Gift Card Scam Robs Money from the Buyer and Receiver: Don’t be a Victim
Criminals involved with latest gift card scam use modern technology to rob you of your hard-earned money. Learn the inner workings of this scam to avoid becoming a victim.
Well-intended consumers who buy gift cards beware: criminals have found a way to steal the money you load on these cards in the latest gift card scam.
Most of us are familiar with the gift card kiosks at places like grocery stores, where we can select gift cards from Nike, Best Buy, Amazon, eBay and numerous other retailers.
The process seems simple enough. We pick the gift card we want, take it to the cashier, and indicate how much money we want to load on the card. We then give the gift card to a friend or loved one for a special occasion, like a birthday, wedding or graduation.
But criminals involved with this scam have found a way to use modern technology to steal the money you’ve loaded onto the gift card – leaving both you and the receiver empty-handed.
This article takes an in-depth look at the gift card scam, including how it works, ways to avoid it, and what to do if you become a victim.
We’ve provided information from Scambusters.org and Fraudguides.com, as well as the Federal Bureau of Investigation.
We’ve also interviewed Detective Timothy Lohman, who solves forgery, fraud and financial crimes in Southern California. Detective Lohman worked a recent case in which a criminal spent about a year stealing money from victims’ gift cards.
Detective Lohman invited us to view evidence confiscated from the suspect’s residence, including meticulous log books, piles of stolen gift cards, and a piece of technology known as a reading, writing and scanning device.
The following example is based on a recent case solved by Detective Lohman, in which the scammer ended up in jail.
How the Gift Card Scam Works: A Recent Case Reveals Criminal Methods
Finding a gift card is easy these days, with many places like supermarkets offering a variety of gift cards on carousels inside their stores.
“As a consumer, we go to the store, find these cards on the carousel, and then say, ‘I’m going to get little Johnny a Nike gift card,’” Detective Lohman hypothesized. “So we get the card, take it up to the register, and tell them the amount that we want on the card. For example, with a Nike card, you can load $25 to $500.”
Once you give the clerk the money you want loaded on the gift card, you get a receipt.
“In order to make this card work, you can go to a retailer that will accept the Nike gift card and you buy your shoes or merchandise,” Detective Lohman said. “You provide the gift card as your form of payment like you would a debit card or credit card.”
Because gift cards work like credit cards or debit cards, each gift card has a number associated with it – typically around 16 digits long. Each gift card is also associated with a shorter PIN number, which is usually around three digits long.
“These numbers together – in a criminal’s hands – can take everything off of that card,” Detective Lohman said. “The $500 that you put on this Nike card, for instance, can be removed before you even have a chance to spend it.”
In Detective Lohman’s most recent case, the criminal went into a Vons in Southern California, where a carousel filled with gift cards was easy to access. The criminal simply walked in, grabbed a stack of gift cards, and took them home.
The criminal then logged every gift card number and its associated PIN number in a black book where he kept meticulous records.
“All the numbers, how is he getting those?” Detective Lohman asked. With a Nike gift card, for instance, the numbers were easy to access. “Nike has the numbers right out in the open – you can see the numbers through the card hole attached to the gift card.”
The PIN number on some gift cards appears to look protected with a silver strip, which is typically removed or “scratched off” by the merchant at the time of purchase. The purchase cannot be made without having both numbers together, and the PIN number was designed as an added measure of consumer protection.
However, “what the criminal does is he removes this strip because it’s like a tape,” Detective Lohman explained. “He’ll pull this off very gently. Why? So he can put the strip back on the gift card after he writes down the PIN number. When he puts that strip back, the consumer doesn’t see that the card has been tampered with.”
The criminal in Detective Lohman’s case kept meticulous records in a black log book of every gift card he stole. These records included the date and location from where they were stolen, each card’s account number and PIN number, and the name of each associated retailer, including Nike, Sears, Lowe’s, DSW, Home Depot and eBay.
After writing down all these details, the criminal returned to the store he stole the gift cards from – and put them back on their kiosk.
Once all the numbers were logged, the criminal simply watched and waited until money was loaded onto the cards.
“There’s a phone number on the cards to verify the amount on the card – people can also find out on the retailer’s internet site to verify the amount,” Detective Lohman said. “So what he did, on a daily basis, was call, check and wait for the money to be loaded onto each card.”
As soon as the scammer found out that money was loaded onto a gift card he stole, he used a piece of technology known as a reading, writing and scanning device to transfer the loaded money onto another gift card that he intended to use for his own benefit.
All gift cards have some sort of magnetic strip attached that’s encoded with numbers, and the device is designed to read these numbers.
“There’s software associated with this device that allowed him to override any of these numbers on the magnetic strip,” Detective Lohman explained. “So he’s on his computer, re-encoding the magnetic strip with a gift card number that belongs to a different gift card using this software. And his goal was to hurry up before the consumer went out and used that card.”
Now that we’ve explored how this scam works, let’s discuss ways that you can spot this scam to avoid becoming a victim.
Ways to Avoid the Gift Card Scam
Gift cards that are compromised in any way should be avoided, according to Detective Lohman.
“If you pick up a gift card and it looks like it’s been opened, or the silver lining on the PIN numbers appear to be off or partially scratched off, don’t buy them,” he warned.
Some gift cards, like loadable Visas, are contained inside a small package that’s intended to keep the card secure.
“But sometimes this package might be compromised,” Detective Lohman said. “These criminals will open it, take out the card and record the numbers, and put the card back in. Then they’ll put a fine bead of glue on there, put it back together, and it will look normal again.”
In other advice, Fraudguides.com and Scambusters.org have offered the following tips on ways to avoid the gift card scam.
- If a store offers gift cards that appear to be secure, don’t assume they haven’t been compromised. It’s important to examine both sides of the card, as well as their packaging, to determine if there are any signs of tampering.
- If you’re buying a gift card online, only purchase the card directly from the retailer’s website.
- If you’re purchasing a gift card from a retailer, buy the card directly from the place you plan to spend it.
- Never buy gift cards from auction sites, because they might be counterfeit or stolen.
- Ask the cashier to scan the gift card in your presence to make sure the card you bought is actually valid. Also make sure the gift card has the correct balance based on how much you loaded, and keep your receipt as proof of purchase.
- Avoid purchasing gift cards from publicly displayed racks that are easy to access. If it’s simple for you to grab a card, it’s just as easy for a scammer to grab a card with the intent to commit a crime.
Gift Card Scam Variations Reported to the FBI’s Internet Crime Complaint Center
The Federal Bureau of Investigation is also warning consumers of the potential gift card fraud. According to a Public Service Announcement issued by the FBI, some of the following variations of gift card scams have been reported to the Internet Crime Complaint Center:
- A victim sells a gift card on an auction site, receives payment for the sale, and sends the PIN associated with the gift card to the buyer, who disputes the charge after using the gift card.
- A victim buys an item on an auction site and is advised by the seller to purchase gift cards to pay for the transaction. After purchasing thousands of dollars in gift cards, the victim finds out the auction transaction is a scam.
- A secondary gift card market site, which provides a venue for consumers to resell unwanted gift cards, agrees to pay a victim for a discounted merchant gift card. The victim sends the code on the gift card, and the payment for the transaction was reversed. Thus, the buyer uses the gift card code to purchase an item and stops payment to the seller.
While knowing these scenarios and what to avoid can be helpful, there are still unsuspecting people out there who fall for the gift card scam. The next section covers what to do if you think you’ve fallen victim.
What to Do If You’re a Victim of the Gift Card Scam
A major problem with this scam is that many victims typically don’t report the crime.
“That’s why we want to warn the public that this scam exists, because it’s happened where somebody’s been given an empty gift card and they’re too embarrassed to report it,” Detective Lohman said.
He gave the example of receiving a $50 gift card to the Cheesecake Factory.
“I go to the Cheesecake Factory to use it and they say, ‘sorry there’s no money on this card’,” Detective Lohman said.
“Am I going to call you and say, ‘thanks for the bogus card’ – probably not,” he noted. “So a lot of this can go undetected because people don’t want to report it. They may have gotten the gift card as a present and they don’t want to embarrass the person that gave them a gift card that had no money on it.”
If you’ve received a gift card with no money on it, Detective Lohman recommends contacting the retailer first.
“The retailer has access to find out where the card was used, so these retailers are able to trace it,” he said.
If this trace leads to multiple locations, chances are it’s a scam.
“For example, let’s say little Johnny lives in North Carolina, but the gift card he got from his grandma was offloaded in Texas, and grandma lives in California,” Detective Lohman said. “So there’s a chance that a scammer got that card number and offloaded it somehow, somewhere.”
Depending on the details you discover by contacting the retailer, you can determine if you want to call your local police agency about the theft.
“It’s what we refer to as a theft, but we in law enforcement have to prove that it occurred,” Detective Lohman explained.
“The only way we’re going to be able to prove that it occurred is if you say, ‘I got this gift card from Home Depot from my aunt and it had $50 on it – I live in California and the card was used in Texas and now there’s no money on it’,” he said. “Now that I know a theft occurred and it didn’t happen in California, I would send my case to Texas to investigate.”
The FBI recommends filing a complaint with all the pertinent information to its Internet Crime Complaint Center at www.IC3.gov.
Consumers can also file a complaint with the Federal Trade Commission at www.ftccomplaintassistant.gov.
“The challenge with the gift card scam is that not enough people know it even exists,” Detective Lohman re-emphasized.
“It’s not something that’s talked about. People don’t say ‘hey I just got this gift card with nothing on it’,” he said. “It’s not something they’re going to call about or report. So the more we work to educate the public, the better chances we have to put a stop to this scam.”
Scams will constantly change – and police investigations can only go so far.
“Meaning that when scams leave the state, it’s outside our jurisdiction,” Detective Lohman said. “It’s up to the other jurisdictions to pick up where we left off. And some criminals make it out of the country and we depend on federal agencies to handle it.”
Educating the public about the gift card scam is crucial to putting a stop to it.
“If the victims aren’t losing money, we’re winning this race because they’re educated in knowing what to look for,” Detective Lohman noted.
Retailers, too, can help diminish this scam by placing gift cards in spots that make it difficult for a criminal to walk in and grab a stack while nobody’s looking.
“It would be helpful if the retailers put the gift cards behind a customer service desk, like they’ve had to do with cigarettes, where you have to ask for them,” Detective Lohman said. “So we’re trying to educate the retailers to put the gift cards behind something where the customer actually has to walk up and ask for them. That way, the criminal doesn’t have a chance to steal.”