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As the holiday shopping season grows near, consumers should be extra alert to scams. More people reported gift card fraud to the BBB Scam Tracker this year, with a 50% increase compared to last year. Online shoppers were hit the hardest.
Since BBB issued its 2021 study, Gift Card Payment Scams, BBB reveals why scammers love gift cards, scammers doubled down on gift cards as a method to steal money from consumers while the public embraces digital versions of the cards.
For years, scammers preferred a gift card as payment because it's treated like cash. If a victim is convinced to hand over the 16-digit code and PIN, the money is instantly in the scammers' pockets. With the introduction of mobile wallets and virtual gift card compatibility over the years, gift cards are more convenient, allowing money to be shuttled across the world in a matter of seconds.
Some industry partnerships between retailers and law enforcement have had success in stopping scammers. One initiative started the process of returning more than $4 million in stolen funds to consumers. Scammers, however, remain resourceful.
In one report to BBB in March, Richard in Tempe, Arizona, received a call from someone claiming to be from Amazon. There was a suspicious charge on his account, they said, and it looked like possible identity theft. The person claiming to be from Amazon offered to connect him with someone from the government.
"(They) put me in touch with a woman named Christine Wilson, claiming to be with the Federal Trade Commission (FTC), who had me draw $10,000 from my account," Richard told BBB. The FTC specifically warns against this type of scam. "The FTC will never demand money, make threats, tell you to transfer money, or promise you a prize. Anyone who does is a scammer," the FTC says.
Because Richard's identity was allegedly stolen, his bank accounts were at risk, she claimed. The woman told him to buy gift cards to put his money out of reach of fraudsters with access to his accounts. Fearful of losing his money, Richard bought six gift cards and transferred them to the fraudulent FTC agent before realizing it was a scam. He then called the real FTC.
"They informed me this was a fraud. And Amazon was not the one who called. Beware!" Richard told BBB.
How do gift card scams work?
Scammers persuade individuals to purchase gift cards by impersonating online sellers, pet breeders, government or sweepstakes officials and others. They frequently change their methods of getting consumers to pay with cards instead of money, making them hard to stop.
In most instances, scammers ask people to buy gift cards and send them the bar code and PIN on the back. Gift cards are essentially cash, meaning anyone who has the code can spend the amount on the card. Sometimes scammers ask for a popular brand (Apple Inc., Google, Target Corporation, Walmart, Best Buy) and other times they ask for a general-use card, such as a Visa Vanilla or American Express gift card. In both cases, scammers want the card number.
Some scams involve fraudsters going to stores where gift cards are sold, recording the numbers from the cards, and attempting to steal the funds after the cards are loaded. There have also been instances of outright forgery of cards, like one involving a "lab" bust in Canada earlier this year. However, most reports to BBB are the result of fraudsters impersonating sellers, businesses or governmental agencies in order to convince consumers to send them gift cards. Persuading victims that they have an unpaid tax bill, owe fines or have a hacked personal account are all common ruses used as part of gift card scams.
Losses from scams involving gift cards tend to be much higher than most other payment methods, ranking third behind wire transfers and cryptocurrency, according to a 2022 BBB Institute for Market Trust report. Gift cards are treated like cash, which makes stolen funds hard to recover. Last year, no consumers reported to BBB Institute that they recovered money sent in a gift card scam.
|
Type of Scam reported to BBB |
Reports |
|
Online Purchase |
1346 |
|
Advance Fee Loan |
334 |
|
Phishing |
330 |
|
Government Grant |
326 |
|
Sweepstakes/Lottery |
251 |
BBB Scam Tracker data, 2020- September 2023
What are scammers doing with gift cards?
While gift cards may seem harder to spend than cash, fraudsters are able to spend stolen gift cards quickly through networks of associates working in both North America and other countries. BBB reviewed court filings and victim reports, and talked with experts to track how these scams operate from start to finish. In many cases, gift card fraud involves a complex, multi-national network preying upon vulnerable populations.
In March, two foreign nationals living in Utah, Chaohui Chen and Wenyi Zheng, were sentenced after they pleaded guilty to a gift card scam involving over $200,000 in stolen funds. Court documents reveal their methods.
Throughout 2019, a group of unnamed co-conspirators working with Chen and Zheng – an organized team very likely to be located outside the United States, according to experts – obtained several gift card numbers. In one instance, the scammers pretended to be from the Federal Bureau of Investigation, telling a victim referred to as D.S. in court documents her social security number was compromised. To protect her funds, the scammers advised her to move her money in bank accounts onto Walmart gift cards, to be exchanged with the government for cashier's checks. Talking to a different victim, the fraudsters pretended to be from Microsoft Corporation, calling about an expired service.
For both victims, court documents revealed a similar pattern. Once the gift cards were purchased and handed over to the scam group, they turned to their associates, Chen and Zheng. The two were given the gift card numbers and moved fast. They tried to spend some at a local store and "wash" the rest by buying a second round of gift cards with the first to obscure the funds from authorities.
Authorities, however, caught onto the scam. They arrested the two and seized $89,000 in unused gift cards. According to court documents, the true size of their scam was unknowable, indicating the two may have gotten away with their plan for a time. Earlier this year, Chen and Zheng were sentenced to several years in prison and ordered to repay over $200,000 for the fraud.
At least 15 reports to BBB since 2020 involve FBI impersonation, with many other government agencies being used for ruses as well, such as Immigration and Customs Enforcement and the Department of Homeland Security. Another dozen pretended to be from Microsoft Corporation, one of many businesses impersonated in gift card scams.
BBB Scam Tracker
|
Year |
Reports |
|
2020 |
988 |
|
2021 |
1103 |
|
2022 |
822 |
|
2023 thru Sept |
1005 |
|
Total |
3918 |
BBB Scam Tracker data, 2020- September 2023
Online shoppers are at high risk for encountering gift card scams, according to BBB data. In July, Blou in Dahlert, Texas, told BBB she found a golf cart for sale on Facebook Marketplace. She reached out to the seller, who asked for $2,000 in Apple gift cards as payment. She paid the person and received an email confirmation, leading her to believe the sale was legitimate.
The following day, Blou said another email arrived. The golf cart was detained by border authorities, and an additional $1,000 fee was needed to receive the item. This led her and her husband to grow suspicious, and they asked for a refund. The scammer disappeared, screening their subsequent calls. They called Apple to alert them to the fraud, but the cards were spent.
Technology companies like Apple and Google are popular gift card sources for scammers because they can purchase pricey items like computers and resell them later. Millions of dollars are lost on these types of scams each year, according to Federal Trade Commission data.
Federal Trade Commission Consumer Sentinel
|
Year |
Reports |
Losses |
|
2020 |
42,219 |
$120 million |
|
2021 |
59,723 |
$210 million |
|
2022 |
46,069 |
$213 million |
|
2023 thru Sept |
29,063 |
$147 million |
|
Total |
177,074 |
$690 million |
Federal Trade Commission Consumer Sentinel Data, 2020-September 2023, only contains reports to the FTC.
And those thefts are not just in the United States, with Canadian consumers reporting significant monetary losses as well.
In a sweepstakes scam, Harri in Vancouver, British Columbia, told BBB he was contacted in February about a lottery he supposedly won. To claim the winnings, though, he needed to purchase Amazon gift cards. And Lilane in Plantagenet, Ontario, said to BBB she tried to buy a puppy online through Facebook, only to be tricked into sending a $300 prepaid gift card as payment.
"It's terrible they take advantage of seniors," she told BBB.
Canadian Anti-Fraud Centre
|
Year |
Reports |
Losses |
|
2020 |
2,865 |
$3,366,000 |
|
2021 |
2,759 |
$3,896,000 |
|
2022 |
2,448 |
$4,846,000 |
|
2023 thru August |
1,187 |
$3,500,000 |
|
Total |
9,259 |
$15,608,000 |
BBB recommends state and federal law enforcement agencies continue collaboration with retailers and add additional programs to help consumers recover funds. State regulators should work with federal law enforcement to develop best practices and create a coalition to share best practices and go after international scammers.
Stopping gift card scams
Experts interviewed by BBB say the instantaneous transfer of funds from one party to another enables fraudsters to act fast, either spending the money or shuffling the money onto a new gift card to obscure their crime. Recently, retailers most affected by gift card scams began partnering with authorities to sniff out the digital trail left behind during gift card purchases to catch scammers in the act.
In an interview with BBB, one Walmart executive laid out the way the corporation has developed innovative technologies in-house to prevent gift card scams. And in a massive reversal to past years, some consumers are recovering their money.
In 2018, Walmart deployed a technology called Redemption, which contains an algorithm with "red flag" markers for gift card fraud. Larry Lundeen, Senior Vice President of Global Security & Chief Security Officer at Walmart, told BBB those flags are confidential to prevent scammers from routing around them. Still, Lundeen walked BBB through the process to explain how it works.
Often, he said, scammers live outside of the United States. They then work with an associate inside the country, instructing them to spend or wash the funds. Walmart's algorithms have identified some of the methods scammers use during this process to intercept this type of gift card fraud. 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. Earlier this year, the partnership was able to return almost $4 million to consumers who purchased Walmart gift cards as a part of a scam.
And the program appears to be a success. Since 2018, when the company first began to receive an influx of calls related to gift card scams, Lundeen said reports fell by more than 50 percent. Others in the industry appear to be following Walmart's lead.
"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."
Prosecutors are moving forward with enforcement in other cases as well. Last year, two men pleaded guilty to their involvement in a massive scam involving hundreds of victims and more than $200,000 in gift cards. And in 2021, four people were indicted for their role in a scam involving over 5,000 gift cards stolen by an organized crime group called "Magic Lamp."
Martha Weaver, a member of the board of directors for the Retail Gift Card Association, said there may be a silver lining in the recent uptick in reports to BBB. Businesses and groups involved with gift cards work extensively to educate the public about these types of scams, and one big piece is encouraging consumers to report instances of fraud. It is possible, she said, the numbers simply reflect an increase in the public's knowledge about scams and willingness to report them. Since FTC research finds less than 4.8% of fraud victims report their losses to BBB or a government agency, gift card scams are likely still underreported.
Public education remains the number one method of deterrence, Weaver said, because alert consumers can often spot a scam before any money changes hands. With most gift card scams involving organized crime outside North America, experts, including Weaver, want consumers equipped with enough knowledge to combat scammers when confronted.
"Scams are creating that level of fear or angst or urgency," she said. Consumers should slow down and even hang up the phone if they fear they are being scammed, no matter what the person on the line is saying to them.
In cases where people have sent money to scammers, businesses are continually revising their rules around refunds and crediting consumers. Weaver said victims should keep receipts and any other digital evidence about their purchase, which can be used in the investigation and may lead to future refunds.
"Brands are much more willing to help recoup," said Weaver. "Some brands are starting to put together funds to help victims. It impacts their reputation. They have to have a good one, or people won't buy (their cards)."
Red flags for potential gift card scams
- Businesses or governmental agencies requesting gift cards
- Cold calls about overdue tax payments
- Paying for services or items with unrelated gift cards
- Online sellers requesting gift cards as payment
- Anyone asking to be sent a number or PIN over the phone or email
- Promises to be reimbursed through check
- A message from a work superior asking to purchase gift cards
BBB tips to avoid falling for a gift card scam
- Be on guard if anyone ever asks for payment through a gift card.
- Stop immediately if a person claiming to be from the government asks for a gift card.
- Contact the gift card seller, the actual business and government organization supposedly asking for money, and BBB to ask whether you are encountering a scam.
- Keep all information related to purchase if scammed.
Where to report a gift card scam
- Better Business Bureau or BBB Scam Tracker
- Federal Trade Commission (FTC) or call 877-FTC-Help.
- Internet Crime Complaint Center (IC3)
- Canadian Anti-Fraud Centre or 1-888-495-8501.
- If you have bought a gift card as a part of a scam, report it to the company.
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