Gift Card Rules — Expiration, Dormancy Fees, etc.

Gift cards are everywhere. They’re the holiday present tucked into envelopes, the corporate bonus handed out in break rooms, and the plastic or digital codes sitting in millions of wallets and email inboxes. For consumers, they promise flexibility — “use it anytime, anywhere.” For businesses, they deliver instant cash flow and brand loyalty. But behind the shiny packaging and cheerful convenience lies a more complicated story. Gift cards are financial products, regulated under overlapping federal and state laws, designed with hidden incentives that benefit companies far more than consumers. They can expire, shrink from dormancy fees, or even vanish when retailers go bankrupt. Meanwhile, businesses report billions in “breakage” revenue each year from unused balances. The promise of “just like cash” is misleading. In 2025, understanding the legal rules — expiration dates, fees, and consumer rights — is the only way to ensure that a $50 card really means $50 in spending power.

A Short History of Gift Cards: From Certificates to Corporate Goldmine

Paper Roots

Before plastic, there were paper gift certificates. These slips of paper, popular in the mid-20th century, gave customers store credit but were plagued by fraud and forgery. They were also easily lost or damaged.

The Plastic Revolution

In the 1990s, major retailers like Blockbuster, Best Buy, and Starbucks introduced magnetic-stripe gift cards. Suddenly, balances could be tracked electronically. Retailers discovered new opportunities: they could attach expiration dates, charge service fees, and treat unused balances as revenue.

Early Abuses

By the early 2000s, consumer frustration was boiling. Mall cards often expired within a year. Many carried $2–$3 monthly “maintenance fees.” American Express and Visa gift cards layered on activation fees. A $50 card could drop to $40 in months, with fine print buried on packaging.

Calls for Reform

State attorneys general began investigating. Class actions challenged undisclosed fees. Advocacy groups argued gift cards were becoming predatory financial products. These pressures led Congress to intervene in 2009, embedding gift card protections inside the broader Credit CARD Act.

Federal Rules: The Credit CARD Act Baseline

The Credit CARD Act of 2009 remains the backbone of U.S. gift card regulation. Its protections include:

Expiration Dates. Funds cannot expire for at least five years from purchase or last reload.

Dormancy Fees. Allowed only if:

The card has been inactive for at least 12 months,

Only one fee is charged per month, and

Fees are clearly disclosed.

Transparency. Expiration and fees must be printed on the card or packaging.

The law covers both retail/store cards (e.g., Target, Starbucks) and general-purpose reloadable cards branded by Visa or Mastercard.

Loopholes Remain

Promotional cards (like “spend $50, get a $10 bonus card”) can legally expire within months.

Reloadable prepaid debit cards often marketed like gift cards fall under separate, looser CFPB rules.

Bankruptcy gaps: if a retailer collapses, federal law doesn’t guarantee gift card holders get refunds.

The CARD Act gave consumers a floor of protection, but it did not eliminate all risks.

State Laws: Stronger but Uneven

States layered their own protections on top of federal law, but in wildly different ways:

California. Prohibits expiration for most cards; requires cash redemption for balances under $10.

New York. Cards cannot expire for nine years; dormancy fees banned until two years of inactivity.

Massachusetts. Seven-year minimum validity; expired balances become unclaimed property.

Florida. Expiration banned for most cards, but allowed for promotional ones.

The Patchwork Problem

A Macy’s card bought in California may come with no-expiration rights, while the same card bought in Texas may be governed by different rules. Online cards add another wrinkle: whose law applies — the buyer’s, the seller’s headquarters, or the place of redemption? Consumers rarely know. Companies often default to the most lenient interpretation, leaving consumers to fight for stronger state protections.

Dormancy Fees and the Business of Breakage

The Economics of Forgetfulness

Companies count on consumers forgetting about gift cards. The accounting term for this is breakage: money loaded onto cards but never redeemed. Starbucks reported $212 million in breakage revenue in 2022.

Target and Walmart consistently disclose breakage as profit in financial statements.

Fees as Revenue Tools

Dormancy fees accelerate breakage. A $25 card drained by $2 monthly fees after 12 months can be worthless by the time it’s found in a drawer. Retailers justify fees as covering “administrative costs.” Critics call them legalized junk fees — a way to monetize consumer neglect.

Unclaimed Property Laws: States Want Their Share

Many states classify unused gift card balances as unclaimed property (abandoned funds that revert to the state). Delaware, home to many corporations, aggressively audits companies for unremitted balances.

New York and Massachusetts require balances to be escheated after 7 years.

Companies resist, often by creating gift card subsidiaries in states like Ohio or Florida that exempt cards from escheatment. The result is a tug-of-war: states want revenue, companies want breakage profits, and consumers are rarely made whole.

Case Studies and Legal Battles

Simon Property Group (2007). Mall gift cards with $2.50 monthly fees sparked class action suits. Settlement required refunds and disclosure reforms.

American Express (2011). Faced lawsuits over hidden fees on branded gift cards. Settled for millions.

California v. Retailers (2016–2021). Investigations revealed widespread violations of small-balance cash redemption rights. AG settlements forced compliance.

COVID-19 bankruptcies. Consumers lost millions in unusable cards from gyms and restaurants that closed. Courts split: some ordered refunds, others left holders with worthless plastic.

These cases highlight both progress and the fragility of protections when enforcement lags.

Digital Gift Cards and the Rise of Fraud

As cards moved online, new risks emerged:

Scam payments. Fraudsters demand payment in iTunes, Google Play, or Walmart cards. Victims lose billions annually.

Balance theft. Hackers skim digital codes, draining balances before legitimate consumers redeem them.

Resale risks. Secondary-market sites promise discounted cards but often sell already-drained numbers.

The FTC and CFPB rank gift card fraud among the fastest-growing consumer complaints. Yet the CARD Act’s framework — written for plastic — barely touches digital fraud.

International Comparisons

Gift card rules abroad offer perspective:

Canada. Federal rules ban expiration; provinces regulate fees and disclosures. Ontario requires clear consumer protections.

European Union. EU directive sets five-year minimum validity for vouchers; Germany allows 30 years.

Australia. Three-year minimum validity, mandatory clear disclosure.

Japan. Treats prepaid cards as regulated financial instruments with strict reserve requirements.

Compared to these models, U.S. protections look strong on paper but weak in practice because of inconsistent state enforcement and loopholes.

Policy Debate: Should Gift Cards Be Treated as Cash? Consumer advocates argue gift cards should function exactly like cash: no expiration, no fees, no forfeiture. Businesses oppose, citing costs of maintaining systems for tiny balances. The FTC’s 2023–24 junk fee initiative has revived debate. Are dormancy fees just another junk fee — like hotel resort fees or airline seat charges — that regulators should ban outright?

Some policymakers suggest:

A national registry for unused balances, letting consumers reclaim funds.

Mandatory refund rights during bankruptcies.

Ban on breakage accounting, forcing companies to hold balances indefinitely.

The question is whether gift cards are retail conveniences or financial products deserving bank-level regulation.

Real-World Guidance for Consumers

Use cards fast. Treat them like cash with an expiration clock.

Check the fine print. Federal law requires disclosures on packaging or the card.

Know state rights. In California, you can cash out balances under $10; in New York, cards last nine years.

File complaints. State AGs enforce gift card laws; consumer reports often lead to settlements.

Beware resale. Fraud risk is high on secondary markets.

Avoid scams. No government agency or legitimate business accepts gift cards as payment.

Bottom Line

Gift cards look simple, but they are designed around corporate incentives that rely on consumer forgetfulness. Federal law sets a baseline of five years and limited fees. States add stronger protections, but enforcement is patchy, and companies exploit loopholes. Breakage isn’t an accident; it’s a built-in revenue stream. For consumers, the message is clear: don’t hoard cards, know your rights, and push back on fees. For policymakers, the challenge is whether to let businesses keep profiting from forgotten generosity or to finally align gift cards with their reputation: as good as cash. Until then, every card in a drawer is a tiny legal battleground — between the buyer, the retailer, and the state.

Glossary

Gift card. A prepaid instrument redeemable for goods or services.
CARD Act (2009). Federal law establishing gift card protections.
Dormancy fee. Fee charged after inactivity, federally limited to one per month after 12 months.
Breakage. Revenue from unused balances, recorded as profit.
Unclaimed property. State laws requiring unredeemed balances to be turned over to the state.
Promotional card. Free/bonus card not subject to the same rules.
Digital fraud. Theft or scams involving online gift card codes.

Sources & Further Reading

Federal Reserve, Gift Card Rules under the CARD Act: https://www.federalreserve.gov/consumerinfo/wyntk_giftcards.htm

CFPB, Prepaid and Gift Card Rules: https://www.consumerfinance.gov/prepaid/

NCSL, Gift Card Statutes by State (2023): https://www.ncsl.org/research/financial-services-and-commerce/gift-cards-and-certificates-statutes-and-legislation.aspx