California law protects gift card users

This week’s question was first published in 2013, and comes from Kim M. in Pacific Heights, who asks:

Q: “I want to get my daughter a gift card for the holiday, but I have heard that they have fees and expiration dates that can result in the card losing most or all its value. What is the law regarding these gift cards?”

A:
Gift cards can be good for the retailer and the receiver. The receiver can take advantage of the after-Christmas sales to get more for his or her money, and the retailers get cash upfront without reducing inventory. These cards used to be more of a benefit for retailers, but the California Legislature, in combination with certain consumer-rights groups, has enacted legislation designed to protect consumers.

California Civil Code Section 1749.5 contains the bulk of the law regarding gift certificates and gift cards. Section 1749.5 makes it illegal to sell a gift certificate that contains an expiration date. Likewise, it provides a prohibition against service fees, including any fee for dormancy (unless it has been dormant for more than 24 months, the fee is clearly stated in 10-point type on the card, the fee is no more than $1 per month and the remaining value of the card is $5 or less each time the fee is assessed).

Any gift certificate sold after Jan. 1, 1997, is redeemable in cash for its cash value or subject to replacement with a new gift certificate at no cost to the purchaser or holder, and any gift certificate with a cash value of $10 or less is redeemable in cash for its cash value.

There are certain exceptions to the no-expiration rule. Namely, gift certificates issued pursuant to an awards, loyalty or promotional program without any money or other thing being given in exchange for value, gift certificates donated or sold below face value at a volume discount to employers or nonprofits for fundraising purposes and certificates for perishable food products. Certificates of this type with must have the expiration date in capital letters printed on the front.

One issue with gift cards that are not redeemed is the company may go bankrupt. This has happened in the past, leaving countless individuals with gift cards with no value beyond that of the plastic in their hands. California law states that the value of a gift card is held in trust by the issuer such that when and if the issuer goes bankrupt, the gift card value is not considered part of the bankrupt entity’s estate but is considered the holder’s property.

Civil Code Section 1749.6 states that an issuer of a gift certificate who is bankrupt shall continue to honor a gift certificate issued prior to the date of the bankruptcy filing on the grounds that the value of the gift certificate constitutes trust property of the beneficiary (holder). Under certain limited circumstances, gift certificates with an expiration date can be rendered valueless, but the money therefore does not go to the retailer it escheats — i.e. it reverts back to the state’s general fund if it is uncollected property.

So, Kim, this is probably more than you were asking for, but there it is. Unless the certificate meets these exceptions above, it can not be subject to an expiration date and your daughter should be able to benefit from your generosity.

Christopher B. Dolan is owner of the Dolan Law Firm. Email questions to help@dolanlawfirm.com.

Christopher B. Dolan
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