Unwrapping the truth about gift card scams

In the world of scams, fraudsters have found their latest currency of choice. With millions of dollars taken each year, learn how scammers exploit the untraceable, non-refundable nature of gift cards. 

It’s the perfect gift. A one-size-fits-all. A choose-your-own-adventure for the pickiest people in your life. Whether it’s for your brother’s new girlfriend who you’ve met twice or a coworker whose name you drew out of a hat for a secret gift exchange, you can’t go wrong with a gift card, or can you? 

The scammer’s gift card request 

You receive a call, text, email, or direct message that appears urgent. The person on the other side is demanding immediate action.

It’s a call from the IRS claiming you owe some kind of additional taxes, or you might go to jail. It’s an email from your utility company asking for the payment you swear you just made online, but they say it never went through and threaten to disconnect your power immediately. It’s even a less urgent but still very strange DM from the reputable caterer you found on social media asking you for a small down payment or they’ll have to cancel the job.

The red flag: they’re all asking for their payment in gift card form. Just send them the numbers from the back of the card and your taxes are complete, power is restored, and your wedding will be supplied with food, right? 

The socially engineered loss aversion tactic here is a scammer doing their dirty work, preying on pressure. While these are just a few examples, if someone instructs you to buy a gift card and share its numbers, it's undoubtedly a scam. P.S. the IRS will never call, text, or email you about unpaid taxes. The IRS will always send a letter with a phone number for you to call.

Scammers and swindlers are targeting human vulnerability, using psychological tactics to manipulate and fool us, making the rise of gift card scams a real problem. The statistics are alarming: in 2022 alone, nearly 65,000 consumers fell victim to such scams, resulting in losses exceeding $228 million, according to the Federal Trade Commission (FTC). But why? Why are scammers using these unassuming pieces of plastic to scam hard-working people—and gift receivers—out of their cash and trust? 

Gift cards are the ideal accomplice 

The answer lies in the inherent characteristics of gift cards: they’re untraceable, non-refundable, and many gift card distributors lack the security measures to combat scams like these—something many are working on now. 

Untraceable

There’s no telling where the funds on your gift card went—they seem to disappear into the void just as quickly as the scammer who asked for them. Unlike traditional payment methods that leave a digital trail, gift cards operate in a realm of relative anonymity. Once the card information is received, tracing the funds becomes arduous: sometimes impossible. 

Non-refundable 

The nature of gift cards further complicates matters. Once funds are loaded onto a gift card, they are essentially irretrievable. Scammers exploit this characteristic by demanding victims share the card details, which enables them to drain the funds without leaving a trace.

Unlike conventional bank transactions where chargebacks are possible, the unidirectional nature of gift card transactions puts victims in a sticky position. To put this into perspective, Americans collectively have $21 billion in unspent gift cards, according to a report from Credit Summit. This reservoir of untapped funds serves as an enticing pool for scammers to dip their hands into. 

A lack of security 

The use of unlimited-recharge gift cards has become a notable trend among scammers. Makers of some of those cards, have taken some heat in the media due to inadequate security for the cards when on shelves and also for refusing to refund consumers who’ve been scammed.

Card draining, where scammers take cards from the rack, steal their codes, then put the cards back for unsuspecting buyers to load them with funds, is a typical issue amongst gift card purchasers. They, or their gift card recipient, then go to use the card and the balance is zero. Talk about an awkward convo a birthday boy might have to have with his grandma, who he thinks duped him out of his hard-earned birthday cash.

Flagging the fraud and recouping your cash 

Many gift card companies are working to solve this problem and implement their own safeguard measures, acknowledging the pivotal role they play in the financial ecosystem. Some are even working on how to help consumers recoup lost funds.

According to the FTC, there are three things to do if you fall prey to a gift card scam: report it to the gift card company immediately, ask for your money back, and report it to the FTC. But truly, the best way to avoid such scams is to be aware of them and spread the news to others. It is imperative to trust your gut and employ common sense in these situations. Recognizing the telltale signs of a scam—the presumed urgency, the demand for gift cards, and the impersonation of powerful entities—is crucial to thwarting potential fraud.

As the landscape of payment systems evolves, so must we. By understanding the exploitable security habits and the untraceable, irreversible nature of gift card transactions, we can know what to look for in the future. We can feel better about hanging up on the imitation tax man, removing the power held over us by the fake utility company, and finding a new caterer who doesn’t give us a gift card ultimatum.

While a gift card may always be the gift that always fits, think twice before using it as a fitting form of payment.