Understanding Federal Rules for Gift Cards and Gift Certificates

Gift cards and other prepaid cards might look simple at the checkout rack, but they are governed by detailed federal rules under the Electronic Fund Transfer Act (EFTA) and its implementing regulation, Regulation E, administered by the Consumer Financial Protection Bureau (CFPB). These rules, located in 12 CFR 1005.20, are designed to curb abusive fees, limit harmful expiration practices, and ensure that consumers receive clear information before and after they buy a card.

This article explains how the federal gift card rule works, what products are covered, which cards are excluded, and what protections consumers and businesses should understand.

1. What Types of Cards Are Covered?

The federal rule does not cover every prepaid product. Instead, it applies to three main categories of consumer-oriented cards, codes, and similar devices.

• Gift certificates – Cards or codes that are:
• • Issued on a prepaid basis to an individual for personal, family, or household use, and
  • Redeemable at a single merchant or an affiliated group of merchants for goods or services.
• Store gift cards – Prepaid cards that can be used at one merchant or a group of affiliated merchants for goods or services, and that are sold or issued to consumers primarily for personal, family, or household purposes.
• General-use prepaid cards – Cards or codes that are:
• • Redeemable at multiple, unaffiliated merchants or usable on multiple, unaffiliated websites, or usable at ATMs, and
  • Marketed as a gift or intended primarily for consumer personal, family, or household purposes.

In each case, the rule focuses on consumer use. Cards bought by businesses strictly for business purposes are generally not covered unless they are intended for resale or redistribution to individual consumers.

2. Key Definitions You Should Know

The regulation uses specific terms that shape how the protections apply.

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3. Cards and Programs That Are Excluded

Not all prepaid cards in the marketplace fall within the gift card rule. The regulation specifically excludes certain cards, codes, and devices from the gift card requirements, even though other parts of Regulation E may still apply.

• Reloadable cards that are not marketed as gift cards
  • General-purpose reloadable (GPR) cards used as everyday spending accounts can be excluded if they are not marketed or labeled as gift cards and if issuers maintain reasonable policies and procedures to avoid presenting them as such.
• Cards for telephone, transit, or other limited-use purposes
  • Examples include prepaid telephone cards and certain transit cards used solely for transportation services.
• Paper-only certificates
  • Certificates issued solely in paper form that are not equipped with magnetic stripes, chips, or other electronic tracks are generally excluded.
• Non-consumer cards
  • Cards issued exclusively for business, commercial, or employment purposes (such as certain corporate expense cards) are outside the gift card rule.
• Loyalty, award, or promotional cards
  • These cards are subject to special conditions and disclosures but are treated differently from typical purchased gift cards when the consumer does not pay for the card itself.

Issuers and retailers must analyze how they design, label, and market their products to determine whether they are covered or excluded under the gift card provisions.

4. Restrictions on Fees: Dormancy, Inactivity, and Service Fees

Federal law strictly limits when and how certain fees can be charged on covered gift cards. The goal is to prevent cards from being drained by charges that consumers may not expect.

4.1 When Fees May Be Charged

For a dormancy, inactivity, or service fee to be lawful on a covered gift certificate, store gift card, or general-use prepaid card, all of the following conditions must be satisfied:

• One-year inactivity period – The consumer must have had no activity on the card for at least one year before the fee is imposed.
• Clear on-card disclosures – The card must clearly disclose:
• • The type and amount of the fee,
  • How often the fee can be charged, and
  • That the fee may be charged for inactivity.
• Frequency limit – No more than one dormancy, inactivity, or service fee may be charged in any given calendar month.

4.2 Practical Implications for Consumers

Because of these requirements, consumers typically will not see monthly “maintenance” or “inactivity” fees eating away at their gift card balances as long as they use the card at least once a year. Regular use, reloading, or obtaining a refund all count as activity and can reset the one-year clock.

5. Expiration Dates: Card vs. Underlying Funds

One of the most important consumer protections concerns expiration. Federal rules sharply limit how and when gift cards and their underlying funds may expire.

5.1 Minimum Time Before Expiration

Covered gift certificates, store gift cards, and general-use prepaid cards cannot be sold or issued with an expiration date unless certain conditions are met:

• Five-year minimum for funds – The underlying funds must remain available for at least five years from the date the card was issued or from the last time value was loaded, whichever is later.
• Reasonable opportunity to buy long-dated cards – Sellers must have policies and procedures that allow consumers to buy cards with at least five years remaining until the card’s own expiration date.

5.2 Required Expiration Disclosures

When an expiration date is used, the law requires prominent disclosures on the card:

• Whether the underlying funds expire and, if so, the date; or a statement that the funds do not expire.
• A toll-free telephone number and, if available, a website for information or to request a replacement card when the card itself expires but funds remain.
• In many cases, a statement near the printed expiration date clarifying that:
• • The card may expire, but the underlying funds do not expire or expire later; and
  • The consumer may obtain a replacement card at no charge if funds are still available.

5.3 Replacement Cards at No Cost

If a card’s printed expiration date arrives while funds remain available, the issuer generally must provide a replacement card at the consumer’s request, without charging a fee for this service, so long as the underlying funds have not expired.

6. Special Rules for Loyalty, Award, and Promotional Cards

Some cards are not purchased by the consumer, but instead are given as part of a loyalty program, rebate, or promotional campaign. These products are treated differently from standard retail gift cards.

• Issued for a promotional purpose – These cards are provided in connection with a customer loyalty, award, or promotional program. The consumer typically does not pay a separate fee in exchange for the card itself.
• Distinct labeling – The card must clearly state that it is issued for loyalty, award, or promotional purposes, often on the front of the card or device.
• Mandatory disclosures – The card or related materials must disclose:
• • Any expiration date for the card or underlying funds,
  • Any fees that may be charged and when they apply, and
  • A toll-free telephone number and, if one exists, a website for fee and balance information.

While some aspects of the general expiration protections may not apply in the same way to promotional cards, federal law still requires that consumers receive clear and conspicuous information about limits and fees before they use these cards.

7. Marketing, Displays, and Avoiding Confusion

The way cards are marketed and displayed can determine whether the gift card rules apply. Regulators pay close attention to retailer practices that could mislead consumers about a card’s nature or protections.

7.1 Avoiding Improperly Marketing Reloadable Cards as Gifts

Some reloadable prepaid cards fall outside the gift card rule, but only if they are not marketed or labeled as gift cards and issuers have reasonable policies and procedures to avoid such marketing.

• Keeping general-purpose reloadable cards on displays separate from gift card racks.
• Using distinct signage and packaging that emphasize ongoing account use rather than gift-giving.
• Training store staff and managing planograms so that excluded cards are not accidentally mixed with gift cards.

7.2 Common Gift-Card Marketing Cues

Materials may indicate that a card is marketed as a gift card if they:

• Describe the card as a “gift,” “gift card,” or “gift certificate” in text or advertising.
• Show gift-giving imagery, such as wrapped presents, bows, or celebratory messages around holidays or events.
• Encourage giving the card to others as a token of appreciation, reward, or stocking stuffer.

When these cues are present, regulators are more likely to treat the product as a gift card subject to 12 CFR 1005.20, even if it is reloadable or has other account-like features.

8. Practical Tips for Consumers

Understanding the rules can help consumers protect the value of their cards.

• Read on-card disclosures – Check for any expiration date and for fee details printed on the front or back of the card before purchase.
• Use cards promptly – Although underlying funds usually last at least five years, using cards sooner can reduce the risk of loss, theft, or business closure.
• Monitor inactivity – Avoid leaving a card untouched for a full year to prevent possible inactivity or service fees where permitted.
• Request replacement when cards expire – If your card expires but you believe funds remain, contact the toll-free number or visit the listed website to obtain a replacement at no cost where required.
• Keep purchase receipts – Receipts can help resolve disputes about activation or balance errors, which may also be subject to broader Regulation E error-resolution protections.

9. Compliance Considerations for Issuers and Retailers

Banks, program managers, and merchants that issue or sell covered cards must implement systems and controls to comply with the rule.

• Product design and classification
  • Determine whether each product is a gift certificate, store gift card, general-use prepaid card, or an excluded device.
• Disclosure management
  • Ensure that required fee and expiration disclosures are printed clearly and conspicuously on the card or with accompanying materials.
• Fee controls
  • Configure systems so that dormancy, inactivity, or service fees are not assessed until at least one year of inactivity has passed and are never charged more than once per month.
• Expiration and replacement policies
  • Track issuance and load dates to maintain at least five years of fund availability and support free replacement cards when required.
• Marketing and training
  • Train employees and design in-store displays to distinguish gift cards from excluded products, in line with written policies and procedures.

10. Frequently Asked Questions (FAQs)

Q1: Can a gift card lose value just because I haven’t used it?

Under federal law, a covered gift card generally cannot be charged a dormancy, inactivity, or service fee unless the card has had no activity for at least one year, the fee is clearly disclosed, and no more than one such fee is charged per month.

Q2: Do my gift card funds expire after a couple of years?

For covered gift certificates, store gift cards, and general-use prepaid cards, the underlying funds must remain available for at least five years from issuance or from the last added value, whichever is later.

Q3: What if the printed expiration date on the card has passed, but I still have money on it?

If the underlying funds have not expired, the issuer must generally provide a replacement card at no cost when you request one, and disclosures on the card should tell you how to contact the issuer by phone or website to obtain it.

Q4: Are all prepaid cards in the store treated as gift cards under these rules?

No. Some general-purpose reloadable cards and specialized cards, such as certain transit or phone cards, may be excluded if they meet specific criteria and are not marketed as gift cards.

Q5: Do loyalty or promotional cards I receive for free follow the same rules as purchased gift cards?

Loyalty, award, or promotional cards are subject to their own disclosure requirements and may have different expiration or fee rules, but they must still clearly state that they are promotional and disclose any key limitations and costs.

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medha deb

 

Medha Deb is an editor with a master's degree in Applied Linguistics from the University of Hyderabad. She believes that her qualification has helped her develop a deep understanding of language and its application in various contexts.

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