The Legal Rules Behind Loyalty Points and Referral Rewards

Loyalty programs and referral rewards feel like pure marketing mechanics — points, discounts, a friend who signs up. Underneath, two very different bodies of law are watching: unclaimed-property law for the points themselves, and FTC endorsement rules for the referral incentive.

Miss either one and you've got a compliance problem hiding inside what looked like a growth tactic.

Are unused points actually a liability?

Here's the twist that surprises most marketers: in many states, a customer's unredeemed loyalty points can legally become the state's money, not yours, if left unclaimed long enough. This is escheat law — the legal process where unclaimed property reverts to the state after a set "dormancy period," typically three to five years.

The good news for loyalty programs specifically: 37 states expressly exempt gift cards and similar stored-value instruments from escheatment, including California, Illinois, Florida, and Texas. The remaining states, plus DC, still require some form of escheatment.

The exemption usually has strings attached, though.

• Most state exemptions only apply if the card or points never expire and carry no dormancy fees
• Add an expiration date or inactivity fee, and you can trigger escheatment obligations you didn't know existed
• Idaho's 2024 law (H.B. 471) is a good example of the trend: it dropped the old $50 minimum-value exemption and replaced it with a no-expiration, no-fee standard instead

If your loyalty terms include an expiration clause, that clause may be quietly creating a state reporting obligation somewhere.

Points expiration is its own minefield

Separate from escheat law, individual states directly regulate gift card and stored-value expiration — some ban it outright, some cap dormancy fees, some require specific disclosure language on the card itself.

Loyalty points aren't always regulated identically to gift cards, but regulators and plaintiffs' lawyers increasingly argue they should be treated the same when points function as stored monetary value. Federal legislation is moving the same direction: the Protect Your Points Act, introduced in Congress in September 2024, would bar airlines from letting frequent-flyer miles expire and require clearer program-change disclosures.

Before your team sets an expiration policy, check the specific state rules for every state you operate in — "we'll just expire points after 12 months" is not a one-size-fits-all decision.

Now the referral side: it's an endorsement, legally

A "refer a friend, you both get $10" program looks nothing like an influencer post. Legally, the FTC treats them almost identically.

Under the FTC's Endorsement Guides, any material connection between the person making a recommendation and the brand paying for it must be clearly and conspicuously disclosed — and a referral reward absolutely counts as a material connection. That means the referring customer needs to tell their friend, plainly, that they'll get a reward for the referral.

• The disclosure has to be clear and conspicuous: not buried in fine print, not assumed to be obvious
• It applies even for small or non-cash incentives — a discount code counts just as much as cash
• The brand, not just the individual referrer, can be held responsible for failing to build disclosure into the program

Enforcement teeth got sharper recently: as of 2026, the FTC's penalty for endorsement-disclosure violations sits at roughly $53,088 per violation, and each undisclosed referral can be treated as a separate violation.

Building a program that survives both

A compliant loyalty and referral program isn't complicated, it just needs a few deliberate design choices up front.

• Write "no expiration" into loyalty terms wherever the business can tolerate it, since it sidesteps both escheat exposure and expiration-law complexity
• If points must expire, confirm the rule against every state's specific stored-value statute before launch
• Bake a disclosure line into the referral share flow itself ("share this, and you'll both get $10") so the referrer can't post it without the disclosure attached
• Audit referral messaging templates the same way you'd audit an influencer contract

Common mistakes that trigger liability

Most loyalty and referral compliance failures trace back to the same handful of oversights.

• Treating 'points' as automatically exempt from escheat rules. Regulators look at function, not label. If points convert to cash value or merchandise, some states treat them like stored value regardless of what you call them.
• Copying a competitor's referral share text without a legal read. A bigger brand running an undisclosed referral flow doesn't mean it survived review, it may just mean nobody's sued them yet.
• Assuming one state's exemption applies everywhere. A no-expiration policy that satisfies California's escheat exemption doesn't automatically satisfy a state with no exemption at all.
• Updating loyalty terms without updating referral terms, or the reverse. These are two separate legal exposures that often live in the same program and get audited on different schedules.