How to Avoid Gift Card Fraud This Holiday Season
By Susan Johnston
Gift cards will be the most requested gift this holiday season for the eighth consecutive year, the National Retail Federation reports. Unfortunately, this also creates an opportunity for fraudsters who want a piece of an industry worth hundreds of billions of dollars per year.
Just ask James Bregenzer, 32, of Chicago, who purchased a $500 airline gift card as a Christmas gift a few years ago for his mother who was planning a trip to Disney (DIS) World. After he brought the gift card home from the grocery store where he purchased it, he noticed the PIN area on the back of the card was scratched off, so he called the airline. "[I asked] if there was any way they could exchange my gift card for a new one, use it to purchase a new one or otherwise protect my purchase with the potentially compromised PIN," he says.
The airline said there was nothing it could do for him and suggested he use the gift card immediately while it still had its $500 value, but his mother didn't know her travel dates yet, and he wanted to save the gift for Christmas. "Sure enough," he says, "when she tried using the card just a week later, it had a zero balance."
Watch Out When Buying or Redeeming
Gift card fraud can happen when a gift card is purchased or redeemed, according to Pete Kledaras, chief risk officer at CashStar, a gift card platform that works with hundreds of major retail brands. Thieves can purchase a physical or digital gift card using a stolen credit card or simply steal the gift card number and PIN and leave the physical gift card. In the latter case, thieves will typically use the balance themselves. "Once cards are stolen, there are any number of ways that thieves can turn that into money for themselves," Kledaras says. "They can resell them on the secondary market, or they can go into the store and purchase physical goods that they can sell."
Another example of gift card fraud is when a thief tries to return stolen merchandise, and the retailer issues a gift card as a refund. "The criminal is getting $75 cashback from an item that they never purchased in the first place," says National Retail Federation spokeswoman Kathy Grannis. Then the schemer might turn around and sell that gift card for cash on a secondary market such as eBay (EBAY) or a specialty gift card resale site.
To make sure you don't become a victim of gift card fraud this season, follow these tips.
For the Giver
- Only buy from trusted sources. Gift card resale markets offer gift cards for less than the face value of the card, but not all of them guarantee the stated value. For example, if the original purchaser still has the gift card and PIN, he or she may be able to use the gift card online even after selling it. Or, if the retailer discovers the gift card was purchased using a stolen credit card, it can cancel the gift card. To avoid these potential issues, Kledaras recommends buying directly from the retailer issuing the gift card. "If you want to buy a Best Buy gift card, it's best to buy it from Best Buy," he says.
- Watch for signs of tampering. In the past, Grannis says thieves would walk into stores and write down the numbers of the gift cards on display. "Since that was first discovered, large retailers have taken steps to remove any opportunity for criminals," Grannis says, explaining that cards are now usually in plastic casing. If a card is not in plastic casing, make sure the PIN hasn't been scratched off, as Bregenzer learned. Digital gift cards are also becoming increasingly popular and don't have potential for physical tampering.
- Register your gift card. Some retailers, including Crate and Barrel and Starbucks (SBUX), allow gift card holders to register their gift cards and protect the balance in case the card is ever lost or stolen. Not all merchants have this option, but if yours does, it's a good idea to register the card just in case.
- Treat gift cards like cash. Many states prohibit gift cards with expiration dates, but it's still a good idea for the recipient to use the card sooner rather than later. This helps not only to prevent fraud, but also to avoid losing or forgetting the gift card. "It's like having cash sitting on a table," Kledaras says, "and you want to use it before something happens to it." In fact, advisory company CEB estimates that over a billion dollars in gift cards were unredeemed in 2013. So it's better to get the value out of the gift card now than later, when the retailer may be out of business or you misplace the gift card.