Retailers use education, technology to fight back against gift card scams

Why it's important: Gift card fraud is a serious problem for unsuspecting consumers as well as retailers whose gift cards are stolen, with this form of fraud accounting for an estimated $217 million in losses last year. Critics say retailers are not doing enough to stem the problem, but some are investing heavily in technology to stop fraudsters.

For Melody Randall of Queensbury, N.Y., it started with a voicemail: “Dear Customer, This voicemail is to inform you that Spectrum is rescinding the 40% off discount on your monthly bill. To reactivate immediately For this offer, please call back the number shown on your caller ID, thank you!

Randall contacted the number and was told that to get the deal, she had to buy Target gift cards for $360 each and have them added to her bills for the first six months. She didn't doubt it because the “agent” knew the amount of her cable bill.

She bought gift cards, but when she gave the agent the access code, she was told they were bad, so she went back and bought more. And then even more. She spent more than $6,000 using debit and credit cards until the store manager stopped her, telling her it was most likely a scam and “we can only sell you so much.”

Randall is one of millions of Americans who have been tricked into buying gift cards by scammers. The Federal Trade Commission estimates that U.S. consumers lost at least $217 million to gift card fraud last year. However, the exact number is unknown as it is estimated that many victims simply do not report the crime out of embarrassment.

The excuses come in many forms and often culminate, as in the Randall case, with the victim providing the fraudster with the barcode number on the back. Other scammers will go to brick-and-mortar stores, tamper with gift cards to obtain barcode information, and then steal the funds without taking the actual cards.

This is not an easy problem to solve. Scammers prefer gift cards as a method of payment because they are considered cash, and once the victim is convinced to hand over the 16-digit code and PIN, the money is instantly in the scammer's pocket. Over the years, with the introduction of mobile wallets and virtual gift card compatibility, funds can travel around the world in seconds.

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

Some retailers are using more than just warnings and consumer education. Claire Rushton, senior director of Walmart’s global investigations team, said Walmart has taken multiple steps to combat gift card fraud. These include no longer allowing gift cards to be used outside the United States, which prevents criminals overseas from using barcode numbers.

Larry Lundeen, Walmart's senior vice president of global security and chief security officer, said the retail giant also created a technology called Redemption that contains algorithms that flag gift card fraud as “red flags.” The company's algorithms have identified some of the methods scammers use to block scams. If fraud is confirmed, funds are deposited into an escrow account and turned over to the Secret Service, which works with the Department of Justice to return the funds to the customer.

In one year, the partnership returned nearly $4 million to consumers who fraudulently purchased Walmart gift cards.

“This is not a space to compete with other people,” Lundin said. “By working with other retailers, law enforcement and associations, we are working to mitigate this industry-wide problem.”

But will it be enough to stem the tide of gift card scams? Rushton said no. She said retailers and gift card providers could do more to work together and exchange information about scams they see.

Image source: 401(k) 2012

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