Extracted from Law360
There were several legislative developments last year that affected state gift card compliance issues in the unclaimed property and consumer spaces. States were especially active in adopting and changing rules around the escheatment of unused gift card balances, and the requirements for displaying, packaging and training employees regarding gift card sales.
After diving into state escheatment laws that apply to gift card programs and issuers, we will highlight the most significant developments from 2024 and speculate on what 2025 may hold in store.
State Unclaimed Property Laws
All 50 states, plus the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands, have adopted an unclaimed property or escheatment law for intangible property held by companies.
A company that holds unclaimed property is required to report and remit it to the applicable state once it has remained unclaimed for the statutorily required period, typically three or five years. Unclaimed property reporting is an annual and ongoing requirement that companies must follow in accordance with state law.
States typically impose penalties and interest for unclaimed property that isn't reported, or is reported late. Unclaimed property laws are enforced via audits, often conducted by private third-party audit firms.
The most common types of unclaimed property that potentially must be reported and remitted in all states are accounts payable (i.e., uncashed vendor checks), accounts receivable (i.e., unapplied customer credit balances), payroll, shares of stock, checking and savings accounts held by banks, and investment accounts.
Most state unclaimed property laws also include provisions applicable to gift cards, gift certificates and other similar instruments that are redeemable for goods and services only — not for cash.
However, 37 states, including California, Illinois, Florida, Ohio, Pennsylvania and Texas, expressly exempt or don't have a law requiring escheatment of such instruments. Often, for this exemption to apply, the gift cards or gift certificates may not have an expiration date, or service or inactivity fees.
On the other hand, the remaining jurisdictions — including Delaware, the District of Columbia, Georgia, New Jersey and New York — have laws that require the escheatment of a gift card or gift certificate after a specified amount of time.
Many of these states allow the company holder to retain a percentage of the unredeemed balance. A handful, including Georgia and New York, don't allow for any type of balance retention, requiring escheatment of the full remaining face value.
Due to the requirements of unclaimed property laws, it's recommended that businesses offering gift cards review their programs to see whether any escheat obligations for unredeemed gift cards apply to them.
In part, this determination is based on whether the business has a record of the cardholder's name and last known address. If it does, the laws of the state where the address is located govern the card.
If no address is associated with the card, however, the laws of the state where the issuer is domiciled apply. For escheatment purposes, this is usually the state of incorporation or formation.
Much of corporate America is domiciled in the state of Delaware, which requires that gift cards escheat after five years.
So, businesses often take strategic approaches to their gift card programs. Strategies may include redomesticating in an escheat-friendly state, or establishing a subsidiary to issue and hold gift card liabilities.
Even after establishing a gift card strategy, businesses should track legislative developments because they may affect this strategy, requiring a pivot.
Unclaimed Property Developments in 2024
The main legislative change in 2024 affecting gift card program strategies and escheatment considerations occurred in Idaho, which previously had an exemption for gift "certificates with an expiration date prominently displayed on their face."
This presumably required the escheatment of nonexpiring gift certificates and gift cards. Idaho's law also had a unique de minimis exemption for any intangible property with a value of $50 or less.
However, Idaho changed the statute in 2024, passing Idaho H.B. 471, which eliminated its $50 de minimis exemption. H.B. 471 also adopted an exemption for gift cards that don't expire or impose fees, thus bringing it more in line with other states that have an exemption for nonexpiring gift cards.
Since the law changed in Idaho, only Florida and Michigan currently have de minimis exemptions from escheatment. As a result, in most states any unclaimed property is reportable regardless of the amount — e.g., a 10 cent dividend check is reportable.
Because of Idaho's unique exemption, some companies have chosen to change their state of incorporation or organization to Idaho, or to establish subsidiaries there, as an escheat strategy addressing certain types of intangible property that can't neatly fit within a gift card exemption.
One example is a company that has issued a specific type of instrument that may not technically be a gift card or gift certificate, but generally has a value under $50.
Idaho's unclaimed property laws would apply to an Idaho-domiciled company to the extent that the property type in question was considered address-unknown.
A company that chose to incorporate in Idaho specifically to take advantage of the de minimis exemption before it was repealed should consider reincorporating or reorganizing in a different state.
Several jurisdictions could be considered for this purpose, depending on the instrument type. Companies should review states with broad gift card exemptions that appear to apply to their specific program.
Fraud Prevention Developments
In addition to regulation through unclaimed property laws, states commonly regulate gift card programs through consumer protection laws.
Historically, these laws focused on expiration dates, restrictions on fees and cash-back requirements. But the recent trend has been the adoption of gift card scam prevention acts and guidelines.
These developments are becoming more prevalent as states attempt to address gift card fraud, which is believed to be a growing concern in the industry. According to the Federal Trade Commission, gift card fraud made up $217 million of the $10.4 billion of total loss due to fraud in 2023.
Over the past two years, legislation aimed at combating gift card-related fraud has been introduced in Delaware, Iowa, Maine, Maryland, Nebraska, New Jersey, New York, Pennsylvania, Rhode Island and West Virginia.
The bills seek to tackle fraud in a variety of ways, including by requiring the retailer to post notice near point-of-sale locations, or training employees regarding fraud, as well as by imposing certain requirements for gift card packaging and display.
The only states that have enacted such legislation are New York and Rhode Island, in 2023, and Delaware and Maryland, in 2024.
Both the New York and Rhode Island laws require displays of so-called conspicuous notice at or near where gift cards are displayed, or where the sale occurs, cautioning purchasers about prepaid card scams and instructing purchasers on what to do if they suspect they might be a potential victim of such a scam.
Both state statutes provide a model notice, but only Rhode Island requires the use of its model notice for the display.[1]
New York's S.B. 9900, the New York Gift Certificate Scam Prevention Act, is currently pending. Like Maryland's bill, it includes additional provisions regarding packaging and training.
Delaware's H.B. 317, signed into law in September 2024, requires sellers of third-party gift cards to display conspicuous notice of potential gift card scams at or near the locations where gift cards are physically displayed.
Maryland's S.B. 760, signed in May 2024, imposes comprehensive notice, packaging and training requirements for gift cards. Like the New York and Rhode Island bills, the Maryland bill requires a conspicuous display of notice.
Maryland's new law requires the Maryland Office of the Attorney General to provide a model notice. The notice has not yet been released.
The bill's provisions affecting open-loop gift cards go into effect on June 1, and its provisions affecting closed-loop gift cards go into effect on Oct. 1, 2025, so we expect to see a model notice before June 1.
S.B. 760 also includes packaging requirements and employee training requirements. For gift cards sold in stores, the gift card packaging must conceal or cover in a way that's not easily removed or replaced without signs of tampering — or partially conceal or cover, if that's more secure — all numeric codes specific to gift card redemption.
The packaging must also include a warning that states: "Do not sell or purchase if packaging has been broken or indicates tampering."
These requirements don't apply if the merchant chooses to secure the gift cards in a physical location accessible only to the merchant's employees.
Gift card-related fraud prevention bills are still pending in several other states, and we expect more states to focus on similar measures in 2025.
Other Consumer Protection Developments
In 2024, states were mostly focused on fraud-related legislation, and there weren't any changes to state laws on consumer protections like gift card cash-back requirements and restrictions on expiration dates and inactivity or service fees.
Still, gift card program providers should be aware of the existing cash-back laws, since companies' alleged failure to comply with these laws has been a frequent basis for class actions in states.
Fifteen jurisdictions, including Puerto Rico, have gift card cash-back laws that require issuers to give a cardholder the cash value of the balance remaining on their card, once the cardholder has partially redeemed the card and the balance has dropped below a statutory threshold, ranging from $1 to less than $10.
Differences between various state cash-back thresholds can make it tricky for a business to determine what its cash-back policy should look like, particularly if the business would prefer to implement one standard cash-back policy for all states, rather than tailoring the threshold to varying state threshholds.
Further, some state gift card exemptions apply only to cards that are not redeemable for cash, except as required by state law. A blanket policy allowing gift cards to be redeemed for cash once a specific dollar threshold is reached creates potential unclaimed property risk in states that either have a lower cash-back threshold than the business's cash-back threshold or in states that don't have a cash-back requirement at all.
Businesses should monitor gift card cash-back legislation on a regular basis, and consider whether exceptions need to be built into their current cash-back policy.
In 2024, one state — California — was poised to significantly increase the cash-back threshold from less than $10 to $25 or less, subject to adjustments for inflation, through the enactment of S.B. 1272.
Surprisingly, the California Assembly scrapped the bill after it passed the California Senate, thereby taking this cash-back increase off the table for now.
This followed the similar last-minute failure of another 2023 California consumer protection bill, S.B. 728, which would have prohibited all gift cards from being issued in plastic form, beginning in 2028. California's governor ultimately vetoed this bill.
It seems possible, if not probable, that the $25 or less cash-back threshold will be enacted this year. In December, a bill proposing to make that change, S.B. 22, was introduced in the California Senate for consideration in the 2025-2026 session. We'll watch this bill with anticipation throughout 2025, along with other potential reforms to the California consumer gift card laws.
Looking Ahead
Retailers and other companies that offer gift cards to consumers should carefully monitor state legislative developments to determine whether any action is required given the nature of the company's business. We expect that states will continue to take great interest in gift cards and similar instruments from unclaimed property, fraud and consumer protection perspectives as the prepaid industry continues to grow.
[1] See New York's model notice at https://dos.ny.gov/system/files/documents/2023/05/giftcardscamalert50.pdf, and Rhode Island's model notice at https://dbr.ri.gov/gift-card-fraud-mandate.