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Gift Cards Becoming Currency For Criminals

By Martin H. Bosworth
ConsumerAffairs.com

December 26, 2006

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The $80-billion gift card market is a profitable one for retailers and banks and, some reports indicate, for criminals as well.

Legitimate businesses make an estimated $8 billion or more on "dormancy" charges, service fees and abandoned cards, as consumers cheat themselves by failing to use their gift cards promptly.

But that's just the most obvious source of profits. A number of reports claim that enterprising thieves are using gift cards for everything from fraudulent purchases to currency in transactions.

Running The Numbers

According to reports circulating recently, crooks will copy down the numbers of unclaimed gift cards hanging on store racks, wait for them to be activated, then use the gift cards to make online purchases.

Law enforcement and the National Retail Federation mostly dismissed the scam as small-scale, noting that many store chains utilize additional protections before activating gift cards, such as keeping them behind the store counter or requiring scratch-off activation codes.

According to unconfirmed reports, scammers simply go to stores or the vendor's Web site and enter the stolen numbers until one shows up with an unused balance.

There's also the "grey market" of Internet auction sites, where stolen or bulk-purchased gift cards -- or card numbers -- can be resold for considerably more than their dollar value.

The concern over gift card number copying has become so widespread that the Federal Trade Commission recently issued a consumer alert about it.

Currency for Criminals

A more disturbing scam involves criminal groups buying gift cards, preloading them with high dollar amounts, then exchanging them for drugs, guns, and so on.

Crime crews favor using "open-ended" gift cards, such as those from banks and credit card issuers, due to the lack of preset spending limits.

A report jointly issued by the Royal Canadian Mountain Police (RCMP), the U.S. Justice Department, and the Drug Enforcement Administration (DEA) outlined the growing use of gift cards as criminal currency.

According to the RCMP, criminals will come to drug buys or exchanges loaded with dozens of gift cards that can total hundreds of thousands of dollars.

The cards are especially attractive for international and cross-border trafficking because they circumvent the money reporting requirements for traveling between the United States and Canada, the RCMP said.

What You Can Do

Gift cards are enough of a scam as it is without buyers and retailers becoming pawns for criminals. Here are a few steps to ensure your card hasn't been misused:

• Only buy cards from reputable stores and banks. Always ask for gift cards from behind the service counter. Don't buy cards off an open rack, and never from online auction sites of any kind.

• Make sure the card hasn't been tampered with. Check any newly purchased gift card to ensure the "scratch-off" or removable activation label has not been removed. Check the balance regularly, and confirm it via phone with the card issuer before or after any transaction you make.

• Stick with cash unless it's unavoidable. What's more tacky, really -- to give a friend or loved one a wad of cold hard cash, or a piece of plastic?

After all, cash is a perfectly viable option if you don't know what to get someone for a gift, and it has much less in the way of hidden traps than your average gift card. Even bad gifts are generally better than gift cards -- at least there's regifting.

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