The holiday season is upon us and many travel advisors are looking for new ways to market their businesses in conjunction with Black Friday, Small Business Saturday and Cyber Monday. At the same time, many consumers aren’t quite ready to put down a deposit because of COVID, even though we’ve gotten encouraging news about a vaccine and the ability to travel safely. So, if you own a small travel business, and you’re looking for an opportunity to increase your cash flow while also giving your clients an opportunity to give the gift of travel, you might be wondering about the legal considerations attached to selling travel gift cards to clients.
So what’s the legal answer? Can you sell gift cards? The short answer is “yes.” But the devil is in the details of how you sell those gift cards, and that’s a bit more complicated.
The Credit Card Accountability Responsibility and Disclosure (“CARD”) Act is the federal statute, which was passed in 2009, to set consumer protections for gift cards. Under the CARD Act, gift cards cannot expire within five years from the date they were activated, and the Act further limits inactivity fees on gift cards. There are requirements that differ for re-loadable gift cards, and there are also requirements that you disclose any fees imposed or deducted from the value of the card after it’s sold. But, since the CARD Act only creates a floor for regulation, that’s not the final answer. The CARD Act allows the states to further regulate gift card laws.
The state level is where legal requirements for gift cards get more complex, since each state has different regulations and requirements related to whether, how and when gift cards can expire, whether you can charge fees for inactivity or unused amounts on a gift card, whether you’re required to allow those cards to be redeemed for cash, and what happens to the funds if the funds on the card are never used.
The CARD Act says that gift cards can’t expire any earlier than five years from the date that they’re issued. But that’s the earliest that they can expire. Some states, like California, don’t allow you to impose any expiration date on a gift card, which means that you could potentially be sitting on an obligation to make good on the value of that card for a very long time.
In addition to the states that prohibit expiration dates altogether, other states have a minimum term for how long those gift cards can be valid—sometimes longer than the federal minimum of five years. And to add further complications into the mix, there are some states where having an expiration date on a gift card is the deciding factor as to whether you’ll have to turn unused value over to the state after a period of inactivity. So make sure that you’re setting up your gift card program to be in compliance with the laws that apply to your business, and that you’ve got a good, solid system for logging the gift cards that are sold, and tracking how and when they’re redeemed.
You might be aware of state “Unclaimed Property” laws. Maybe you’ve even gone to the website of your local Secretary of State’s office to search to see if anyone owed you money that got sent to the unclaimed property fund, which you could recover. Well, guess what? Certain states treat the unused value of a gift card as property that has to be turned over to the state as unclaimed property, which means if you sell them and they’re not used, you might have responsibility for turning over those unused amounts to your state government. The legal term of art when property reverts to the state is called “escheat” and in states like Pennsylvania, North Carolina and Texas (just to name a few), the unused balance on a gift card “escheats” to the state. If you’re in one of those states, you must transfer unused funds to the state according to a legally required timetable. (And, of course, that timetable is different, depending on your state).
Redeemable for Cash
If you’ve been contemplating issuing gift cards, you’ve probably already decided that you don’t want those cards to be redeemable for cash. But depending on where you live, that decision might not be up to you. In some states, consumers are allowed by law to redeem gift cards for cash once the balance falls below a certain amount. Sometimes it’s a set dollar amount – five or ten dollars. But in other states, like in Massachusetts, the amount that you’re required to refund in cash is a percentage of the original value on the card. Again, maintaining good records of the cards you’ve issued and how much value has been used is going to be key to staying in compliance with the law.
Inactivity or Processing Fees
Some states allow you to impose fees that can be charged after the card has been purchased. You might want to charge a maintenance fees for dormant or inactive cards, or perhaps an activation fee when the card is first used. Other gift card issuers charge transaction fees every time the card is used. Of course, whether and how you can charge these types of fees depends on the state where you’re located. It’s complicated enough that most small travel businesses don’t want to mess around with all of the accounting that would be required in order to charge fees for issuing and redeeming gift cards.
Restrictions on Redemption
Most travel businesses that issue gift cards impose a limitation on the types of purchases for which the card can be used. Most host agencies prohibit their independent contractor businesses from accepting direct payments for travel. For that reason, most hosted travel advisors will only allow gift cards to be redeemed for payment of service fees, plan-to-go fees, or professional services retainers, and not for purchase of air tickets, cruises, hotel and resort stays or package tours.
Additionally, state Seller of Travel laws may contain provisions that regulate how and when travel agencies or independent contractors can accept funds directly from clients. So, if you’re selling a gift card to someone in California, for example, you may not be able to legally sell that card for your fees, unless you’ve got your own Seller of Travel registration.
Your Booking Terms and Conditions
Keep in mind that when you sell a gift card to a consumer, you’re entering into an agreement with them to provide services to someone else at a future date. That agreement is contractual in nature, and in addition to complying with all federal and state laws and regulations, you’ve got a contractual obligation to make good with your client, or the recipient of the gift. Hopefully, you’ve got a good, solid Terms and Conditions document that will protect your business from legal risk, and you’re getting your clients to agree to your Terms and Conditions when they book travel with you. But when someone buys a gift card to give to someone else, you’re probably going to want to make it clear to the purchaser that your booking Terms and Conditions apply to any transactions, and you’ll also want it printed on the card or communicated in some way to the recipient that in order to use the card to book travel with you, they’ll need to agree to your Terms and Conditions of booking.
Gift Certificates or Gift Cards?
If you’re still reading this far, you might have decided that selling gift cards sounds like a huge pain in the you-know-what. Well, here’s where it gets really bananas. There’s a difference between a paper gift certificate and a gift card. The CARD Act only applies to gift cards – not to paper gift certificates. So, you might be able to save yourself some grief just by changing the form of the gift card to a paper gift certificate. Just make sure you’re in compliance with any applicable state laws.
I know, I know. That seems like a lot. But as every travel advisor knows, we’re running businesses in a high-risk, heavily regulated industry, and there are always ways to manage the risk that comes with selling travel. The complexity is mostly tied to the fact that the rules differ state-by-state. If you take a few minutes to learn what those rules are and take steps to ensure that your terms are in compliance, there’s no reason you can’t sell gift cards quickly and easy. As with everything in the industry, having solid documents, policies and workflows—including when you sell gift cards—is key to protecting your business.
About the Author:
Thomas R. Carpenter is an attorney in private practice, representing clients in the Arts, Entertainment, Media and Travel industries. He is also the co-owner and co-founder of Huckleberry Travel, an award-winning travel business.