Exclusive: Gift Card Fraud Costs Almost $450 Million; Here Are Five Ways To Help Avoid It

Plenty of people use gift cards to obtain Christmas presents for family and friends to show their affection.

But that joyous time during the holiday season is also when gift card scammers are preying to profit from the lucrative buying rush. As such, gift card fraud cost Americans almost $450 million in the last three years based on losses disclosed to the Federal Trade Commission in this report. The problem caused the FTC this year to issue this updated warning to help identify and prevent such scams.

David Leeds, CEO of the gift card rewards and services company Tango Card, shared with BLACK ENTERPRISE via email that gift cards are, by far, the most widely used method of payment in scams due to the difficulty of tracing them back or recovering the funds once they’ve been redeemed.

He added the holiday shopping season presents plenty of opportunities for scammers to get creative – like emailing employees pretending to be the CEO, who urgently needs year-end gift cards to send to clients.

He explained scammers often target senior citizens and Black Americans. Some 78% of Black consumers have been a victim of at least one holiday scam, stated Kathy Stocks, director of AARP’s Fraud Program, as reported by The Dallas Examiner. The scams include buying items through an online ad, giving or getting a gift card with no money on it, and encountering travel booking fraud.

To help protect themselves, people may consider not giving online account login information and avoiding links emailed or texted to them. Typing a merchant’s website into your web browser is a safer move.

So, what are the most common tactics that gift card scammers use? Leeds says first an email or phone call comes in, usually presenting some scenario meant to evoke a sense of urgency or even danger. The victim may be told they’ve won a lavish vacation package, that they owe back taxes or that a loved one is in peril.

Leeds says scammers will tell the victim that the only way they can pay is by purchasing gift cards and providing the redemption codes. “This often involves very specific requests for a certain type of gift cards, and scams involving larger amounts may see their victims going to multiple stores — or sites — to get them. “Once the codes are shared, the scam is complete and there’s typically no hope of getting the money back.”

For Black-owned businesses, the fight starts with informing employees. Leeds offered these tips to help entrepreneurs and employees spot scams, especially during the holiday season:

For starters, no legitimate business or government institution will ever request payment with gift cards. This is a huge red flag and is an immediate giveaway for many of the most common scams.
If you get an email or text claiming to be from someone you know but is from an unusual number or otherwise seems “off,” take steps to confirm they are who they say they are. Scammers doing this will not want to speak with you verbally and will often act as if the person they’re claiming to be is otherwise unreachable, as it would tip the potential victim off.
Regarding impersonation – pretending to be a CEO of an employee’s company is a favorite tactic among scammers. Employees eager to please the boss might be less likely to think twice about taking the requested action, which is what the scammers are counting on.
Business owners would do well to educate their employees on these types of scams, how they work and what the telltale signs are. A well-informed workforce is the strongest first line of defense.
If you do buy digital gift cards for your employees, customers or prospects, make sure your gift card vendor has sufficient security controls and anti-fraud services in place. Typically, they will disclose their risk mitigation efforts on their website, but it’s always a good idea to ask.