01 Nov Gift Certificates: Big Business for Small Business
It’s that time of year again! With the holiday season almost upon us many small businesses will no doubt use gift certificates to drive holiday revenue.
Gift certificates are a fantastic alternative for unsure shoppers and present a great opportunity for small businesses, but failing to do it legally can be costly to the small business.
The issuance and use of gift certificates is regulated by both federal and state laws. This article focuses on the law in the State of Michigan because it is more restrictive than the federal law.
What is a gift certificate?
Under Michigan law, a gift certificate is issued by a retailer of goods or services and includes a written promise, a gift card or other electronic payment method that (i) is usable at the retailer’s business or their affiliate, (ii) is issued in a specified dollar amount, (iii) may or may not be reloaded in value, (iv) is purchased or loaded on a prepaid basis for the future purchase of the goods or services and (v) is honored by the retailer when presented. MCL 445.903e, et seq.
For those small businesses who sell a “prepaid” class or experience (think a prepaid yoga class or a prepaid massage), determining whether the “prepaid” class is subject to the laws governing gift certificates is a bit more complex.
It often depends upon a few considerations including, but not limited to, whether the prepaid pass represents a specific dollar value or a specific experience, without regard to the price of the experience, meaning the business would honor the prepaid pass even if the price had increased since the purchase date. Any business offering those types of experience passes should consult with a lawyer before doing so.
What does the gift certificate need to include?
To comply with Michigan law, if there are any special terms or conditions that the business would like to impose on the use of the gift certificate, they must be clearly stated on the gift certificate itself.
Otherwise the business may include the terms and conditions on the packaging in which the gift certificate is sold or on a separate document provided to the customer at the time of purchase, provided that there is a toll free number state on the gift certificate that the customer may call to get information about the terms and conditions covering the usage.
Any advertising of the gift certificate must also reference that special terms and conditions will apply to the purchase and use of the gift certificate.
Examples of terms and conditions that the small business should include on its gift certificate include clearly stating the expiration date, any fees that will be charged to replace a lost or missing certificate and whether the gift certificate may be reloaded.
How long does a gift certificate have to last?
Under both Michigan and federal law, a gift certificate cannot expire prior to five (5) years from the date of purchase.
Can you charge an inactivity or service charge in connection with the gift certificate?
Under Michigan law, a business cannot charge service fees or an inactivity fee if the recipient of the gift certificate does not use the gift certificate for a period of time prior to expiration. MCL 445.903f. A business likewise cannot decrease the value of the gift certificate over time.
A business may charge a service fee for the issuance of the gift certificate at the time of purchase, as long as it does not reduce the face value of the gift certificate. Id. Meaning if you charge a $3 service charge to sell and issue the gift certificate and the customer purchases a $25 gift certificate, you cannot deduct the $3 from the face value of the gift card, but, instead, must charge the customer $28 for the purchase.