Alert
03.27.26
California law has long required that closed-loop gift cards (i.e., cards redeemable only for goods and services from a single merchant or affiliated group) be redeemable for cash when the remaining balance falls below a statutory minimum. The prior threshold of less than $10 has been in place since 2008. Under the amended law, if a gift card has a remaining balance of less than $15, the cardholder is entitled to cash redemption upon request. This requirement applies regardless of any contrary terms printed on the card or included in consumer-facing policies. The amended law also clarifies that “gift certificates” includes electronic or digital gift cards, extending the cash-out requirement to modern, app-based and emailed formats.
Broader Regulatory Context and National Impact
California’s gift card cash-out requirement has outsized national significance. Closed-loop gift cards are generally governed by state gift card laws, whereas open-loop cards (i.e., cards usable at unaffiliated merchants or with cash access features) are subject to more extensive financial services regulation, including money transmitter licensing requirements. The ability to obtain cash with a gift card will generally cause it to be classified as open-loop—and thus more heavily regulated—unless applicable law requires the gift card to be cashed out. Multiple states mandate cash redemption below specified thresholds just as California does but permit merchants to set cash-out features at higher amounts. California has historically set the highest such minimum threshold. As a result, national merchants have often aligned their policies to California’s standard. With the increase from $10 to $15, California is likely to reset the de facto national benchmark, potentially allowing merchants to apply a uniform $15 cash-out policy across jurisdictions without triggering the additional regulatory obligations for open-loop gift cards.
California’s gift card cash-out requirement is also among the most actively litigated consumer protection statutes in the state, with claims frequently brought as putative class actions, as well as civil enforcement actions, by government authorities. Even where corporate policies are compliant, litigation and enforcement risk is present if there are failures to adhere to policies in practice or inconsistencies in store-level execution. The change in existing law increases the number of cards available for cash-out and expands the universe of potential claimants, heightening already present risks to businesses.
Key Operational and Compliance Considerations
Prior to April 1, businesses should review and update:
Businesses should also:
Pillsbury will continue to monitor these developments and provide timely insights into how SB 22 may affect your business. For questions about compliance strategies or to discuss the amendment’s potential impact, please reach out to your Pillsbury contact or any member of our Retail, Ecommerce & Consumer Brands practice, our Restaurant, Food & Beverage Industry Group, or our Fintech, Payments & Blockchain team.