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STATE: Gift cards are increasingly popular tool for scammers, BBB study finds

Gift cards have become a multibillion-dollar industry, 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 on which scammers increasingly rely to extract payment from their victims.

An in-depth investigative study by Better Business Bureau (BBB) 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 Tom Bartholomy, BBB Charlotte president and CEO. “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.

A multi-pronged fight against gift card scams aims to punish fraudsters who take advantage of gift cards and strengthen protections for consumers.

Authorities have cracked down on scams that rely on gift card payments, including government impostor scams. Law enforcement has prosecuted
so-called “money mules” who funnel the funds transferred via gift cards. State attorneys general have reached agreements with major retailers to make changes in their gift card policies aimed at stopping fraudulent purchases.

In addition to telling consumers how to recognize and avoid gift card scams, the study provides numerous recommendations including:

● The FTC should consider amending the Telemarketing Sales Rule to prohibit payment with gift cards;

● Limiting large dollar volume gift cards and how many can be purchased in one day;

● Prohibiting the ability to purchase gift cards with other gift cards
To read the full report, visit BBB.org.