Restaurant gift cards: the five-year rule and how to sell more

A restaurant gift card is cash in your account today and, very often, a guest who has never been to your business before. Federal law under the CARD Act says a gift card sold for money cannot expire within five years, limits inactivity fees, and some states go further. Get the rules right once, then sell them all year, not only in December.

Why should a restaurant sell gift cards?

Three reasons, all good for an independent:

• Cash up front. You are paid when the card is sold, often weeks or months before it is used.
• New guests. The person who spends a gift card is often someone the buyer brought to you. Many of them come back on their own money.
• Spend over the value. A guest with a gift card rarely spends exactly the amount on it. The extra goes on the check.

Some cards are never redeemed at all. Do not plan your business around that: treat every sold card as money you owe in food, and ask your accountant how your state treats balances that are never used.

What does the federal CARD Act say about gift card expiry?

The Credit Card Accountability Responsibility and Disclosure Act of 2009, put into effect by the rule at 12 CFR 1005.20 and explained by the Consumer Financial Protection Bureau, sets the federal floor for gift cards sold to consumers:

• No expiry within five years. The money on a card cannot expire less than five years after the card was sold or last loaded.
• No inactivity fees in the first year. A dormancy or service fee can only start after 12 months without use.
• At most one fee a month, and any fee has to be clearly disclosed.
• Disclosure on the card. The expiry date and any fees have to be stated clearly.

The simplest way to comply is to have no expiry date and no fees at all. Most independent restaurants do exactly that, and it removes a whole category of awkward conversations at the table.

Do state gift card laws go further than the federal rule?

Yes, and the stricter rule wins. Several states ban expiry dates on gift cards entirely, and others require a longer period than five years or restrict fees further.

Check your own state's gift card law before you print anything, and check it again if you open in a second state. Your state attorney general's consumer protection office is a good starting point.

Are promotional gift cards treated differently?

Often, yes. A card you give away free, such as "$10 off your next visit" handed out at an event, is generally treated differently from a card a customer paid for. Promotional cards can usually carry a shorter expiry, but only if that is disclosed clearly on the card itself. If you mix paid cards and promotional cards, make them look different and print the terms on both. When in doubt, ask an accountant or lawyer, because the exclusion depends on the wording.

How do you sell more restaurant gift cards?

Sell them every day, not only at Christmas.

1. Sell them online. Most gift cards are bought by people who are not standing in your restaurant. A digital card that arrives by email is a last-minute present that never runs late.
2. Put them by the register. A small sign at the counter does more than you expect, especially in December and before Mother's Day and Father's Day.
3. Suggest them for occasions: birthdays, thank-you presents, teacher gifts at the end of the school year, and corporate gifts for clients and staff.
4. Offer a bonus in quiet months. "Buy $50, get a $10 bonus card" brings cash in now. Make the bonus card clearly promotional and give it its own terms.
5. Tell your regulars. Your regulars are your best salespeople. They already want to send their friends to you.

How should you account for gift card sales?

A gift card sale is not revenue on the day you sell it. It is a liability: food you owe someone. Record it as revenue when the card is redeemed. Keep a running total of outstanding balances so you know what you owe, and talk to your accountant about how your state treats unused balances.

What should the gift card terms say?

Keep them short and true:

• No expiry date, or the date, if you have one that meets federal and state law
• Any fees, if you charge them, stated clearly
• Whether it works for takeout, delivery and alcohol
• What happens if the card is lost
• Whether it is valid at every location you run

Plain terms protect you and the guest, and they make the card feel like a present rather than a contract.

Train your team on the card too. Staff should know how to check a balance, how to split a check between a card and another payment, and what to say when a guest finds an old card from years ago. Under federal rules that card may still hold value, so the answer should be a welcome, not a shrug. A guest who arrives with a gift card is often a first-time visitor, and how the redemption goes is their first impression of your business.

More guides for your business:

• Restaurant loyalty programs that work for independents
• Tip pooling and service charges: the federal basics for owners
• How to start a pop-up or food truck in a US city

More in the US guides for food businesses.