People love gift cards. They're perfect for those on both sides of the gift; they're easy to buy and easy to use, and no one has to worry about a gift that's the wrong size, color, or style. In the past, gift card users had few legal rights to protect consumers from excessive fees and card expiration dates. Now, the federal Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 and many state laws regulate gift cards.
Also, prepaid debit cards (sometimes called "reloadable debit cards" or simply "prepaid cards") continue to grow in popularity and usage. This type of card is an alternative to cash or a credit card. If you’re considering getting a prepaid card or account, this article covers that topic, too.
What Are Gift Cards?
Gift cards are usually valid at a particular retailer, although some credit card companies issue gift cards. Gift cards contain a specific amount of money, and typically, once this amount is spent, the card can no longer be used and isn't reloadable. These "closed-loop" cards can normally only be used to buy items.
Federal law, and sometimes state laws, govern gift cards.
What Is the Federal Gift Card Law?
The federal Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 regulates three separate, yet similar products:
- general-use prepaid cards
- gift certificates, and
- store gift cards.
Under this federal law, general-use prepaid cards, gift certificates, and store gift cards must be good for at least five years from the date purchased or from the last date any additional money was loaded onto the card, depending on the type of card. Fees for non-use (called “inactivity” or “dormancy” fees) can't be charged unless there have been at least 12 months of inactivity, and only one fee per month may be charged. Also, the inactivity fee terms must be clearly disclosed before purchase. (15 U.S.C. § 1693l–1 (2024).)
The CARD Act excludes certain cards from these requirements, including:
- cards for telephone services (prepaid calling cards)
- loyalty, award, and promotional gift cards (cards that are given as a reward or as part of a promotion, like a free gift card you get from a store after you purchase merchandise or services), and
- reloadable cards that aren’t marketed or labeled as gift cards. (15 U.S.C. § 1693l–1 (2024).)
State Gift Card Laws Often Provide More Protection Than Federal Law
Some states have passed laws that regulate gift cards. Often, these laws provide additional consumer protections to gift card users.
- If you live in California, for example, store gift cards and certificates generally can’t have an expiration date or dormancy fees (except under certain circumstances), and if the balance on the card is less than $10, you can redeem it for cash. (Cal. Civil Code § 1749.5 (2024).)
- Under Colorado law, the issuer has to redeem the remaining value of a gift card for cash if the amount remaining is five dollars or less and the holder requests it. Colorado law also prohibits service fees, dormancy fees, inactivity fees, maintenance fees, and any other types of fees. (Colo. Rev. Stat. § 6-1-722 (2024).)
If your state’s laws provide more protections than federal law, then state law governs. To find out if your state has any laws that cover gift cards, check out the National Conference of State Legislature’s chart covering state statutes related to gift cards.
A local consumer protection lawyer can also tell you about applicable laws in your state.
How Reloadable Debit Cards (Prepaid Cards) Work
Financial institutions and credit card companies, like Discover, MasterCard, and Visa, offer prepaid cards. Consumers can buy prepaid cards at stores and then load money onto them. Some employers load wages onto prepaid cards (called "payroll cards").
A prepaid card can then be used, just like a regular credit or debit card, to pay for a wide variety of services and purchases. The card can also be used at ATM machines and online. Usually, it's possible to spend only the amount of money deposited in the account.
Who Typically Uses Prepaid Cards?
Millions of Americans operate outside the traditional banking system. People who don't have a checking or savings account often have to rely on alternative financial services, like check-cashing stores, payday loans, and prepaid cards.
Cardholder Rights
As of April 1, 2019, the Consumer Financial Protection Bureau (CFPB) provides protections for users of prepaid cards under its Prepaid Accounts Rule. The rule requires financial institutions to:
- provide certain disclosures before you get the card
- limit your losses if the card is stolen or lost
- protect you from expensive overdraft penalty fees
- investigate and resolve errors, and
- give you free and easy access to account information.
Benefits of Reloadable Prepaid Cards
Prepaid cards are safer than carrying cash, and, again, merchants and ATMs accept them. These cards eliminate the need to pay a credit card bill or go into debt. Anyone over the age of 18 can apply and be accepted without regard to credit quality. Paychecks and government benefits can be directly deposited into the accounts for free.
Risks of Reloadable Prepaid Cards
Prepaid cards typically charge different kinds of expensive fees. For example, a card might charge an activation fee, monthly maintenance fees, cash withdrawal fees, balance inquiry fees, reloading fees, customer service fees, and even inactivity fees. In fact, the charges for using a prepaid card can far exceed the costs associated with a credit card (even a high-interest card), checking account, or another form of payment.
How to Resolve Issues With a Gift Card
If you have trouble using a gift card, contact the card issuer. If you can't settle the problem directly, you may contact your state's attorney general's office or consumer protection agency or file a complaint with the Consumer Financial Protection Bureau. If you have a legal concern regarding a gift card, contact a consumer protection lawyer.
The law surrounding reloadable debit cards and their fees can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, contact a consumer protection lawyer.