Gift Card Fraud

Gift Card Fraud is Rising Rapidly the FTC Warns

As we enter the last few days before Christmas, gift cards become a popular gift as they are easy to buy at many retail stores and even instantly online.

Unfortunately, gift cards have also become a favorite for scammers according to a recent FTC report which found in the first nine months of 2021, nearly 40,000 people reported $148 million in stolen gift cards. That number already exceeds the total fraud reported to the FTC in 2020.

What makes this even worse is that the FTC believes this number is a small fraction of the total problem as the vast majority of fraud is not reported to the government.

The reason scammers prefer gift cards is that they are easy to purchase and do not come with the fraud protection provided by debit or credit cards as well as online payment wallets such as PayPal.

There are many ways scammers trick consumers into giving up gift card numbers and codes and depending on the scam even trick consumers into buying specific gift cards.

In one scam the FTC cited, a scammer would claim to represent Amazon or Apple and ask the person to verify the security code on their card by sending an image of the information to them.

But in reality, these odd-looking codes (frequently a mix of numbers and letters) are the actual gift code and now the scammer can use the code to make purchases online.

In another example, the FTC said scammers pretended to be the Social Security Administration and claimed their bank account would be frozen as part of an investigation. The scammer would tell the person to purchase gift cards to avoid arrest or secure access to their funds.

Other reports showed people would receive similar calls where the scammer pretended to be a love interest, employer, sweepstakes/lottery company, or family member in trouble.

But what seems to be even more brazen is that scammers actually get their victims to buy specific gift cards, often coaching them through the process.

“For the past several years, we have seen a steady increase in gift cards. It became one of the most common gifts during the holidays a few years ago and has been growing in popularity worldwide. Whereas gift cards were once an in-store purchase, it is now a convenient go-to for online shoppers. This year in particular, due to the pandemic and supply chain problems causing potential delays in shipping holiday gifts, buyers are expected to spend 27% more on gift cards than last year —  $270 on average per person.”

Emily Grinzweig, director of fraud insights at Riskified, a company that provided fraud and chargeback prevention technology.

Gift Card Fraud Rising at Alarming Levels

While reports of reported gift card scams are up and account for some of the increase in gift card fraud, victims have also reported losing much more money with losses of $5,000 or more up 14% in 2021 already.

The FTC said losses vary by brand as well. For example, Target saw a median reported loss of $2,500 in the first nine months of 2021 with 30% of people who paid with a Target saying they lost $5,000 or more.

The top five brands with the highest reported losses in 2021 so far are:

  1. Target
  2. Google Pay
  3. Apple
  4. eBay
  5. Walmart

One would assume Amazon would be in the top five but among the primarily online commerce shopping platforms, eBay actually leads the pack. The FTC didn’t offer an explanation for why these five brands appear to be popular among criminals.

The bottom line is that whenever someone asks to be paid by gift cards, it’s a scam. Gift cards are for gifts and not for payments.

How to Help Prevent Gift Card Fraud

Here are more resources on gift card fraud and how online merchants and retailers can help educate consumers on this growing trend by scammers.

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