Double Check Your Gift Cards
Gift card fraud affects digital and physical gift cards alike. While fraudsters may approach gift card fraud with a variety of scams, the goal is to steal the funds from the cards while remaining undetected.
Most likely, you’ve probably bought and/or received at least one gift card this year. Whether it was for a birthday, holiday, special event or “just because,” gift cards are the most wanted – and the most popular gift in the U.S. for nearly any occasion. Retailers and consumers have felt an increase in gift card scams, with victims reporting over $148 million stolen in the first nine months of 2021, more than all of 2020. Gift card fraud is on the rise, and the Federal Trade Commission (FTC) warns it's a popular method for scammers to steal money. Let’s look at some ways that fraudsters use scams to commit theft.
Buying into Fraud
Gift cards are meant to be hassle-free options for special occasions, yet they often lack the proper security protocols to prevent tampering and fraud. The increase in digital gift cards has motivated companies to take a closer look at the security controls like implementing various website defenses and monitoring for non-activated card numbers. However, fraudsters continue to find ways around these security mechanisms. Over $15 billion in unused gift card funds is lost each year. Fraudsters capitalize on these stagnant gift card balances by using both traditional and digital scam tactics to take over accounts. Below are three common scams that fraudsters use to obtain and misuse gift cards:
1. DIY Gift Card Fraud
This type of fraud stems from more traditional scamming methods, requiring the scammer to enter the store and physically record gift card account numbers and security codes. The scammer manually captures the gift card account numbers and security codes and replaces the scratch-off site with a look-alike sticker. Then, the scammer simply waits for individuals to load money on the card before using the funds and abandoning the card.
“Crooks can see as soon as someone activates the [stolen] card because they’ve automated all this with software that periodically checks the card balance via the Internet.” – David Farquhar, FBI Criminal Investigative Division
2. Gift Card Fraud 2.0
With the increase in digital gift cards, fraudsters are taking gift card fraud online. Instead of physically capturing account numbers from the cards themselves, cybercriminals use networks of connected devices like computers and IoT devices to gain access to online gift card accounts. Using botnets is an account takeover tactic used to log in to gift card accounts and use the available funds. Botnets are used to guess account numbers and security codes by searching through millions of number combinations and patterns. The botnet is programmed to search for ones that match, then use the information found to take over the card.
3. From Gift Card to Cash
This scam often acts as “step two” in the gift card fraud process (after first obtaining a stolen gift card). Once criminals obtain stolen gift cards, they must find a way to use the funds without being detected. Since gift cards cannot be exchanged for cash in most cases, fraudsters find ways to distance themselves from the stolen or “dirty” funds in exchange for legitimate “clean” money.
One way is to purchase items using the stolen gift card in order to resell the item. Let’s say you’re shopping for a television online, and you find a $1,200 TV being sold for $800. You’re not one to pass up a deal, so you purchase the $800 TV and wait for it to arrive. The premise is to convince you to pay the “discounted” price with legitimate funds (i.e., owned credit/debit card) and get rid of the stolen gift card evidence.
Scammers utilize this money laundering scheme to kill two birds with one stone: rid themselves of stolen gift cards and exchange them for legitimate, usable funds.
What should I do?
Whether you’ve bought or received gift cards this year, use these tips to avoid falling victim to gift card fraud:
1. Purchase gift cards directly from the source. This decreases your chances of buying a tampered or stolen card.
2. If you’re buying gift cards in-store, avoid those displayed in high-traffic areas. Cards kept behind the desk are less likely to be tampered with. Double-check that the protective stickers are on the card and check that the PIN on the back isn’t visible.
3. Address gift card fraud immediately. If you believe that you purchased a tampered or stolen card, contact the retailer immediately and work with them to get your money back. If someone asks you to pay them with gift cards, report it to the Federal Trade Commission at ReportFraud.ftc.gov.
4. When buying gift cards for someone else, consider changing the security code as soon as you can. This decreases the chances of fraudsters accessing the funds loaded on the card – especially if the recipient does not use the card right away.
5. Keep receipts of your gift card purchase. This record, along with a picture of the card’s ID number, will help you file a report if you lose the gift card or get scammed using one.