Gift Cards And Gift Certificates

In The News:

It is not hard to understate the popularity of gift cards. According to Yahoo Finance, the U.S. gift card industry is expected to grow 7 percent in 2023 to reach over $198 million. It is estimated that Americans are holding $21 billion in unused gift cards.

What You Need To Know:

State and federal consumer laws offer gift card consumers many protections. These protections include required disclosures. Consumer laws also include limits on fees and expiration dates as well as access to replacement cards. This alert explains the different types of gift cards and the rules designed to protect consumers. It also provides guidelines for purchasing gift cards and tips for spotting and stopping different gift card scams.

Physical Gift Cards

Sometimes called “smart cards,” they are usually made of plastic or coated paper and carry a magnetic stripe that encodes the dollar value.

Virtual Gift Cards

These are sent to a recipient in electronic form by email or social media. They can be redeemed through paper printouts or with a code entered on a website.

Mobile Gift Cards

These are sent to a recipient in electronic form and require a mobile device to redeem. These cards can be sent through an app, text message, or online.

There are also two broad categories of gift cards:

Merchant-Issued Gift Cards

Consumers who purchase merchant-issued gift cards indicate how much they want to spend. The merchant should disclose any fees, charges, expiration dates, or other restrictions.

The gift recipient may then use the gift card to make purchases with that merchant or participating stores. Some stores place restrictions on the use of their card. For example, the card may only be used for online or in-store purchases. Some gift cards have PIN numbers on the back. These PINs should only be revealed by the card owner when the card is redeemed.

Bank-Issued Gift Cards

A gift card issued by a bank or other financial institution contains a card network symbol, such as American Express, VISA, or MasterCard.

Usually, these bank-issued cards can be used at any location accepting credit or debit cards from that network.

The banks that issue these cards must disclose information related to fees, charges, expiration dates, and other restrictions. The Office of the Comptroller of the Currency (OCC), has gift card disclosure guidelines that national banks and federal savings associations must follow.

Gift Certificates

Michigan law defines a “gift certificate” as something that is:

• a written promise representing the right of the person named on or holding it to present the certificate to the referenced merchant(s) for goods or services;
• gift card or other electronic device usable at a single retailer or affiliated group;
• issued in a specified amount, but may or may not be increased in value or reloaded;
• purchased or loaded on a prepaid basis for the future purchase or delivery of goods or services; and
• honored upon presentation.

Michigan’s legal definition of a gift card does not include:

• general use cards;
• prepaid cards;
• cards usable at multiple retailers or used at an automated teller machine (ATM); or
• other electronic devices issued by a financial institution in a predetermined amount.

In other words, a reloadable prepaid card that is intended for use as a checking account substitute or cards given as a reward or as a promotion are not “gift certificates” or “gift cards” under Michigan law.

For purposes of this alert, a “gift card” includes a “gift certificate” as defined by Michigan law.

Gift Card Buying Guidelines

1. Read the fine print before buying. Pay particular attention to the following:

• Purchase or use restrictions.
  • Some stores may only allow you to use the gift card at specific store locations.
  • Some stores may allow you to use the card at different stores or online. Some stores have limited-use cards.
  • These are cards that, for example, can only be used to buy gas or cannot be used to buy alcohol or tobacco.
  • You should become familiar with restrictions before you buy a gift card.
• Expiration dates.
  • Find out if a merchant or gift card issuer places expiration dates on their gift cards before you purchase.
  • If there is an expiration date, reconsider purchasing a gift card from this merchant.
  • Even if there is no expiration date, encourage recipients to use the gift card soon.
  • After a few months, it is increasingly likely the certificate or card will be lost or forgotten!
• All fees and replacement policy for lost or stolen cards.
  • Gift card fees are now limited. They can be charged only if you haven’t used your card for at least one year.
  • You can only be charged one fee per month whether that is a fee for not using the card, for adding money to your card, or any maintenance fee.
  • Read the card disclosures carefully to know what fees your card issuer imposes.
  • Knowing the replacement policy is important information in the event the card is lost or stolen.

2. Purchase from only reputable sources and inspect the card before you buy.

• Purchasing gift cards from online auction sites may be easy and inexpensive, but you may be purchasing stolen or counterfeit gift cards.
• Consider purchasing gift cards directly from the merchant or issuer, either online or at their brick-and-mortar locations.
• Avoid purchasing from a merchant that is struggling to stay in business or has filed for bankruptcy.
• Inspect the card before you buy to make sure protective stickers have not been removed, codes or PIN numbers remain hidden, and the card has not otherwise been altered.
• If you purchase a card that you later discover has been altered, report it in writing to the issuer immediately.

3. Comparison shop.

• Stores compete for your business, especially during the holiday shopping season. Use this competition to your advantage—be a savvy shopper and do your homework before you buy.
• Or give cash instead.

4. Use a credit card to pay for the gift card.

• If there is a problem with the card, you can and dispute the charge in writing.
• This should be done within 30 days of the first credit card statement listing the disputed charge.

5. Ask for an extra receipt.

• Keep the duplicate receipt and give the original to the gift recipient.
• A receipt will be critical if the card is lost or stolen.
• The receipt will be important if a store disputes the value of the card.

Although the following list is not exhaustive, Michigan law prohibits stores from doing any of the following:

• refusing to accept a gift card for personal, family, or household use UNLESS it has an expiration date that is more than five years from the date of purchase, and the gift card is presented after the expiration date;
• changing the terms and conditions of a gift card after the time of purchase;
• failing to disclose terms and conditions of a gift card; and
• refusing to apply the value of a gift card or gift certificate to the purchase price of goods or services if the value of the gift card or gift certificate is less than the purchase price of the goods or services. For example, you see a $50 watch that you would like to buy and you received a $25 gift card for your birthday.
• charging an inactivity or other service fee and deducting it from the value of the gift certificate. Stores can charge a fee in connection with purchasing the card, but they can’t deduct it from the value of the card.

Financial institutions are also prohibited from charging inactivity or service fees on gift cards that they issue within a year of purchase. Beginning a year after purchase, they may charge fees, but they cannot charge more than one fee per month.

The number one reason people lose money with gift cards is because they lose the card or forget to use it. Use gift cards as soon as you can, even if there is no reason to suspect the merchant is having financial difficulties.

Spot And Stop Gift Card Scams

Gift Card FAQs

Here are answers to frequently asked questions about Michigan and federal rules regarding gift cards:

1. Can gift cards expire?

In general, gift cards (including both merchant and bank-issued cards) purchased after August 22, 2010, cannot expire within five years of purchase. That means a merchant that issues a gift card cannot refuse to accept it “for personal, family, or household use” if you present it within five years from purchase or when value was added. But a merchant can refuse to accept a gift card that was issued more than five years ago if the terms and conditions were clearly and conspicuously disclosed and one of those terms and conditions was an expiration date of at least five years.

The bottom line: Before you purchase a card, be sure to ask about expiration dates or other terms and conditions. If expiration dates or other terms and conditions are not easy to spot, don’t buy the card.

2. Do state and federal gift card laws apply to all gift cards?

No. Some of the cards that those laws do NOT apply to include:

• debit cards;
• pre-paid calling cards;
• cards linked to health savings accounts;
• pre-paid discount cards;
• payroll cards;
• gift cards sold below face value or at a volume discount to an employee, non-profit, charitable organization, or educational institution “for fundraising purposes”; and
• gift cards given to employees or consumers as part of an “awards, rewards, loyalty, or promotional program,” as long as the consumer or employee is not required to give consideration for the card.

3. What should I do if the store who issued my gift card files for bankruptcy?

You should contact the merchant to determine if it is still accepting gift cards. This information may also be available on the retailer’s website. Even if the store is not currently accepting gift cards, it may resume doing so later, so you should check periodically. The store’s competitors may also be willing to honor the gift card.

Consumers may contact the Attorney General's Consumer Protection Team at:

Consumer Protection Team 
P.O. Box 30213 
Lansing, MI 48909 
517-335-7599 
Fax: 517-241-3771
Toll-free: 877-765-8388
Online complaint form