Closed-Loop Gift Cards: Expiration, Fees, and Unused Balances

Closed-loop gift card rules come mainly from the Credit CARD Act of 2009 and its implementing regulation, which require the money on a store gift card to stay good for at least five years and sharply limit the fees that can eat into the balance. State laws add a second layer in some places, including cash redemption for small remaining balances and rules on what happens to funds that sit untouched for years. What follows is what those rules actually give you, and where they stop.

Which Cards These Rules Cover

A closed-loop gift card is a prepaid card you can spend only at the retailer or affiliated group of stores that issued it. Think a specific clothing brand or restaurant chain. It covers both plastic cards sold in stores and digital codes delivered by email or app. This is different from an open-loop card carrying a Visa or Mastercard logo that works almost anywhere.

Several prepaid products are carved out of the federal gift card rules entirely, and this matters because people often assume any prepaid card gets the five-year protection. Excluded categories include general-purpose reloadable cards that aren’t marketed as gift cards, loyalty and promotional cards handed out for free, prepaid phone cards, cards redeemable only for event admission or purchases at an event venue, paper-only certificates, and cards not marketed to the general public.¹ If your card falls in one of those buckets, the protections below may not apply.

The Five-Year Rule on Your Money

Under the Credit CARD Act of 2009, funds on a store gift card must remain valid for at least five years from the date money was last loaded onto the card. For a standard non-reloadable card, that means five years from purchase. If the card can be reloaded, each new addition of funds restarts the five-year clock.²

Here is where most confusion happens. The expiration date printed on a physical card is often the expiration of the plastic itself, not the money. Funds survive past that stamped date. When they do, the issuer has to replace the expired card or otherwise give you access to the remaining balance at no charge. The one exception is a lost or stolen card, where a replacement fee is allowed.¹

If a cashier tells you a card is expired, ask specifically whether the funds are still active. In most cases you’re entitled to a new card carrying the same balance.³

Limits on Fees

Federal law controls when a fee can hit your balance and how often, though it doesn’t cap the dollar amount.

Twelve Months of Inactivity First

A dormancy, inactivity, or service fee can only be charged after the card has gone unused for at least 12 consecutive months. Even then, the issuer can charge only one such fee per calendar month. Fees can’t be backdated or bundled, so a retailer that waits two years of inactivity cannot then take two years of fees at once.⁴

What Must Be Disclosed Before You Buy

Before a gift card is sold, the issuer must state the amount of any dormancy or service fee, how often it will be assessed, and that the fee is tied to inactivity. These disclosures must appear on the card itself, not tucked into separate packaging or an insert. The same on-card rule applies to any non-dormancy fees, which must show their type, amount, and conditions before purchase.¹

After sale, the terms are locked in and the issuer can’t change them. A merchant that fails to make the required disclosures loses the right to charge those fees at all.⁵

No Federal Dollar Cap

One gap surprises people. Federal law regulates when fees can start and how often they can be charged, but not the maximum dollar amount. A $3 monthly fee and a $7 monthly fee are both permissible so long as the timing and disclosure rules are met. Checking the back of the card before purchase is the only real defense. On a low-value card, a legitimate monthly fee can drain the balance quickly once the 12-month inactivity window opens.

Promotional and Loyalty Cards Are Different

Cards you receive for free through a loyalty program, promotion, or purchase reward do not get the same protections. They can expire in less than five years, and the fee restrictions above do not apply.¹

To claim this exemption, the card must display specific disclosures on its face: a label identifying it as a loyalty, award, or promotional card; the expiration date of the underlying funds; the amount and conditions of any fees; and a toll-free number and website for fee details. A “buy one, get a $10 bonus card” restaurant offer is the classic example, and that bonus card can expire in 60 or 90 days. But the terms have to be printed on the card, not buried in marketing. If a promotional card lacks those disclosures, it may not legitimately qualify for the exemption, and the standard five-year and fee rules could still apply.¹

Cashing Out a Small Balance

Federal law does not require retailers to convert a small remaining balance into cash. Roughly ten states fill that gap, requiring merchants to pay cash once the balance drops below a set threshold. Thresholds range from about $1 to $10, with $5 the most common cutoff. At least one state uses a percentage-based trigger instead, letting you cash out once most of the original value has been spent.

The rule solves a real annoyance. A $2.37 balance is effectively useless if nothing in the store costs that little. In states with cash-back rules, you can ask at the register and walk out with the cash. You have to ask, though. Stores will not volunteer it. If a clerk refuses a valid request, the usual remedy is a complaint to the state’s consumer protection office.

Most states have no such requirement, so cashing out depends entirely on where you are. Some national retailers honor cash-back requests everywhere as a matter of corporate policy, even where no law compels it.

What Happens to Balances That Sit Unused

When a gift card goes unused long enough, the money doesn’t always stay with the retailer. Many states treat dormant gift card balances as unclaimed property, requiring the issuer to turn the funds over to the state treasury through a process called escheatment. The consumer can then reclaim the money from the state’s unclaimed property division.

Practice varies widely. In states that require escheatment of gift card balances, dormancy periods commonly run three to five years of inactivity, after which the retailer must report and remit the balance. A significant number of states go the other direction and explicitly exempt gift cards from unclaimed property laws, letting retailers keep unredeemed value indefinitely. Some states split the difference, applying escheatment only above a dollar threshold, only to cards that carry an expiration date, or exempting small businesses below a certain sales volume. If you live in an escheatment state, an old balance may already be sitting with your state treasurer’s office, recoverable through a search on the state’s unclaimed property website.

If the Retailer Goes Out of Business

A closed-loop gift card is only as reliable as the business behind it, and bankruptcy puts cardholders in a weak position.

In a Chapter 11 reorganization, the business keeps operating while restructuring debt. It must get bankruptcy court permission to keep honoring gift cards. Some retailers file that request immediately and redemption continues uninterrupted. Others delay, leaving cardholders in limbo for weeks or months. In the worst case, the retailer never asks, and the cards become worthless unless you file a claim as a creditor.⁶

In a Chapter 7 liquidation, the company is closing and selling assets to pay creditors. Gift card holders are general unsecured creditors, near the bottom of the payout line behind secured claims. Filing a proof of claim is the formal step to get in line, but recovery is almost always pennies on the dollar, and sometimes nothing at all.⁶

When another company acquires a failing retailer, the buyer sometimes agrees to honor outstanding gift cards as goodwill. There’s no legal obligation unless the acquisition agreement includes those liabilities. The practical takeaway: if you hear a company is in financial trouble, spend the balance immediately. Deadlines for filing claims after a bankruptcy move fast.

Scams and Lost Cards

Gift card fraud is now among the most common scam payment methods. In 2024, the Federal Trade Commission received more than 41,000 fraud reports involving gift cards and prepaid cards, representing roughly $212 million in losses. The typical scheme has a caller posing as a government agent, utility company, or tech support representative and demanding payment in gift cards.

The uncomfortable reality: no federal law requires a retailer or issuer to refund you after a scam. Once a scammer has the card number and PIN, the money is usually gone. The FTC advises contacting the gift card company directly and asking for a refund, noting that some issuers have voluntarily started helping scam victims, but this is discretionary.⁷

If the money hasn’t been drained yet, some issuers can freeze the balance, so speed matters. Keep the physical card and the purchase receipt, since both are needed when reporting to the issuer and to the FTC. For lost or stolen cards outside a scam, protections are equally thin. Unlike credit cards, most closed-loop gift cards have no built-in fraud protection, and the issuer may charge a replacement fee.

1
eCFR. Requirements for Gift Cards and Gift Certificates
2
Office of the Law Revision Counsel. 15 USC 1693l-1 General-Use Prepaid Cards, Gift Certificates, and Store Gift Cards
3
Consumer Compliance Outlook. Credit CARD Act Requirements for Gift Certificates, Store Gift Cards, and General-Use Prepaid Cards
4
Consumer Financial Protection Bureau. 12 CFR 1005.20 – Requirements for Gift Cards and Gift Certificates
5
HelpWithMyBank.gov. When Can the Bank Impose Service and Other Fees on Gift Cards
6
Federal Reserve Bank of Boston. Gift Card Value When Issuers Go Bankrupt
7
Federal Trade Commission. Avoiding and Reporting Gift Card Scams