Gift Cards are Holiday Favorites but Susceptible to Scammers
By:   //  Investigative Reports, Ripoffs & Scams

Everyone loves the holidays; it’s the time of year for family, food and of course lots of presents. But while the season of giving is the most exciting for shoppers and the most profitable for retailers, it’s also often the most vulnerable for both parties.

Just before Christmas, Target fell victim to a security breach that leaked credit and debit card data from millions of customers. While credit and debit card fraud is certainly quite prevalent, another alarming trend that is likely less familiar to the American shopper is gift card fraud. News stations from around the country have already reported a number of complaints from consumers who found their holiday gift cards worthless, including at Macy’s, who has admitted it’s had a problem in recent years with gift cards sold at third party stores, and Walmart. Back in October, over 70 people were arrested in Louisville, KY after they were caught stealing over 90 gift cards worth over $12,000 from a number of different retailers.

The popularity of gift cards is booming. U.S. Consumers put over $112 billion on gift cards in 2012, and spent nearly $25 billion this most recent holiday season alone. Eight of ten holiday shoppers acknowledged they planned to purchase gift cards, and they planned to spend about $45 per card. The National Retail Federation reports gift card spending was likely to reach an all-time high during the 2013 holidays.

But when any industry starts down the bountiful road of success, scam artists are usually not far behind. Scammers have found a myriad of ways to dupe unsuspecting consumers and retailers. Most commonly, a scammer will record the numbers or UPC codes on cards for sale at a store using either a mag-strip scanner or even just a pen and paper. Later, they’ll go online or call to see if the cards have been activated and not used yet, and if so they’ll purchase items using the cards. Thieves have begun to use computer software that automatically checks the value of a card multiple times in a short span.

And the insidious methods don’t end there. Some scammers put a fake barcode sticker over the real one, so when the card is scanned it activates a blank card. Many charlatans have begun to call store clerks and present themselves as a corporate representative. They then instruct the clerk to activate the card, load it with value, and relay the card number so they can “see if it was activated properly.” Recently, in Savannah, GA, a store clerk received bomb threats if money wasn’t loaded onto prepaid cards. A college student in Orlando fell victim to a crook after selling a gift card on an online auction site. The scammer set up a call with the student where a minor purchase would be executed to ensure the card was legit, when actually the thief was recording the phone tones and later drained the card.

Swindlers also often buy gift cards with stolen credit cards. Others steal merchandise then return for store credit on a gift card. Some get credit card numbers, then purchase gift cards and make up an excuse why they don’t have the actual card at the time of purchase. Many people have fallen for the phony phone call where they’re offered a free gift card but just need to give their credit card information to cover shipping costs.

But while many people envision scam artists as veiled rogues who elude the eyes of the law, often the most prolific scammers are the employees in the retail stores. One trick referred to as the “switchup” involves a common promotion of receiving a free gift card with any purchase. The employee will ring up the card but distract the customer and hand them a zero balance card instead. This is effective because customers are often unaware of the promotion.

Another scam involves one employee and two cash registers. An employee will buy a $100 gift card at the first register but will put no cash in, buy two $50 gift cards at the second register using the $100 gift card they just rung up, and finally void the sale at the first register, so they are left with two active $50 gift cards. Employees have also activated gift cards and immediately shut down the cash register so the records are lost.

But as con men are becoming more advanced, so too are the protectors. For example, card processor companies now can detect when gift card codes have been checked multiple times in a short span, and signal a red flag. Companies are also packaging gift cards so it’s more difficult to locate the card number or UPC code. Some have suggested for stores to move all gift cards behind the counter so only employees can access them, however retailers have been hesitant to make such a drastic move. Not only do employees perform many of the fraudulent activities, but experts say removing gift cards from consumers’ sight will dramatically decrease sales. After gift card scams at a Safeway grocery store, the company found customers spend over two minutes browsing gift cards, an extremely high result for grocers. Safeway officials responded by saying removing gift cards from public aisles is “not good customer service.”

Of course, gift cards aren’t the only scams that take place during the holiday season. Other common frauds from this past holiday season included data breaches (e.g. Target), bogus charities, hackers who swipe credit card info from public Wi-Fi networks, spam text messages, counterfeit retailer websites, malware e-cards, fake coupons, spurious social media offers, and even romance scams.

Every consumer should take a few basic steps to avoid being swindled. The first and most effective is to not buy gift cards altogether – despite their popularity, 60% of people still prefer cash. But if you must buy one, be sure to check the packaging to make sure it hasn’t been tampered with. If you receive a gift card, use it relatively quickly so scammers don’t have a chance to swipe the funds. Never give out confidential information, and thoroughly investigate any seller you buy a gift card from.

The holiday season is over, but scamming season never ends. With a few extra precautions, we can all go a long way to avoid becoming the next credulous victim of gift card fraud. (Matt Bravmann – VNN) (Image: Flickr | 401(k) 2013)


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