Gift cards have become a multibillion-dollar industry and 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 that scammers increasingly rely on 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 Jim Hegarty, president and CEO of the BBB serving Nebraska, South Dakota, The Kansas Plains and Southwest Iowa. “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 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.
In March 2020, Donna, a retired nurse in Sioux Falls, South Dakota, received an instant message from a high school “friend.” The friend claimed to have received a grant and that her bank said it was real. The friend said she noticed Donna’s name on the list of winners and urged Donna to find out more. Donna was skeptical but trusted her friend, so she called “Morris Malani” of Cash Explosion.
Morris explained that this was a government stimulus cash grant provided randomly to people. He told Donna she could get $100,000 that would not need to be repaid. Intending to pay off her mortgage and car debt and donate to charities, Donna bought $550 in Amazon gift cards from Walgreens as instructed – five $100 gift cards and one $50 gift card. She sent Morris photos of the back of the cards and of the receipts.
When Morris asked for Donna’s bank account information to deposit the grant money, Donna refused. Morris said Federal Express could deliver a check within five hours, but since it was Sunday evening, the money would be delivered the next day. On Monday morning, he texted Donna that the money was en route.
But a 3:30 p.m. text message said “dispatch agents” had been stopped by U.S. Customs, and Donna needed to pay a fine of $1,450 before they would release the agents. She refused to pay, even though her friend urged her to proceed. Donna realized that government money should not be going through U.S. Customs. When she texted Morris about her concern, he offered to refund $550, which she never received.
A call to the friend who was messaging Donna revealed that her friend’s Facebook account had been hacked, and she had not been involved in this situation. Donna filed a complaint with BBB.
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.
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
• Federal Trade Commission (FTC) - file a complaint online atreportfraud.ftc.gov
• 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