Existing law prohibits the sale of any gift certificate, as defined, that contains an expiration date or service fee, except as specified. Existing law defines gift certificate to include gift cards, as specified. Existing law provides that any gift certificate sold after January 1, 1997, is redeemable in cash or subject to replacement with a new gift certificate. Existing law makes any gift certificate with a cash value of less than $10 redeemable in cash for its cash value.

This bill would define gift certificate to additionally include electronic gift cards and would instead make any gift certificate with a cash value of less than or equal to $25, as adjusted for inflation, redeemable in cash for its cash value.

Existing law prohibits the sale of any gift certificate, as defined, that contains an expiration date or service fee, except as specified. Existing law provides that any gift certificate sold after January 1, 1997, is redeemable in cash or subject to replacement with a new gift certificate. Existing law makes any gift certificate with a cash value of less than $10 redeemable in cash for its cash value.

This bill would instead make any gift certificate with a cash value of less than or equal to an unspecified dollar amount $25, as adjusted for inflation, redeemable in cash for its cash value.

Existing law prohibits the sale of any gift certificate, as defined, that contains an expiration date or service fee, except as specified. Existing law provides that any gift certificate sold after January 1, 1997, is redeemable in cash or subject to replacement with a new gift certificate. Existing law makes any gift certificate with a cash value of less than $10 redeemable in cash for its cash value.

This bill would instead make any gift certificate with a cash value of less than or equal to an unspecified dollar amount redeemable in cash for its cash value.

SENATE THIRD READING

STR Bill Id:SB 1272

Author:(Laird)

As Amended Ver:June 24, 2024

Majority vote

SUMMARY

Raises the maximum redeemable cash amount of a gift certificate from up to $10 to $25, as adjusted for inflation.

Major Provisions

1. Raises the redeemable cash amount of a gift certificate that is redeemable in cash for its cash value to twenty-five dollars ($25) or less, beginning January 1, 2025.
2. Adjusts for inflation, beginning January 1, 2026 and annually, thereafter, the maximum redeemable cash value of a gift certificate based on the California Consumer Price index, rounded to the nearest whole dollar.
3. Updates the definition of "gift certificate" to include "electronic gift cards."

COMMENTS

Recent estimates suggest that there is approximately $23 billion currently sitting unused on gift cards nationwide and an estimated 47% of Americans with an unused gift card with an average of $175 per person.^[1] Many large companies calculate a "breakage" amount each year. Breakage describes the dollar amount of gift cards sold that a company is liable for but estimates will ultimately not be redeemed, based on the company's past averages, creating a windfall profit for the business. In 2022, Starbucks reported $212 million in breakage.^[2]

The author argues that raising the redeemable cash back minimum will put more money back in the pockets of consumers, rather than allowing corporations to profit when the intended goods or services were not provided. Given that businesses have been paid $23 billion for goods and services that consumers have not received combined with the fact that the amount of redeemable balance has not been raised in 17 years, from a consumer protection perspective increasing that amount to $25 appears reasonable.

According to the Author

SB 1272, the Consumer Access to Stored Holdings Act or CASH Act, will raise the maximum dollar amount on a gift card a consumer can redeem for cash. The current limit of $9.99 was set 15 years ago and an increase is long overdue. This increase will put more cash back in the wallets of Californians at a time when every penny truly counts.

Arguments in Support

The California Low-Income Consumer Coalition writes:

Once purchased, the profit from the sale of a gift card is immediately available to the issuing company. There is a nearly 100 percent profit margin if the consumer does not use the gift card. Every cent of unspent gift cards adds up to hundreds of millions of dollars captured by companies every single year with no exchange for goods or services. Gift certificates are gifted with the intention of being entirely spent by the receiver, and the law should allow them to do so.

Many consumers feel it is not worth the hassle to cash out less than $10, while even more are completely unaware of their right to redeem gift certificates for cash. This leaves millions of dollars meant to be redeemed for services and goods unspent, a major loss for consumers. In an attempt to use the entirety of a gift card, a consumer will likely spend beyond the remaining amount, also leading to a loss.

By passing SB 1272, California will get money back into the hands of consumers at a time when every penny counts for families.

Consumer Watchdog writes:

The Consumer Access to Stored Holdings (CASH) Act, which updates a fifteen year old consumer protection allowing consumers to cash out unused gift cards. SB 1272 will put more cash back in the wallets of Californians by increasing the maximum amount redeemable for cash from a gift certificate or gift card from $9.99 to $25 with annual adjustments for inflation.

Our organization has long advocated for measures that enhance consumer protections and ensure fairness in commercial transactions. Senate Bill 1272 addresses a significant issue in the gift card industry, where billions of dollars remain unused on gift cards each year, primarily benefiting the issuing companies. By increasing the cash redeemable amount on a gift certificate, this legislation will enable consumers to access the full value of their gift cards, aligning with Consumer Watchdog's goal of empowering consumers and promoting economic fairness.

Arguments in Opposition

A coalition of industry associations including California Retailers Association, California Restaurant Association, and California Chamber of Commerce argues:

Forcing merchants to offer cash back at a $25 threshold poses considerable challenges. This bill would force businesses to maintain substantial cash on hand especially on days like Black Friday and the days after Christmas when demand for cash back could surge. This not only strains financial resources on small businesses, but also significantly heightens security risks. With retail theft on the rise, holding increased amounts of cash in-store makes these businesses prime targets for theft.

From a fraud prevention perspective, the bill potentially exacerbates the risk. Gift cards are vulnerable to fraud, and the requirement for this level of cash back may serve as a mechanism for fraudsters to launder money. The prospect of purchasing gift cards with illicit funds, only to cash them back through legitimate channels, is a concern.

FISCAL COMMENTS

As currently in print, this bill is keyed non-fiscal.

VOTES

SENATE FLOOR: 30-6-4

YES: Alvarado-Gil, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NO: Dahle, Grove, Jones, Nguyen, Niello, Seyarto

ABS, ABST OR NV: Allen, Archuleta, Ochoa Bogh, Wilk

ASM PRIVACY AND CONSUMER PROTECTION: 7-3-1

YES: Bauer-Kahan, Bryan, Irwin, Lowenthal, Ortega, Ward, Wicks

NO: Joe Patterson, Dixon, Hoover

ABS, ABST OR NV: Wilson

UPDATED

VERSION: June 24, 2024

CONSULTANT: Mimi Holtkamp / P. & C.P. / (916) 319-2200 FN: 0003591

1. Survey: 47% of U.S. adults have at least one unused gift card. Bankrate.com, (Jul 24, 2023) https://www.bankrate.com/personal-finance/unused-gift-cards-survey/. ↑

2. Durbin, Dee-Ann. "The dark side of the $30 billion holiday gift card industry: So much money unspent," Fortune (Dec. 26, 2023), https://fortune.com/2023/12/26/how-many-gift-cards-unspent-holiday-christmas-season-30-billion-industry/. ↑

Date of Hearing: June 18, 2024

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Rebecca Bauer-Kahan, Chair

SBPCA Bill Id:SB 1272

Author:(Laird) – As Amended Ver:April 1, 2024

AS PROPOSED TO BE AMENDED

SENATE VOTE: 30-6

SUBJECT: Gift certificates

SYNOPSIS

The gift card industry is valued at over $899 billion. It’s expected to skyrocket to $2.3 trillion by 2030. Not surprisingly, according to the National Retail Federation, gift certificates were the second most popular gift during the 2023 holiday season with nearly 80% of gift certificates purchased for restaurants, department stores, and coffee shops.^[1]

There is a myriad of reasons gift certificates go wholly or partially unused—perhaps you don’t shop at that store or eat at that restaurant; perhaps you used part of the gift certificate but a balance remains and it’s not worth the inconvenience to return to the place of business or maybe you would have to add your own money to the gift certificate balance to purchase another good or service. Unused balances on gift certificates are 100 percent profit for the retailer—money paid for no service or product. A 2023 report by Credit Summit estimates $21 billion of unspent money is stored on unused gift cards across America.^[2] Fortunately for Californians gift certificates in the state cannot contain an expiration date and any gift certificate with a value or balance under $10 is redeemable for cash.

This bill increases the cash redeemable amount to $25 putting more cash back in the wallets of Californians. The suggested Committee amendments update the definition of “gift certificate” to include “electronic gift cards.”

Among those in support are Consumer Watchdog, Public Law Center, and California Low-Income Consumer Coalition. California Retailers Association, California Restaurant Association, and the California Chamber of Commerce are among those in opposition.

SUMMARY: Raises the maximum redeemable cash amount of a gift certificate from up to $10 to $25, as adjusted for inflation. Specifically, this bill:

1. Raises the redeemable cash amount of a gift certificate that is redeemable in cash for its cash value to twenty-five dollars ($25) or less, beginning January 1, 2025.
2. Adjusts for inflation, beginning January 1, 2026 and annually, thereafter, the maximum redeemable cash value of a gift certificate based on the California Consumer Price index, rounded to the nearest whole dollar.
3. Updates the definition of “gift certificate” to include “electronic gift cards.”

EXISTING LAW:

1. Makes it unlawful for any person or entity to sell a gift certificate to a purchaser that contains any of the following:
   1. An expiration date.
   2. A service fee, including, but not limited to, a service fee for dormancy, except as provided. (Civ. Code § 1749.5(a).)
2. Provides that any gift certificate sold after January 1, 1997, is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder. Notwithstanding that provision, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value. (Civ. Code § 1749.5(b).)
3. Provides that the above provisions do not apply to any of the following gift certificates issued on or after January 1, 1998, if the expiration date appears in capital letters in at least 10-point font on the front of the gift certificate:
   1. Gift certificates that are distributed by the issuer to a consumer pursuant to an awards, loyalty, or promotional program without any money or other thing of value being given in exchange for the gift certificate by the consumer.
   2. Gift certificates that are donated or sold below face value at a volume discount to employers or to nonprofit and charitable organizations for fundraising purposes if the expiration date on those gift certificates is not more than 30 days after the date of sale.
   3. Gift certificates that are issued for perishable food products. (Civ. Code § 1749.5(d).)
4. Provides that a “gift certificate” includes gift cards, but does not include any gift card usable with multiple sellers of goods or services, as provided. This exemption does not apply to a gift card usable only with affiliated sellers of goods or services. (Civ. Code § 1749.45.)
5. Provides that if a legal obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation. (Civ. Code § 1448.)

FISCAL EFFECT: As currently in print, this bill is keyed non-fiscal.

COMMENTS:

1) Background. Gift certificates make gift giving easy for purchasers, either in-store or online, and allow flexibility for recipients to choose their own gift. Retailers benefit from the sale of gift certificates, increased foot traffic, and potential additional spending beyond the value of the original gift certificate purchase. The global gift card industry was valued at $984.31 billion dollars in 2023 and is expected to reach approximately $5 trillion by 2033. The U.S. gift card market was approximately $275.61 billion in 2023 and is predicted to grow to over $1.5 trillion by 2033.^[3]

2) Author’s statement. The author notes:

SB 1272, the Consumer Access to Stored Holdings Act or CASH Act, will raise the maximum dollar amount on a gift card a consumer can redeem for cash. The current limit of $9.99 was set 15 years ago and an increase is long overdue. This increase will put more cash back in the wallets of Californians at a time when every penny truly counts.

3) The need for the bill. To provide consumers more rights with respect to gift certificates with lower remaining values, SB 250 (Corbett, Ch. 640, Stats. 2007) amended that law providing that notwithstanding the existing provision, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value. This allows consumers the ability to get the value of their cards where the remaining balance is extremely low.

That amount has not changed in 17 years since. In fact, the original version of SB 250 sought to make the threshold $20 but this was lowered in response to opposition.

Recent estimates suggest that there is approximately $23 billion currently sitting unused on gift cards nationwide and an estimated 47% of Americans with an unused gift card with an average of $175 per person.^[4] Many large companies calculate a “breakage” amount each year. Breakage describes the dollar amount of gift cards sold that a company is liable for but estimates will ultimately not be redeemed, based on the company’s past averages, creating a windfall profit for the business. In 2022, Starbucks reported $212 million in breakage.^[5]

The author argues that raising the redeemable cash back minimum will put more money back in the pockets of consumers, rather than allowing corporations to profit when the intended goods or services were not provided. Given that businesses have been paid $23 billion for goods and services that consumers have not received combined with the fact that the amount of redeemable balance has not been raised in 17 years, from a consumer protection perspective increasing that amount to $25 appears reasonable.

4) Suggested Committee amendment. The Committee recommends updating the current definition of “gift certificate” to include electronic gift cards. The amendment is as follows:

1749.45. (a) As used in this title, “gift certificate” includes gift cards and electronic gift cards, but does not include any gift card usable with multiple sellers of goods or services, provided the expiration date, if any, is printed on the card. This exemption does not apply to a gift card usable only with affiliated sellers of goods or services.

5) Related legislation. SB 250 (Corbett; Ch. 640, Stats. 2007) allowed any gift card, as defined, with a cash value of less than $10 to be redeemed in cash for its cash value. In addition, it deleted the exemption for food product gift cards or certificates.

ARGUMENTS IN SUPPORT:

The California Low-Income Consumer Coalition writes:

Once purchased, the profit from the sale of a gift card is immediately available to the issuing company. There is a nearly 100 percent profit margin if the consumer does not use the gift card. Every cent of unspent gift cards adds up to hundreds of millions of dollars captured by companies every single year with no exchange for goods or services. Gift certificates are gifted with the intention of being entirely spent by the receiver, and the law should allow them to do so.

Many consumers feel it is not worth the hassle to cash out less than $10, while even more are completely unaware of their right to redeem gift certificates for cash. This leaves millions of dollars meant to be redeemed for services and goods unspent, a major loss for consumers. In an attempt to use the entirety of a gift card, a consumer will likely spend beyond the remaining amount, also leading to a loss.

By passing SB 1272, California will get money back into the hands of consumers at a time when every penny counts for families.

Consumer Watchdog writes:

The Consumer Access to Stored Holdings (CASH) Act, which updates a fifteen year old consumer protection allowing consumers to cash out unused gift cards. SB 1272 will put more cash back in the wallets of Californians by increasing the maximum amount redeemable for cash from a gift certificate or gift card from $9.99 to $25 with annual adjustments for inflation.

Our organization has long advocated for measures that enhance consumer protections and ensure fairness in commercial transactions. Senate Bill 1272 addresses a significant issue in the gift card industry, where billions of dollars remain unused on gift cards each year, primarily benefiting the issuing companies. By increasing the cash redeemable amount on a gift certificate, this legislation will enable consumers to access the full value of their gift cards, aligning with Consumer Watchdog's goal of empowering consumers and promoting economic fairness

ARGUMENTS IN OPPOSITION:

A coalition of industry associations including California Retailers Association, California Restaurant Association, and California Chamber of Commerce argues:

Forcing merchants to offer cash back at a $25 threshold poses considerable challenges. This bill would force businesses to maintain substantial cash on hand especially on days like Black Friday and the days after Christmas when demand for cash back could surge. This not only strains financial resources on small businesses, but also significantly heightens security risks. With retail theft on the rise, holding increased amounts of cash in-store makes these businesses prime targets for theft.

From a fraud prevention perspective, the bill potentially exacerbates the risk. Gift cards are vulnerable to fraud, and the requirement for this level of cash back may serve as a mechanism for fraudsters to launder money. The prospect of purchasing gift cards with illicit funds, only to cash them back through legitimate channels, is a concern.

REGISTERED SUPPORT / OPPOSITION:

Support

California Low-income Consumer Coalition
Consumer Attorneys of California
Consumer Watchdog
Public Law Center

Opposition

CalAsian Chamber of Commerce
California Chamber of Commerce
California Fuels and Convenience Alliance
California Restaurant Association
California Retailers Association
Los Angeles County Business Federation (BIZFED)
National Association of Theater Owners of California
National Federation of Independent Businesses
San Francisco Chamber of Commerce
The Retail Gift Card Association
Valley Industry and Commerce Association (VICA)

Analysis Prepared by: Mimi Holtkamp / P. & C.P. / (916) 319-2200

1. Durbin, Dee Ann. “The secret life of gift cards: Here’s what happens to the billions that go unspent each year,” Los Angeles Times (Dec. 25, 2023) https://www.latimes.com/business/story/2023-12-25/the-secret-life-of-gift-cards-heres-what-happens-to-the-billions-that-go-unspent-each-year. ↑

2. Olds, Rebecca. “$21 billion — the amount of unspent gift cards Americans have collectively,” Deseret News (Feb. 24, 2023) https://www.deseret.com/2023/2/24/23613308/americans-have-21-billion-in-unspent-gift-cards/. ↑

3. Precedence Research. Gift Cards Market (By Card Type: Closed-loop Card, Open-loop Card; By End-user: Retail Establishment, Corporate Institutions) - Global Industry Analysis, Size, Share, Growth, Trends, Regional Outlook, and Forecast 2024-203. https://www.precedenceresearch.com/gift-cards-market. ↑

4. Survey: 47% of U.S. adults have at least one unused gift card. Bankrate.com, (Jul 24, 2023) https://www.bankrate.com/personal-finance/unused-gift-cards-survey/. ↑

5. Durbin, Dee-Ann. “The dark side of the $30 billion holiday gift card industry: So much money unspent,” Fortune (Dec. 26, 2023), https://fortune.com/2023/12/26/how-many-gift-cards-unspent-holiday-christmas-season-30-billion-industry/. ↑

 THIRD READING  

Bill No: SB 1272

Author: Laird (D)

Amended: 4/1/24

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-2, 4/9/24

AYES: Umberg, Allen, Ashby, Caballero, Durazo, Laird, Min, Stern, Wahab

NOES: Wilk, Niello

SUBJECT: Gift certificates

SOURCE: Author

DIGEST:

This bill provides that a gift certificate with a cash value less than or equal to $25 must be redeemable in cash, increasing that threshold from $10.

ANALYSIS:

Existing law:

1. Makes it unlawful for any person or entity to sell a gift certificate to a purchaser that contains any of the following:
   1. An expiration date.
   2. A service fee, including, but not limited to, a service fee for dormancy, except as provided. (Civ. Code § 1749.5(a).)
2. Provides that any gift certificate sold after January 1, 1997, is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder. Notwithstanding that provision, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value. (Civ. Code § 1749.5(b).
3. Provides that the above provisions do not apply to any of the following gift certificates issued on or after January 1, 1998, if the expiration date appears in capital letters in at least 10-point font on the front of the gift certificate:
   1. Gift certificates that are distributed by the issuer to a consumer pursuant to an awards, loyalty, or promotional program without any money or other thing of value being given in exchange for the gift certificate by the consumer.
   2. Gift certificates that are donated or sold below face value at a volume discount to employers or to nonprofit and charitable organizations for fundraising purposes if the expiration date on those gift certificates is not more than 30 days after the date of sale.
   3. Gift certificates that are issued for perishable food products. (Civ. Code § 1749.5(d).)
4. Provides that a “gift certificate” includes gift cards, but does not include any gift card usable with multiple sellers of goods or services, as provided. This exemption does not apply to a gift card usable only with affiliated sellers of goods or services. (Civ. Code § 1749.45.)
5. Provides that if a legal obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation. (Civ. Code § 1448.)

This bill raises the threshold for eligibility for a cash redemption to $25 or less as adjusted for inflation on January 1, 2026, and annually thereafter, based on the California Consumer Price Index and rounded to the nearest whole dollar amount.

Background

Existing law makes it unlawful to sell a gift certificate or gift card that contains an expiration date or service fee, except as specified. A gift certificate sold after January 1, 1997, is redeemable in cash or subject to replacement with a new gift certificate. However, where the cash value is less than $10, the gift certificate must be redeemable in cash for its cash value.

Given the concerns with the amount of unused gift certificates that consumers are unable to meaningfully use, this bill provides that the gift certificate must be redeemable in cash if the cash value is less than or equal to $25 with annual adjustments for inflation. The author’s goal is to “put more money back in the pockets of consumers.”

The bill is author-sponsored. It is supported by the Consumer Attorneys of California and Public Law Center. It is opposed by a coalition of industry associations, including the California Retailers Association.

Comments

This bill deals with consumer rights in connection with gift certificates and gift cards that have gone unused. According to a CNN report:

Almost two-thirds of American consumers have at least one unspent gift card tucked away in a drawer, pocket, wallet or purse. And at least half of those consumers lose a gift card before they use it, according to a new report from Credit Summit, an online provider of financial advisory services.

The report said there is as much as $21 billion of unspent money tied up in unused and lost gift cards. Of those surveyed, a majority of respondents said their unredeemed cards were worth $200 or less.^[1]

Current law prohibits such cards from having an expiration date and provides a means for redeeming the cards. A gift certificate is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder. The general rule of law is that where a legal obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation. (Civ. Code § 1448.) Therefore, the issuer of the gift certificate could choose whether to provide a consumer a cash refund or simply issue a new card.^[2]

To provide consumers more rights with respect to gift certificates with lower remaining values, SB 250 (Corbett, Chapter 640, Statutes.of 2007) amended that law providing that notwithstanding the existing provision, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value. This allows consumers the ability to get the value of their cards where the remaining balance is extremely low.

That amount has not changed in the 17 years since. In fact, the original version of SB 250 sought to make the threshold $20 but lowered it in response to opposition.

This bill makes the first change to that threshold, providing consumers the right to redeem for cash value gift certificates of $25 or less. According to the author:

SB 1272, the Consumer Access to Stored Holdings Act or CASH Act, will raise the maximum dollar amount on a gift card a consumer can redeem for cash. The current limit of $9.99 was set 15 years ago and an increase is long overdue. This increase will put more cash back in the wallets of Californians at a time when every penny truly counts.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 4/10/24)

Consumer Attorneys of California

Consumer Watchdog

Public Law Center

OPPOSITION: (Verified 4/10/24)

CalAsian Chamber of Commerce

California Chamber of Commerce

California Fuels and Convenience Alliance

California Restaurant Association

California Retailers Association

National Federation of Independent Businesses

National Association of Theater Owners of California

ARGUMENTS IN SUPPORT: The Public Law Center argues:

Once purchased, the profit from the sale of a gift card is immediately available to the issuing company. There is a nearly 100 percent profit margin if the consumer does not use the gift card. Every cent of unspent gift cards adds up to hundreds of millions of dollars captured by companies every single year with no exchange for goods or services. Gift certificates are gifted with the intention of being entirely spent by the receiver, and the law should allow them to do so.

ARGUMENTS IN OPPOSITION: The California Fuels and Convenience Alliance, write in opposition:

Forcing merchants to offer cash back at a $25 threshold poses considerable challenges. This bill would force businesses to maintain substantial cash on hand especially on days like Black Friday and the days after Christmas when demand for cash back could surge. This not only strains financial resources on small businesses, but also significantly heightens security risks. With retail theft on the rise, holding increased amounts of cash in-store makes these businesses prime targets for theft.

From a fraud prevention perspective, the bill potentially exacerbates the risk. Gift cards are vulnerable to fraud, and the requirement for this level of cash back may serve as a mechanism for fraudsters to launder money. The prospect of purchasing gift cards with illicit funds, only to cash them back through legitimate channels, is a concern.

Prepared by: Christian Kurpiewski / JUD. / (916) 651-4113

4/11/24 12:05:17

**** END ****

1. Parija Kavilanz, Americans have a collective $21 billion in unspent gift cards (February 23, 2023) CNN, https://www.cnn.com/2023/02/23/business/gift-cards-unused/index.html [as of Mar. 28, 2024]. ↑

2. See also Marilao v. McDonald's Corp. (S.D. Cal. 2009) 632 F. Supp. 2d 1008, 1012 (“it is the vendor who holds the right to select whether to redeem a gift card in cash for its cash value or to provide a replacement card at no cost to the purchaser or holder”). ↑

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 1272 (Author:Laird)

Version: April 1, 2024

Hearing Date: April 9, 2024

Fiscal: No

Urgency: No

Consultant: CK

SUBJECT

Gift certificates

DIGEST

This bill provides that a gift certificate with a cash value less than or equal to $25 must be redeemable in cash, increasing that threshold from $10.

EXECUTIVE SUMMARY

Existing law makes it unlawful to sell a gift certificate or gift card that contains an expiration date or service fee, except as specified. A gift certificate sold after January 1, 1997, is redeemable in cash or subject to replacement with a new gift certificate. However, where the cash value is less than $10, the gift certificate must be redeemable in cash for its cash value.

Given the concerns with the amount of unused gift certificates that consumers are unable to meaningfully use, this bill provides that the gift certificate must be redeemable in cash if the cash value is less than or equal to $25. The author’s goal is to “put more money back in the pockets of consumers.”

The bill is author-sponsored. It is supported by the Consumer Attorneys of California and Public Law Center. It is opposed by a coalition of industry associations, including the California Retailers Association.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Makes it unlawful for any person or entity to sell a gift certificate to a purchaser that contains any of the following:
   1. An expiration date.
   2. A service fee, including, but not limited to, a service fee for dormancy, except as provided. (Civ. Code § 1749.5(a).)
2. Provides that any gift certificate sold after January 1, 1997, is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder. Notwithstanding that provision, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value. (Civ. Code § 1749.5(b).
3. Provides that the above provisions do not apply to any of the following gift certificates issued on or after January 1, 1998, if the expiration date appears in capital letters in at least 10-point font on the front of the gift certificate:
   1. Gift certificates that are distributed by the issuer to a consumer pursuant to an awards, loyalty, or promotional program without any money or other thing of value being given in exchange for the gift certificate by the consumer.
   2. Gift certificates that are donated or sold below face value at a volume discount to employers or to nonprofit and charitable organizations for fundraising purposes if the expiration date on those gift certificates is not more than 30 days after the date of sale.
   3. Gift certificates that are issued for perishable food products. (Civ. Code § 1749.5(d).)
4. Provides that a “gift certificate” includes gift cards, but does not include any gift card usable with multiple sellers of goods or services, as provided. This exemption does not apply to a gift card usable only with affiliated sellers of goods or services. (Civ. Code § 1749.45.)
5. Provides that if a legal obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation. (Civ. Code § 1448.)

This bill raises the threshold for eligibility for a cash redemption to $25 or less.

COMMENTS

1. Consumer rights in connection with gift certificates

This bill deals with consumer rights in connection with gift certificates and gift cards that have gone unused. According to a CNN report:

Almost two-thirds of American consumers have at least one unspent gift card tucked away in a drawer, pocket, wallet or purse. And at least half of those consumers lose a gift card before they use it, according to a new report from Credit Summit, an online provider of financial advisory services.

The report said there is as much as $21 billion of unspent money tied up in unused and lost gift cards. Of those surveyed, a majority of respondents said their unredeemed cards were worth $200 or less.^[1]

Current law prohibits such cards from having an expiration date and provides a means for redeeming the cards. A gift certificate is redeemable in cash for its cash value, or subject to replacement with a new gift certificate at no cost to the purchaser or holder. The general rule of law is that where a legal obligation requires the performance of one of two acts, in the alternative, the party required to perform has the right of selection, unless it is otherwise provided by the terms of the obligation. (Civ. Code § 1448.) Therefore, the issuer of the gift certificate could choose whether to provide a consumer a cash refund or simply issue a new card.^[2]

To provide consumers more rights with respect to gift certificates with lower remaining values, SB 250 (Corbett, Ch. 640, Stats. 2007) amended that law providing that notwithstanding the existing provision, any gift certificate with a cash value of less than $10 is redeemable in cash for its cash value. This allows consumers the ability to get the value of their cards where the remaining balance is extremely low.

That amount has not changed in the 17 years since. In fact, the original version of SB 250 sought to make the threshold $20 but lowered it in response to opposition.

This bill makes the first change to that threshold, providing consumers the right to redeem for cash value gift certificates of $25 or less. According to the author:

SB 1272, the Consumer Access to Stored Holdings Act or CASH Act, will raise the maximum dollar amount on a gift card a consumer can redeem for cash. The current limit of $9.99 was set 15 years ago and an increase is long overdue. This increase will put more cash back in the wallets of Californians at a time when every penny truly counts.

1. Stakeholder positions

The Consumer Attorneys of California write in support:

The gift card industry is a multi-billion dollar industry, valued at $899.3 billion in 2023, with expectations of reaching a value of $2.3 trillion by 2030. There is up to $21 billion of unspent money estimated to be sitting on unused gift cards, according to a 2023 report by Credit Summit. 47% of Americans have unused gift cards, wasted in wallets and junk drawers. Many consumers feel it is not worth the hassle to cash out less than $10, while even more are completely unaware of their right to redeem gift certificates for cash. This leaves millions of dollars meant to be redeemed for services and goods unspent, a major loss for consumers. In an attempt to use the entirety of a gift card, a consumer will likely spend beyond the remaining amount, also leading to a loss.

Writing in support, the Public Law Center argues:

Once purchased, the profit from the sale of a gift card is immediately available to the issuing company. There is a nearly 100 percent profit margin if the consumer does not use the gift card. Every cent of unspent gift cards adds up to hundreds of millions of dollars captured by companies every single year with no exchange for goods or services. Gift certificates are gifted with the intention of being entirely spent by the receiver, and the law should allow them to do so.

A coalition of industry associations, including the California Fuels and Convenience Alliance, write in opposition:

Forcing merchants to offer cash back at a $25 threshold poses considerable challenges. This bill would force businesses to maintain substantial cash on hand especially on days like Black Friday and the days after Christmas when demand for cash back could surge. This not only strains financial resources on small businesses, but also significantly heightens security risks. With retail theft on the rise, holding increased amounts of cash in-store makes these businesses prime targets for theft.

From a fraud prevention perspective, the bill potentially exacerbates the risk. Gift cards are vulnerable to fraud, and the requirement for this level of cash back may serve as a mechanism for fraudsters to launder money. The prospect of purchasing gift cards with illicit funds, only to cash them back through legitimate channels, is a concern.

Concerns were also raised by those in opposition that raising the threshold for cash redemption would jeopardize a federal exemption and require collection of personal information from consumers when selling gift cards pursuant to the federal Bank Secrecy Act. The United States Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued regulations regarding compliance with that Act. Relevant here:

Closed loop prepaid access is a type of prepaid access that can be used for goods or services. See 31 CFR 1010.100(kkk). The regulations exclude from the definition of a prepaid program an arrangement that provides closed loop prepaid access to funds limited to $2,000 or less that can be associated with a prepaid access device or vehicle on any day. See 31 CFR 1010.100(ff)(4)(iii)(A).^[3]

Essentially, gift cards for $2,000 or less that can only be used in a closed universe do not need to comply with all the regulatory requirements at issue. Relevant to the money laundering concern as well, in its rulemaking process, FinCEN responded to comments from retailers that these programs should be exempted given that they are commonly issued in denominations of $500 or less by stating: “Such low dollar limits and the inability, except under rare, de minimis situations, to convert closed loop prepaid access to cash make it an inefficient, cumbersome tool for use by money launderers.”^[4]

While there is claim that raising the redeemable amount from $10 to $25 will affect the determination that this is no longer de minimis, subsequent guidance from FinCEN states: “As FinCEN has explained, refunds of de minimis amounts required by applicable state law are consistent with the definition of ‘closed loop prepaid access’ and do not negate the exclusion of closed loop prepaid access from the definition of a prepaid program.”^[5]

Also of note, is FinCEN’s discussion in that guidance of a Massachusetts law that could provide cash redemption well in excess of $25, as proposed by this bill:

We understand that Massachusetts law concerning non-reloadable closed loop prepaid access is structured differently than the laws of other states requiring refunds on closed loop prepaid access. Massachusetts law requires that for such products a consumer be provided cash redemption when 90% or more of the initial prepaid access value has been depleted. Depending on the original value, this may significantly exceed the fixed amount currently required by any other state law. When Massachusetts law applies to closed loop prepaid access, but only when Massachusetts law applies, FinCEN deems a refund required by Massachusetts law to be de minimis for purposes of determining whether closed loop prepaid access exception applies.^[6]

Therefore, it is unlikely that California raising their threshold to $25 will impact the calculus of what is deemed de minimis given the Massachusetts law provides for much higher cash redemption and is still considered below the threshold. It also would not likely change the equation from a money-laundering perspective given the suspicious activity reporting threshold is $2,000.

SUPPORT

Consumer Attorneys of California

Public Law Center

OPPOSITION

CalAsian Chamber of Commerce

California Chamber of Commerce

California Fuels and Convenience Alliance

California Restaurant Association

California Retailers Association

National Federation of Independent Businesses

National Association of Theater Owners of California

RELATED LEGISLATION

Pending Legislation: None known.

Prior Legislation: SB 250 (Corbett, Ch. 640, Stats. 2007) See Comment 1.

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1. Parija Kavilanz, Americans have a collective $21 billion in unspent gift cards (February 23, 2023) CNN, https://www.cnn.com/2023/02/23/business/gift-cards-unused/index.html [as of Mar. 28, 2024]. ↑

2. See also Marilao v. McDonald's Corp. (S.D. Cal. 2009) 632 F. Supp. 2d 1008, 1012 (“it is the vendor who holds the right to select whether to redeem a gift card in cash for its cash value or to provide a replacement card at no cost to the purchaser or holder”). ↑

3. Frequently Asked Questions regarding Prepaid Access (March 24, 20216) FinCEN, https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-regarding-prepaid-access. ↑

4. 76 Fed. Reg. 45403, 45407. ↑

5. See fn 3. ↑

6. Ibid (emphasis added). See also, Mass. Ann. Laws ch. 200A, § 5D. ↑