Thought Leadership

Knowing The Gift Card Laws

Gift Card Laws In Ontario

Gift cards are the gifts that keep on giving, or at least they are for retail stores and restaurants. But there are new gift card laws in Canada. Provinces across the country have legislated what retailers and restaurant owners can and can’t do, and merchants need to understand what they are. The rules have been in place since the Consumer Protection Act was changed on October 1st of 2007, but I regularly see my clients incorrectly apply the law to their programs, or ignore the law altogether. On the other hand I get a lot of questions about the gift card regulations from people trying to follow them but aren’t sure how to get the right information, so if you haven’t learned what they are, you may want to read further and become informed – it’s better late than never.

Activation Fees

Prior to the legislation it was quite common for “Activation Fees” to be charged by store owners on gift certificates and gift cards, the logic being that they were providing a “service” to the customer in creating and offering the gift card. Logically, you can understand the point of view of the merchant; after all, the drug store will charge you at least 5 or 6 bucks for a birthday card to stick it in, why not charge a modest fee to cover the cost of the plastic gift card, envelope, and the significant cost of the purchase and maintenance of the gift card technology? The Ontario government doesn’t see it that way though, and prohibits any activation fees on gift cards.

There is one notable exception in the case of shopping malls (rather than individual retailers). Shopping malls may charge an activation fee of no more than $1.50. The reason for this exception is perhaps that shopping malls that sell gift cards redeemable at any merchant tenant within the mall will not be the direct beneficiary of that gift card purchase, so the $1.50 fee is to compensate the mall for the trouble and cost of issuing the card. This seems to me to be an inconsistent position for the government to take. If the government won’t allow retailers to levy a fee, thereby expecting the retailer to take on the cost of the gift card program, it seems to me that the retailers of the shopping mall should shoulder the same burden. But, it’s government legislation after all, and government doesn’t need to make sense or be consistent.

Dormancy Fees

Some retailers and restaurant owners want to levy a gift card “dormancy fee” for unused balances on gift cards that haven’t been used for a specified period of time. According to Ontario gift card legislation, dormancy fees are banned. That means you can’t impose a fee, penalty, or charge on unused card balances and have it reduce the card down to zero over time. The logic of most merchants for doing so was to solve two problems – reasonably imposed dormancy fees eventually eliminated forgotten or lost cards from the merchant’s gift card database; dormancy fees also contributed to the merchant’s cost of maintaining the technology that housed the gift card “liability” over extended periods of time – conceivably customers could hold onto gift cards for years. The Ontario government has decided that concern is immaterial; merchants are not allowed to charge dormancy fees.

Once again, there is an exception for shopping malls. They must maintain the gift card values that they sell for a minimum of 15 months. Consumers may request an extension of an additional three months by requesting it from the mall during the 15th month after they purchased the card. After that, the mall is allowed to charge a “dormancy fee” on the 19th month and monthly thereafter on unused balances of no more than $2.50 a month.

Fees That Are Permitted

Not all fees pertaining to gift cards are banned. Merchants may charge a fee to customize a gift card. What this is exactly I’m not certain, but it’s written sufficiently vague so as to allow merchants some wiggle room with regard to shipping fees for cards ordered online or over the phone, fancy envelopes and packaging to put gift cards in, and other related materials or services.

Fees may also be charged to replace a gift card. Most gift card policies include (or should include) some sort of statement referring to replacement. Many merchants simply state that they will not replace a card that is lost or stolen. If you do allow for a replacement policy, and I think you should consider it for customer service purposes, Ontario legislation allows for the merchant to charge a fee to replace the card.

Expiry Dates

As of October 1st, 2007, no expiry dates are allowed on gift cards. That includes any expiry dates for cards that are unused for any period of time. This is problematic for most merchants, because it means that they must maintain a gift card database (which is a liability to the merchant) for an unspecified amount of time. This can be inconvenient and costly to the merchant. The Ontario government does not appear to be sympathetic to that argument.

Gift Card Policy

Your gift card policy, exclusions, limitations, and replacements, for example, must be clearly defined. I recommend that you print it on the back of the card or the promotional material used to sell and deliver the card. If your gift card policy exceeds the available printing space on the card, you can direct the customer to a page on your website that is designed to clearly outline your gift card policy.

Loyalty Cards

Ontario gift card laws do not apply to loyalty cards, so if you have a customer loyalty program that allows customers to generate points that can be redeemed as cash value at the point of sale in exchange for products or services, legally the merchant may charge fees and allow them to expire as they see fit. The legislation also does not apply to cards that have federal jurisdiction such as prepaid phone cards. Cards, certificates, vouchers, or coupons that provide a specific product or service, such as one massage at a spa, are also not covered under the legislation.

Fines And Penalties

Some retail and restaurant owners will choose to ignore the gift card rules or feign ignorance of them, and they do so at their own peril. In Ontario, fines for non-compliance with gift card and consumer protection legislation ranges from $50,000 and/or two years in prison for the individual and the corporation can be fined up to $250,000. Fines are similar for the rest of Canada.

Integrity Matters

There is no question that the benefits of gift cards are significant for merchant and customer alike, but retailers and restaurant owners need to be aware of the rules and regulations that apply to gift cards and make sure that their own gift card programs are not contrary to the law in their province or territory. Merchants not only risk fines and penalties for non-compliance but they also face a consequence far worse – the potential damage of their own goodwill and credibility in the eyes of their customers.

For more information about Ontario gift card laws visit:

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