issue or offer gift certificates need to be aware of these laws.

California
As of January 1, 1997, it has been unlawful for any person or entity to sell a gift certificate containing an expiration date. Any gift certificate sold after January 1, 1997 is redeemable in cash for its full cash value or must be replaced by the issuer at no cost to the purchaser or holder of the gift certificate. A gift certificate sold without an expiration date is valid until redeemed. These requirements do not apply to gift certificates issued after January 1, 1998 if the gift certificate was issued for consumer loyalty or promotion purposes, or for food products, or was sold to employers or nonprofit organizations at below face value for a volume discount, provided the expiration date appears in capital letters in at least ten point font on the face of the gift certificate.

Hawaii
Any restaurant or retail seller that issues gift certificates must honor the gift certificate for at least two years from the date of issuance. An issuer must also include the expiration date on the face of any gift certificate with an expiration date.

Massachusetts
Anyone who sells a gift certificate with a redemption limit of less than two years, or who sells a gift certificate with a redemption limit of greater than two years and does not include the expiration date on the gift certificate, is subject to a fine not to exceed $300. If the issuer fails to honor a valid gift certificate, the issuer may also be fined not more than $300.

New Hampshire
If an issuer sells a gift certificate with a face value of less than $100, the gift certificate may not contain an expiration date. Gift certificates with a face value greater than $100 are valid until the certificate escheats to the state under New Hampshire’s abandoned property laws. This statute does not apply to gift certificates where no monetary consideration was given, or to those certificates distributed for promotional purposes.

New Jersey
A gift certificate issued by a retail merchant is valid until presented to the issuer in exchange for the merchandise. Any conditions or limitations on the certificate must be disclosed to the purchaser at the time of the purchase and must also be conspicuously printed on the gift certificate.

New York
If a retail seller issues merchandise gift certificates to a retail buyer to be paid for in installments (1) in good faith and (2) in reliance on the buyer’s statement that the buyer intends to transfer the certificate as a gift, the certificate need not contain the legends required for a merchandise certificate. The certificate must, however, bear a legend stating “gift certificate,” and the seller must give the buyer notice of the merchandise certificate legends. If, however, the issuer sells a merchandise certificate to be paid for in installments, the certificate must include a legend, in at least eight point bold type, saying that the buyer may return any unused merchandise certificate for full face value credit. Additionally, the legend must say that a buyer who wishes to purchase an item of greater value than the face value of the certificate may return the merchandise certificate and purchase a new merchandise certificate of greater value and save credit service charges.

Oklahoma
Gift certificates must carry an expiration date of no greater than one year from the date of issue.

Rhode Island
Any person, firm or corporation that sells a gift certificate must record the sale and keep an accurate and complete record for each certificate for two years from the date of the sale. The record must include the date of sale, the full value of the certificate, the identification number of the certificate, the issuer’s identification number and the state where the sale occurred. If the certificate is for an amount greater than $50, the issuer must provide the purchaser with a written and numbered receipt. Restaurants are prohibited from limiting the time for redemption of a gift certificate.

Remember, law changes. Before you launch a program, be sure to get updated information to ensure compliance.