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Gift Card Update

Following the trend in many other states, Kansas has enacted a new gift card law (House Bill 2658) that imposes restrictions on expiration dates and fees and requires disclosure of terms and conditions.

For gift cards and gift certificates sold on or after January 1, 2007, the law prohibits expiration dates less than 5 years from the date of purchase.

Beginning July 1, 2006, the law prohibits charging any fees within the first 12 months of issuance of a gift card or gift certificate. A gift card or gift certificate without an expiration date is valid until redeemed or replaced. A merchant will not be required to redeem a gift card or gift certificate for cash.

The above restrictions do not apply to the following kinds of gift cards or gift certificates issued on or after January 1, 2007, as long as an expiration date appears on the front of the card or certificate: (1) cards and certificates distributed to a consumer without the exchange of money or anything of value, and (2) cards and certificates that are sold below face value at a volume discount to employers or nonprofit organizations for fundraising purposes.

Beginning July 1, 2006, all conditions and limitations must be disclosed to the purchaser at the time of purchase. A gift card or gift certificate issuer is not required to redeem a gift card or gift certificate if the purchaser fails to comply with such conditions and limitations.

The statutory definition of "gift card" includes "a value issued in exchange for payment" while the definition of "gift certificate" refers to "a written promise given in exchange for full or discounted payment, or without any money or other thing of value being given in exchange." The purpose of this definitional distinction is unclear and the office of the bill's sponsor could not explain it.

The terms gift card and gift certificate do not include a prepaid bank card, which is defined as a general use, prepaid card or other electronic payment device that is issued by a bank or other financial institution in a predenominated amount useable at multiple, unaffiliated merchants or at automated teller machines, or both.

Oklahoma House Bill 2635 amends the state's gift card law (which provides for a 60 month expiration date restriction for most gift cards) by adding a definition of prepaid service arrangement (" a method to purchase specific services in advance and which enables the use of the service through a unique access number or authorization code provided manually or electronically to the service provider") and exempting prepaid service arrangements from the definition of gift certificate and gift card.

The bill, which takes effect November 1, 2006, also amends the exemption for promotional gift cards as follows: the exemption, which allows expiration dates less than 60 months from the date of purchase so long as the expiration date appears in capital letters in at least 10-point font and which allows fees, will apply to gift certificates or gift cards that are distributed by the issuer to a consumer without any money or other thing of value being given in exchange for the gift card. The implications of this deletion are ambiguous and calls to the bill sponsor's office did not provide additional insight into the change.

While tracking new state gift card statutes is critical for those selling gift cards, legislatures' intent is not always clear.

This client alert is a publication of Loeb & Loeb and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.