The Consumer Protection Act (CPA) due to come into full force on 31 March 2011, will more strictly regulate the conditions attached to gift certificates and pre-paid vouchers.

Aneeka Savahl, a senior associate in the Corporate and Commercial Practice at Cliffe Dekker Hofmeyr business law firm explains, “Gift certificates, prepaid vouchers, credits and similar devices are often touted as convenient and economical alternatives for consumers. Once the CPA is fully in force, the transactions in which a supplier accepts payment for prepaid certificates, cards, credits, vouchers or similar devices and agrees to provide goods or services in exchange for such prepaid devices will be more strictly regulated will arguably become more complicated for suppliers to manage.”

Savahl says the CPA effectively legislates a minimum validity period of three years in respect of prepaid devices – a prepaid device will not expire until the full value thereof is redeemed or a date three years after the date of issue, whichever is the earlier. Suppliers can however agree to extend this validity period at any time.

The Act then goes on to say that, "[a]ny consideration paid by a consumer to a supplier in exchange for a prepaid certificate, card, credit, voucher or similar device... is the property of the bearer of that certificate, card, credit, voucher or similar device to the extent that the supplier has not redeemed it in exchange for goods or services, or future access to services."

This provision does not mention the minimum expiry date and creates some uncertainty regarding the meaning and effect of the expiry of the prepaid device after three years. Savahl argues that the wording of this provision creates a strong argument that a bearer of a prepaid device – who may not be the original purchaser thereof - will be able to demand cash for the unredeemed value of a prepaid device, even after it has passed the three-year expiry date.

Savahl explains, “The CPA stops short of explicitly stating that the bearer has a right to demand payment in cash for the remaining value of the prepaid device after its expiry, but it appears to be the only logical conclusion flowing from the provision stating that the bearer of a prepaid devices remains the owner of the consideration paid for the prepaid device and not redeemed. She adds further that the operation of prescription in the ordinary course (i.e. a three year period to claim) does not remedy this potential problem as the date that a bearer (as opposed to the purchaser) becomes aware of the claim under the prepaid device may not be the date that the prepaid device is issued, and this would obviously interrupt prescription.

The CPA goes further to legislate an obligation on the supplier to hold and account for a consumer's property (consideration paid for the pre-paid device would qualify here). Savahl says that suppliers must exercise due care, diligence and skill in dealing with the consideration paid for pre-paid devices and must make provision for contingencies in respect of these amounts in their accounts. In so doing suppliers must bear in mind that based on the provisions of the CPA, the right to claim against the unredeemed value of a prepaid device probably does not die after three years.

Currently many suppliers do issue prepaid devices of indefinite validity, but for those who do not these provisions may create some practical challenges and these suppliers may have to reconsider and adjust their business and accounting practices accordingly, in order to provide for these contingencies” Savahl adds.

Written by Aneeka Savahl, Senior Associate, Corporate and Commercial, and Andrea Collocott, Head: Marketing and Communication, Cliffe Dekker Hofmeyr

Notes to editors:
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