Retailers fight back against gift card scams with education, technology


Why it matters: Gift card scams are a serious problem for uninformed consumers and, by extension, the retailers whose cards have been stolen, with approximately $217 million lost to this form of fraud last year. Critics say retailers aren’t doing enough to stop the problem, but some retailers are investing considerable sums in technology to keep the fraudsters at bay.

For Melody Randall of Queensbury, NY, it started with a voicemail: “Dear customer, this voicemail is to inform you that Spectrum is removing the 40 percent discount offer on your monthly bill. To reactivate this offer right now, please call back the number displayed on your caller ID. Thank you!”

Randall contacted the number and was informed that to get the deal, she would have to buy Target gift cards at $360 each and apply them to her bill for the first six months. She wasn’t suspicious because the “agent” knew her cable bill amount.

She bought the gift cards, but when she gave the agent the access codes, she was told they weren’t good, so she went back to buy more. And then even more. She spent over $6,000 using her debit and credit cards until the store manager stopped her, telling her it was likely a scam and that “we’re only allowed to sell you so many.”

Randall is one of millions of Americans who have been tricked into buying gift cards for a fraudster. The Federal Trade Commission estimates that US consumers lost at least $217 million to gift card scams last year. The exact number, though, is unclear as it is estimated that many victims simply don’t report the crime out of embarrassment.

The pretext will take many forms and usually culminates, as it did for Randall, with the victim giving the fraudster the barcode number on the back. Other scammers will go to physical stores, tamper with gift cards to access the barcode information, and then steal the funds without taking the actual card.

It is not an easy problem to stamp out. Scammers prefer getting gift cards as payment because they are treated like cash, with the money instantly in the scammers’ pocket once the victim is convinced to hand over the 16-digit code and PIN. With the introduction of mobile wallets and virtual gift card compatibility over the years, the money can be shuttled across the world in a matter of seconds.

States are taking steps to address these crimes. In 2021, New Jersey enacted a law requiring sellers of gift cards to train employees to identify and respond to gift card scams. Last year, New York enacted a law that requires retailers to post notices warning consumers of gift card fraud. A Rhode Island law also requires warning signs and imposes a $250 civil fine on retailers who don’t comply.

Some retailers are using methods that go beyond mere warnings and consumer education. Walmart has undertaken several initiatives to crack down on gift card scams, according to Claire Rushton, senior director in Walmart’s global investigations team. These include no longer allowing the gift cards to work outside of the United States, which keeps overseas criminals from using the barcode numbers.

The retail giant has also created a technology called Redemption, which contains an algorithm with “red flag” markers for gift card fraud, according to Larry Lundeen, SVP of global security & chief security officer at Walmart. The company’s algorithms have identified some of the methods scammers use to intercept the scam. If confirmed as fraud, the funds are placed into an escrow account and turned over to the Secret Service, which works with the Department of Justice to return the funds to customers.

One year, the partnership was able to return almost $4 million to consumers who purchased Walmart gift cards as part of a scam.

“This is not a competitive space with others,” Lundeen said. “By collaborating with other retailers, law enforcement and associations, we are working to mitigate this industry-wide issue.”

But is it enough to stem the tide of gift card scams? Rushton says no. Retailers and gift card vendors could be doing more to work together to trade information about the scams they’re seeing, she said.

Image credit: 401(k) 2012



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