The Gift Card Scam of 2011: Don’t Be a Victim

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It’s the most wonderful time of the year…for scam artists. When the shopping craze hits us after Thanksgiving, the thieves come out in droves and this year, they are targeting one of the biggest gift items we both give and receive — gift cards. (See also: Why I Love Gift Cards)

It’s a multi-million dollar industry, so it’s no surprise that scammers and con artists have put gift cards on their own wish list this year. And because of them, you could be in for a nasty surprise when you go to spend a gift card you received. In fact, your gift card could already be worthless.

That’s right, a gift card you have received or bought someone else could already have a zero balance. It’s a problem even U.S. Senator Charles Schumer is trying to warn people about.

Here’s how the thieves are picking your pocket without you even realizing it.

How the Gift Card Scam Works

Every gift card you buy has a magnetic strip on the back, similar to the one on your debit or credit card. This strip is basically there to record the running balance, the card number, and the PIN number if it has one.

The gift card thief has found a way to retrieve the information contained in that magnetic strip using a simple reader that can be bought very cheaply on the internet. The thief will then go to one of those racks filled with cards and read the information from them. Usually, they will target the cards with larger dollar amounts printed on them (even though they are not yet activated) as well as blank cards and lower denominations.

You may think that the packaging on the gift card can prevent that, but it’s no barrier. Most of the time the card can be lifted from the packaging, read, and replaced. Sometimes, the strip is visible in spite of the packaging. And many cards aren’t even placed into a wallet or gift card holder until after they’ve been activated.

Once the thief has the numbers, he/she waits patiently and checks the balances online. And it’s not long before those cards are activated in store by someone like you or me. Then the thief can use the gift card numbers to spend that money quickly, either online or in store, and run the balance down to zero. You, or most likely your gift recipient, won’t even realize it until weeks or months later. When the theft is noticed, it could not only be very embarrassing and frustrating, but also too late to do anything about it. The best chance you have to get your money back is as soon as the theft has occurred.

What Can You Do to Protect Yourself?

There are several steps you can take to make yourself less vulnerable to gift card scammers. Unfortunately, nothing is 100% fool proof (other than refusing to buy or receive, gift cards), but these tips should help you avoid their traps.

1. Carefully Examine Any Gift Card You Are About to Buy or Receive

When buying a card, be alert. Look for any obvious signs of tampering with the card holder, the scratch-off panel, the magnetic strip or any other wear and tear. Gift cards and the holders should be in pristine condition. If you see a PIN, put it back. The PIN should always be covered. When you receive a card, do the same thing, but be tactful; you don’t want to upset the person who just gave you a gift, so do it out of sight. If you see anything suspicious, it may be time to check that card out.

2. Don’t Buy Cards From Public Display Racks in Grocery or Retail Stores

The first place gift card scammers look is those big racks filled with cards. They aren’t protected or policed because they are not activated yet and thus are considered worthless. But those racks are easy picking for thieves, who can scan dozens of cards at one time.

3. Use Gift Cards Immediately

Don’t just pop them in the junk drawer until the day comes that you want something from that store. That just gives thieves plenty of time to use the card and leave you high and dry. Go and spend that money. You should also register your card online if you can. Most retailers have that option, and you can instantly see the balance and track your usage.

4. Discourage Friends and Relatives From Buying You Gift Cards

Yes, they are a great way to give a gift, especially for people who live far away and don’t want to pay for big parcels or risk buying an unwanted gift. If people want to send you money from far away, they can always wire the money. For people who live close, it may be time to put money in an envelope again. It’s not ideal, especially if you want to encourage kids to spend their money at a book store, but at least they’ll have money to spend when the shopping day comes.

5. Never Buy Gift Cards Via eBay, Craigslist, or Other Non-Retailer Websites

Sadly, that’s just too easy for the thieves. Your best bet if you are going to buy gift cards is to get them directly from the retailer’s website. If you want a Barnes & Noble gift card, get it from barnesandnoble.com. If you want a Home Depot gift card, homedepot.com is the place. There may be cheaper deals elsewhere, but they’re just not as reliable.

6. If You Buy the Card in a Store, Get the Cashier to Double-Check the Balance

There is no shame in asking the cashier to give you a print out of exactly what is loaded onto the card at that time. You’ll see the current balance instantly, and it will also protect you from another gift card scam, where thieves swap out worthless, used cards and pocket the ones ready to be loaded with money.

7. Get a Receipt, and Keep It With the Card

When we bought our home, our real estate agent gave us a Home Depot gift card, and he gave us the receipt to go with it, just in case. We were glad to have it. The gift recipient already knows the amount put on the card, so there is no reason not to hand it over with the gift card. It’s just a little extra protection.

What If You’re a Victim?

Sadly, there’s not a lot you can do. Unlike credit and debit card fraud, there are few protections offered by the gift card issuers. If you lose your card, you can simply report it as lost or stolen, and the card will be voided. You will receive the remaining balance on another card. However, by the time you know your card has been compromised, the balance will most likely be $0. And there’s not much you can do to reclaim that stolen money.

If you have the receipt that came with the gift card, you may be able to get compensated for the loss. These days, many retailers can track the usage of a gift card, including where it was bought and where it was used. If you, or the person who bought it, picked the card up in Colorado, but it was used in New York, then that could be proof. Of course, people send gift cards all over the country, so it’s not concrete evidence.

Have you been the victim of a gift card thief? Let us know, and tell us how it happened. Remember, with every passing year thieves get more sophisticated, and that means you have to be more vigilant.