For an industry that operates across 50 states, navigating prepaid regulation can feel like navigating 50 different rulebooks. With most regulatory action happening at the state rather than federal level, retailers and card manufacturers must keep up with a growing number of requirements—and ensure their products comply with the states with the strictest rules.
Javelin Strategy & Research’s 2026 Prepaid Regulatory Update: States Focus on Fraud and Cash-Outs report examines the legislative changes that affected the industry over the past year and what may be ahead as more states step up efforts to regulate the gift card industry.
“It’s really critical that those people who are interested in what’s happening on a regulatory basis understand it state by state,” said Jordan Hirschfield, Director of Prepaid at Javelin Strategy & Research and co-author of the report.
Two Paths Toward Fighting Fraud
A number of states are working to enhance fraud protection, but they are taking different approaches. Some are targeting the perpetrators, while others are focusing on the products themselves, requiring packaging designed to prevent bad actors from tampering with cards.
The Retail Gift Card Association favors measures that target perpetrators, viewing them as a way to punish the crime rather than impose costs on businesses to prevent it.
“The technology behind how to make a card secure is technically difficult,” said Hirschfield. “Getting the supply chain set up so that not just the card itself but the software that goes behind that card and the packaging that goes on top of the card, all conform to a certain state’s rules can be difficult and costly. At what point are you taking the benefit away from the consumer to try and prevent a crime instead of punishing the crime itself?”
Changes to State Laws
Maryland has led the way on regulations governing anti-fraud packaging and continues to have some of the most stringent requirements. Other states, however, have followed suit.
“New York is proposing to conceal all numbers on the card,” said John Vogl, Analyst and Content Specialist at Javelin, and co-author of the report. “This becomes a de facto national law just because New York is so big that all the issuers and designers would have to follow New York’s rules nationwide.”
If New York’s law passes, manufacturers would have just 180 days before it takes effect, leaving limited time to adapt. Either way, the potential changes create challenges not only for retailers sponsoring gift card programs, but also for card and packaging manufacturers. Multiple parties across the supply chain would be affected.
Meanwhile, California is raising its cashback limit to $15, meaning gift cards with balances of $15 or less can be redeemed for cash.
“This opens up the opportunity for more theft and fraud because if someone can compile enough cards with close to $15 on them, they stand to receive a decent amount of money,” said Hirschfield. “Five is a more common number—it’s hard to spend less than $5 in a lot of places, so being able to cash out the remaining balance is good customer service, regardless of if it was a rule. Once you get beyond $10 you might be inviting bad actors to participate. It also means you need more cash on hand, which might put your staff at risk.”
As a result, retailers operating in California need policies for that state that differ from those used at other locations. For national retailers, that could mean different employee training programs, applications, and even requirements for how much cash each store needs to keep on hand.
Opportunities in Gambling
While much of the regulatory activity is focused on gift cards and fraud prevention, regulation is also creating new opportunities for prepaid in other areas. One of those is gambling, where prepaid products are becoming an increasingly relevant way for consumers to fund betting accounts.
The number of states approving sports wagering appears to have plateaued, and the amount of money wagered has declined in authorized markets, partly as consumers turn to newer, less regulated platforms such as Kalshi and Polymarket.
“That’s definitely going to be a concern for those organizations that do go through the regulatory process and do it the right way as they’re losing business to those that maybe do not,” said Hirschfield.
For regulated gambling sites, prepaid is becoming an attractive option for consumers funding their accounts. For instance, in June 2026, Colorado passed a law prohibiting online gambling sites from accepting deposits via credit card, potentially creating opportunities for gaming gift cards.
A loophole remains in some areas, however. Consumers can purchase a gift card with a credit card and then use that gift card to fund a betting account. Using a credit card to gamble is basically taking on debt to place a bet.
“You can fund it through your debit card because the Mastercard and Visas of the world can still participate through their networks, but they’re doing it in a safer way,” said Hirschfield. “It’s just consumer protection to make sure that when you fund those prepaid accounts in a gambling environment, you’re doing it with actual funds that already exist and not funds that you may be borrowing for.”
Trends in the Upcoming Year
The federal government is working to make prepaid cards used for services such as nutritional assistance more secure, which can help reduce fraud. At the same time, however, funding for these programs is declining, shrinking the market for prepaid card providers.
“It’s really been a big cut in the amount of people served through what’s been an entirely prepaid opportunity,” said Hirschfield. “It’s always interesting to see, in an election year, how the election winds sway. Could there be a change forced upon the federal government because legislative priorities change?”
Looking ahead, more states may also pursue measures aimed at protecting consumers and businesses from gift card fraud, scams, and theft.
“You’re going to see an avalanche of states over the next five years by the time some catch up,” said Hirschfield. “State government can work slowly because, for instance, in Georgia, they’re only in session from roughly January through March. Everything has to get done in a very short period of time, and things like gift card fraud can get pushed down the line.”
“But it also seems to be a bipartisan win as well,” he said. “It’s pretty rare these days that you get everyone doing something that’s easy, that protects consumers and businesses and punishes the criminals. That’s generally a win-win across the board. It will take some time, but it’s going to avalanche.”
