Gift cards are increasingly popular tools for scammers

Gift cards have become a multibillion-dollar industry, a gift that always fits and stands up to social distancing. Worldwide, consumers spent billions on gift cards last year. However, that total comes with an asterisk — it includes the gift cards on which scammers increasingly rely to extract payment from their victims.

An in-depth investigative study by Better Business Bureau (BBB) finds an increase in reports of scams involving gift cards, with hundreds of millions of dollars in losses over the last few years. The study — Gift Card Payment Scams: BBB Reveals Why Scammers Love Gift Cards — looks at the scope of fraud involving gift cards as a payment method, the way various cards work, the scammers who exploit them, the efforts to combat the scams and the steps that the industry can take to further tackle this scourge. Read the full study at BBB.org.

According to the study, payment by gift card is a common thread among many scams that have been the subject of previous BBB studies, including government impersonators, business email compromise frauds, tech support frauds, romance scams, fake check scams, prize/sweepstakes scams, and online sales of nonexistent vehicles.

Available data suggests that gift card payment scams are growing fast. The losses reported to BBB Scam Tracker for this payment type nearly tripled between 2017 and 2020, with a median loss of $700 in 2020; consumers over 65 were more likely to lose money than younger consumers. The Federal Trade Commission (FTC) reports that roughly one in four people who lost money to a scam not related to an online purchase paid with a gift card, with reported losses of $245 million since 2017 in complaints made directly to the FTC.

Typically when gift cards are requested as payment in scams, the scammer instructs the consumer to buy a gift card — or several — and either read the numbers on the back over the phone or send a photo of the numbers on the back. If victims ask questions about why gift cards are being used for payment, scammers invent a plausible excuse, such as that the government has recently entered a contract with a gift card company to handle transactions. Commonly requested gift cards include eBay, Google Play, Target, iTunes, Amazon, and Steam, an online gaming company. The scammer might promise to reimburse the consumer later or may send a check in advance for the consumer to deposit. In reality, the funds do not materialize, or the check is invalid, and the consumer has lost the funds forever.

Gift cards cannot be tracked easily and do not carry the same legal protections as credit or debit cards, making them an attractive option for scammers. While the FTC’s Telemarketing Sales Rule (TSR) has extensive provisions governing telemarketing — which prohibits the use of reloadable cards such as Green Dot cards — it does not currently prohibit the use of gift cards in telemarketing.

One woman in her 80s received a call in November 2020 from someone who claimed to be with Apple and told her that her iCloud storage was compromised. The woman was instructed to buy gift cards in order to protect her data and tell any cashier who questioned the transaction that they were gifts for grandchildren. She subsequently purchased 29 $500 gift cards to Target and Walmart, scratching off the numbers on the back and photographing them with her phone. In total, the woman lost $14,500.  

Red flags to know and avoid include:

· Government agencies requesting payment. No government agency requests money through gift cards.

· Statements that buying gift cards is a safe way to make a payment. Providing the numbers for a gift card is like sending cash, and the money is rarely recoverable. Gift card payment requests are a big red flag for a scam

· Keep the receipt when buying a gift card. Keep the physical card as well. These may help prove that the card was paid for and activated if problems arise later.

· Inspect the card carefully before buying it to be sure it has not been tampered with. Some scammers open the card to get the numbers on the back so that they can take the money when the card is later activated.

A multi-pronged fight against gift card scams aims to punish fraudsters who take advantage of gift cards and strengthen protections for consumers. Authorities have cracked down on scams that rely on gift card payments, including government impostor scams. Law enforcement has prosecuted so-called “money mules” who funnel the funds transferred via gift cards; in November 2020, a federal court in Tampa, Florida sentenced a man (https://www.justice.gov/usao-mdfl/pr/tampa-gift-card-king-sentenced-prison) to more than five years in prison for laundering gift cards illegally obtained by scammers through an online redemption site he operated. State attorneys general have reached agreements with major retailers to make changes in their gift card policies aimed at stopping fraudulent purchases.

Kelvin Collins is president & CEO of the Better Business Bureau serving the Fall Line Corridor, serving 77 counties in East Alabama, West Georgia, Southwest Georgia, Central Georgia, East Georgia and Western South Carolina. This tips column is provided through the local BBB and the International Association of Better Business Bureaus (IABBB). The Better Business Bureau sets standards for ethical business behavior, monitors compliance and helps consumers identify trustworthy businesses. Questions or complaints about a specific company or charity should be referred directly to the BBB at Phone: 1-800-763-4222, Web site: BBB.org or E-mail info@centralgeorgia

bbb.org.

 

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