Do you sell or are you thinking about selling gift cards through your business?
It’s a rapidly growing market as there are many lucrative advantages for businesses, but it’s important you know the gift card rules and regulations in Australia that need to be followed to ensure you don’t earn yourself one hell of a fine.
Here’s what you need to know:
Gift card definition
A gift card, also known as a gift voucher, is a digital or physical card that is usually preloaded with an amount of money for future use. It may be provided as a card, voucher or a code sent electronically.
The person who receives the gift card can exchange it for goods or services to the value of the amount on the card. There are generally two types of gift cards: open-loop and closed loop.
Open-loop vs. closed-loop gift cards
Closed-loop gift cards
Closed-loop gift cards are often marketed by individual businesses, allowing a cardholder to purchase anything from that specified business. They can generally only be used with a single merchant, either at the store or on its website. For example, a Mecca gift card can also be used at that retailer.
Closed-loop gift cards are typically free to activate, meaning you only pay the dollar amount that you load onto the card and they also rarely advertise the financial services company that handles the transaction (e.g. EFTPOS), although they do usually include the retailer’s logo.
Businesses that sell closed-loop gift cards make money when:
- customers redeem the gift cards
- if customers overspend the value of their gift cards (as is often the case), or
- if new customers are introduced to the business via a gift card and continue to shop there once the gift card has been used, or
- If customers fail to spend the full value of their gift cards
Closed-loop gift cards usually are not reloadable, so once the balance is spent, they have no further use. The funds on a closed-loop gift card often also have an expiration date, which requires the recipient to use the card within a set time frame.
Open-loop gift cards
Open-loop gift cards act as credit or debit cards that can be used at any merchant where that card is accepted, as well as online. For example, Visa gift cards can be redeemed anywhere that Visa is accepted.
Many of the major charge or credit card issuers/processors, such as American Express, Visa, and MasterCard, offer open-loop gift cards.
Open-loop gift cards are widely available and recipients can use them at restaurants, clothing stores, grocery stores, and more. They can even be used to pay non-recurring bills. In this way, they are almost as flexible as cash.
Open-loop gift cards are usually reloadable, allowing the user to add funds on their own as well. However, they do typically require payment of an activation fee because that is where the gift card company (plus the bank and processor) makes money.
Since there is no merchandise to buy or value to overspend (as is the case with a store’s gift card program), the up-front fee is part of the return on selling this type of gift card.
Gift card laws in Australia: Terms & conditions
Gift card conditions must be clear
A business must clearly state:
- all conditions and restrictions on the use of the gift card, including whether there are any limitations on the number of transactions
- the expiry date of the gift card
- the activation expiry date for cards that need to be activated
- whether the card can be reloaded or topped up
If a business breaks the rules for gift cards there are penalties, which include fines of up to $30,000.
Gift cards must be valid for at least 3 years
Gift cards purchased on or after 1 November 2019 must be redeemable for at least 3 years after the day they were supplied or purchased.
The 3-year rule does not apply to gift cards that are:
- able to be reloaded or topped up
- donated for promotional purposes (for example, a business handing out $15 vouchers to passers-by for its grand opening)
- available only for a specified period (for example, the performance of a visiting ballet company)
- supplied at a genuine discount (for example, a $60 card for a massage valued at $100)
- part of an employee reward scheme
- part of a customer loyalty program
- second-hand gift cards
- part of a temporary marketing promotion (for example, customers buy a certain product from Business A, which provides a $50 voucher to use at Business B)
- supplied to certain charities or government agencies
The expiry date must be shown
The expiry date must be prominently displayed.
The expiry can be shown as a period of time. If so, the issue date must be displayed, so the recipient knows the expiry date. For example, “Valid for 4 years from the date of issue. Date of issue: March 2021”.
Businesses do not need to honour the gift card after a valid expiry date has passed. If there is no expiry date, this must be stated on the gift card. For example, “No expiry date” or similar wording.
This rule does not apply to:
- second-hand gift cards
- gift cards that are supplied to certain charities and government agencies
- gift cards that can be reloaded or topped up
‘Post-supply’ fees must be included
Gift cards purchased after 1 November 2019 must not include any fees or charges the recipient must pay after the gift card has been purchased.
Post-supply fees may include things like:
- gift card activation fees
- gift card account keeping fees
- balance inquiry fees
- inactivity fees
Post-supply fees do not include fees or charges that:
- are booking fees, where those booking fees are the same, or largely the same, as booking fees charged when using a payment method other than a gift card
- are for exchanging currencies
- relate to the reissue of a gift card that has been lost, stolen or damaged
- are payment surcharges
This rule does not apply to:
- second-hand gift cards
- gift cards that are supplied to certain charities and government agencies
- gift cards that can be reloaded or topped up
When a business closes or changes owners
Changes to other circumstances of a business supplying the gift card, gift voucher or discount voucher may affect the rights of the consumer.
Business temporarily closes or limits trading
Businesses may temporarily close or restrict their trading for an extended period and this may impact the use of gift cards.
For example, during the COVID-19 lockdowns, many businesses temporarily closed their physical stores. But many were able to continue to trade in some capacity, for example, online-only trading. So, in many cases, consumers were still able to use their gift card even though the business’s physical stores were closed.
However, if, in these circumstances, the gift card can’t be used because of a restriction the business placed on its use, the business should provide some form of remedy.
This can include extending the gift card expiry date to cover the period that the card could not be used. For example, a business allowed gift cards to be used for purchases in its physical store only, even though it was trading in an online capacity only during the COVID-19 restrictions.
The business has new owners
If the business changes owners, the new owner must honour existing gift cards and discount vouchers if the business was:
- sold as a ‘going concern’ – that is, the assets and liabilities of the business were sold by the previous owner to the new owner
- owned by a company rather than an individual, and the new owner purchased the shares in the company.
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