Canada: The Increasingly Complex Regulation Of The Simple Gift Card

Last Updated: May 30 2009
Article by Bill Hearn

Gift cards are a multi-billion dollar industry and one of the fastest growing consumer products in the marketplace today.1 Indeed, most major retailers, restaurants and other goods and services providers have seen a significant increase in the use of gift cards over the past five years. Not only are cards being purchased as gifts for hardto- buy-for individuals, they are also used frequently by consumers to pre-pay for goods and services purchased on a regular basis, such as coffee and fast food. The ability of businesses to customize gift cards has also increased their use in customer appreciation, incentive and employee rewards programs.

When someone purchases a gift card, they enter into a future performance contract with the supplier. The supplier receives payment for the future purchase of goods or services, while the purchaser or subsequent holder of the card acquires the right to obtain goods or services from the supplier at a future time. General rules of contract apply, unless the government enacts laws to regulate gift card sales and use.

The increased popularity of gift cards, combined with a concern to protect consumers from the loss of value of the cards that results with expiry dates and activity fees, has prompted provincial governments across Canada to regulate their use through consumer protection legislation.

Consumer Protection Gift Card Laws

As of April 1, 2009, Ontario, Manitoba, British Columbia, Alberta, New Brunswick, Nova Scotia and Saskatchewan have consumer protection laws in force specifically regulating gift cards2.

While there are some differences between provinces3, the main points common to all are that generally (with narrow exceptions) gift cards cannot have expiry dates or dormancy fees and the terms and conditions must be clearly disclosed to consumers. In certain provinces and territories, an expiry date is permitted if the gift card is issued for charitable or promotional purposes or is sold for a specific good or service. In addition, certain provinces and territories also permit very small dormancy fees and activation fees for so-called "open loop" gift cards.4

For a summary of provincial and territorial consumer protection laws concerning gift cards, please see Table 1 at the end of this bulletin.

Exceptions to Provincial Laws

Provincial gift card laws do not apply to all types of gift cards. For example, in Ontario, the government has taken the position that cards subject to federal jurisdiction, such as prepaid phone cards and credit card-branded gift cards, are exempt from provincial regulation.5 These gift cards may still have expiry dates and administrative fees, where initial sign-up fees can be as high as $20.

The two-tier treatment of gift cards can be confusing for customers to understand, especially since the constitutional division of powers between the federal and provincial governments is not intuitive. Areas under federal jurisdiction include banking, telecommunications and aeronautics. Normally, provincial legislation does not apply to federally-regulated companies such as banks, phone companies and airlines because the courts have historically granted them immunity. However, the Supreme Court of Canada recently ruled that the sweeping immunity from provincial legislation granted to federally-regulated companies is no longer acceptable.6

Given that gift cards are not essential to banking or that prepaid phone cards are not essential to telecommunications, it is possible that the courts would enforce provincial gift card laws on federally-regulated companies if the provinces insisted on it. It is unclear from a legal perspective why Ontario and other provinces have granted federally-regulated companies a free pass from their gift card laws.

Unclaimed Property Laws

Many consumers and businesses believe that unclaimed gift card amounts automatically flow to the businesses from which they are bought. In some provinces, however, this may not be the case. In certain provinces and territories after an extended period of time, unclaimed property above a prescribed minimum (as low as $50 in British Columbia) must be remitted to the provincial government. This could include the unused balance on gift cards. That said, recognizing that eliminating expiry dates on gift cards may create unintended unclaimed property law compliance concerns, the Province of Alberta amended its unclaimed property law (in force since November 1, 2008) to expressly exclude gift cards.

In Ontario, the unclaimed property laws are not yet in force (despite having been passed in 1989). However, this may still be a concern for businesses in Ontario if these laws are eventually proclaimed and come into force without an amendment (like in Alberta) that expressly excludes gift cards.

For a list of provincial and territorial laws concerning unclaimed property, please see Table 2 at the end of this bulletin.

Implications for Consumers and Businesses

Provincial gift card laws help protect consumers from loss of card value arising from unfair expiry dates and fees. They also prescribe that the terms and conditions of the gift card must be clearly disclosed to consumers. For those who purchase gift cards from federally-regulated companies in Ontario, such as banks or telecommunication companies, provincial gift card laws may not apply. This means that prepaid phone cards and credit card-branded gift cards sold in Ontario may have expiry dates and a variety of applicable fees of which consumers should be aware.

When contemplating a gift card program, the gift card supplier should be mindful of provincial unclaimed property laws. The main point of such laws is that the issuer of property to which these laws apply7 must keep track of the unclaimed value of such property and, after a prescribed period of time, that value is transferred to the province.

The bottom line is that in designing and executing a gift card program, the gift card supplier should take into account the various applicable provincial laws on consumer protection and unclaimed property. Over the past year or so as many provinces (following the lead of Manitoba and Ontario) have passed new laws on the subject, the legal regime regulating gift cards has been changing rapidly and has become increasingly complex. Gift card suppliers that do not keep abreast of these changes and this complexity, do so at their peril.

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1 "Gift Card Legislation Takes Effect", Government of Saskatchewan , Press Release, November 10, 2008.

2 The gift card laws in British Columbia, Alberta and Saskatchewan are of very recent vintage having been "in force" only since November 2008.

3 Such as the requirement for greater and more specific disclosure of gift card terms and conditions in Alberta.

4 An "open loop" gift card is a gift card that can be used at multiple unaffiliated suppliers (e.g., those issued by shopping malls).

5 See, for example, the Ontario Ministry of Small Business and Consumer Services press release dated December 19, 2008, entitled "Giving Gift Cards This Holiday Season".

6 Canadian Western Bank v. Alberta, [2007] 2 S.C.R. 3 at para. 38.

7 The application of a province's unclaimed property laws to a particular gift card program is fact dependent. Often the program can be structured such that these laws do not apply.

8 The author would like to thank the following articling students for researching and preparing the tables to this bulletin: Jeffrey T. Y. Fung, Benjamin Delanghe and Marty Venalainen.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2009 McMillan LLP

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