New BBB study finds gift cards are an increasingly popular tool for scammers
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 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.
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.
“If you’re asked to make payment via gift card for whatever reason, you almost certainly are dealing with a scam,” said Julie Wheeler, president and CEO of BBB Serving Western Virginia. “Gift cards don’t carry the same protections as credit or debit cards, so funds spent on gift cards are funds you cannot get back.”
Available data suggest 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 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.
Locally, the frequency of gift cards being used as the preferred payment method has increased but the median dollar lost and attempted has decreased. BBB Scam Tracker found scams using gift cards or pre-paid cards increased five times more in 2020.
Gift cards or pre-paid cards make up 14 percent of all scams as the preferred method of payment for scammers, doubling the frequency of use in scams reported in 2019 (7 percent). In 2020, our service area reported $6,722 as the median dollar lost in 2020, a 26% decrease from 2019. The same decreasing trends mirrored median dollar attempted with $6,920 in 2020 compared to the $9,189 in 2019.
Advance fee loan and government grant scams were the most common scam types using gift cards and pre-paid cards.
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 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.
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 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.
In addition to telling consumers how to recognize and avoid gift card scams, the study recommends:
- The FTC should consider amending the Telemarketing Sales Rule to prohibit payment with gift cards.
- The industry should continue to alert the public about the misuse of gift cards by fraudsters by:
- Warning directly on the cards
- Warning on gift card display racks
- Training and educating front line tellers and cashiers
- Alert on screen at the point-of-sale where a victim can read it before completing the transaction
- The industry should consider:
- Additional efforts to limit large dollar volume gift cards and on how many can be purchased on one day
- Prohibiting the ability to purchase gift cards with other gift cards
- Imposing a waiting period between when cards are purchased and when they can be used, at least for online purchases. Once the immediate pressure from the scammer is relieved, victims often recognize it is a scam, and with more time could try to stop the transaction.
- Mining its data on gift card fraud to look for patterns and share that information with appropriate law enforcement
- Tracking the speed and location of card redemption. This data may help spot patterns of fraud.
- Making it a practice to provide refunds to victims who realize they are dealing with a scam after purchasing gift cards and therefore don’t give scammers the numbers from the back of the card.
- The industry and enforcers in the U.S. and Canada should consider holding a conference with relevant partners to examine common issues and understanding of the mechanics of card markets and ways to limit or prevent fraud.
Who to contact if you are the victim of a gift card scam:
- Victims should immediately notify the issuer of the card as soon as they realize they bought gift cards and provided the numbers to scammers or have purchased gift cards with no balance on them. There is typically a customer service number on the back of the card.
- Better Business Bureau – file a complaint with your local BBB if you lost money or report a scam online at BBB.org/scamtracker.
- Federal Trade Commission (FTC) – file a complaint online at ftccomplaintassistant.gov or call 877-FTC-Help.
- Internet Crime Complaint enter (IC3) – file a complaint online at ic3.gov/complaint.
- Consumer Financial Protection Agency – file a complaint online at consumerfinance.gov/complaint or call (855) 411-2372.