As consumers lose millions to gift card scams, US lawmakers pressure businesses


Gift card displays, such as this one in a CVS in Harlem, New York, have been a source of concerns for lawmakers hoping to combat gift card fraud. 'Card draining', or stealing numbers from poorly packaged cards, is one of the costliest and most common consumer scams, and states are trying to combat it with consumer alerts, arrests and warning signs on store displays. — Stateline/TNS

When Denise Brown peruses the tightly packed gift card display at her local CVS in Harlem, New York, she sees the perfect present for her grandson: a Sony PlayStation gift card.

Others, acting in bad faith, see these gift card displays as easy money in one of the country’s costliest and most common consumer scams: card draining.

Scammers drain a gift card by obtaining the bar code, CVV number, PIN number or activation code from beneath the slim cardboard packaging. They reseal the card, wait for a consumer to buy it and load it with money, and then spend the balance before the consumer can.

In 2023, card draining and other gift card-related fraud made up US$217mil (RM1.03bil) of the record-high US$10bil (RM47.82bil) in money lost from scams across the US, according to the latest data released by the Federal Trade Commission.

State attorneys general and legislatures are trying to combat gift card scams with consumer alerts, arrests and warning signs on store displays. Some are even telling gift card makers how to package their products. Retailers and card manufacturers, though, are pushing back – saying the micromanaging isn’t necessary and would hurt small businesses.

Gift cards, which are easy to find at almost any big box retailer, are a popular gift for holidays, birthdays and graduations. Scammers love gift cards because they’re money that can be easily moved, often irreversibly, with few protections for consumers, according to fraud specialists.

Maryland state Sen. Benjamin Kramer thinks new packaging requirements might help. He authored a bill that would require secure packaging to conceal the bar code and other information that could be used to activate it. Maryland lawmakers approved Kramer’s bill earlier this month and sent it to Democratic Gov. Wes Moore.

“Once they see these displays, con artists get all the numeric information off those gift cards and then put them back,” Kramer, a Democrat, told Stateline. “That’s the scam. Because then the consumer comes, puts US$500 (RM2,390) onto the gift card and it immediately gets drained by the scammer, who’s got all that information from when they pulled the gift card off the rack.”

Kramer said trying to legislate against ever-evolving frauds and scams is like a game of “Whac-A-Mole”.

“Scammers are always very creative in how they scheme to get their money,” he said. “This fraud is becoming more and more prevalent.”

Card draining is only one way that scammers capitalise on the popularity of gift cards. Some fraudsters, instead of grabbing information from gift card displays, masquerade as government officials or a friend in an emergency and intimidate victims into buying gift cards and giving them the card numbers and PINs, according to the Federal Trade Commission.

Brown thinks the notices posted at the CVS checkout counter are a good idea, especially for older adults like her.

“I’m not too wise on how people are scamming these days,” Brown said. “I don’t want to be taken advantage of, because I know a few friends who have been hoodwinked out of a few hundred dollars.”

States step in

According to a 2022 survey conducted by AARP, the advocacy group for older adults, 34% of US adults said they or someone they know had been targeted by scams seeking payment by gift card. Of those who were targeted, 24% followed through by purchasing gift cards and sharing the activation numbers with a scammer.

A quarter of respondents said they’d given or received gift cards that had been drained.

In the past few years, several states have acted against the scams. In 2021, New Jersey enacted a law requiring sellers of gift cards to train employees to identify and respond to gift card scams. New York in 2023 enacted a law that requires retailers to post notices warning consumers of gift card fraud. A Rhode Island law enacted last year also requires warning signs, and it imposes a $250 civil fine on retailers who don’t comply.

This year, Delaware, Iowa, Nebraska, Pennsylvania and West Virginia are considering similar legislation, with varying civil fines and penalties.

“Will this legislation end gift card scams? No, but it could make a significant difference. If we can educate and assist consumers in spotting a scam, we can further empower them to stop a scam,” Suzan DeCamp, president of AARP Nebraska, testified at a state Senate hearing earlier this year.

“We have an epidemic of fraud plaguing Americans, particularly older Americans, and we all need to do our part,” DeCamp said.

But Christian Reyes, who works at a Best Buy in the Bronx, was sceptical that most shoppers would notice warnings posted at checkout counters.

“Checkout lines already have so much going on that I don’t think the average person even notices that those signs are even there,” Reyes said. “And I don’t think I’m trained or well-versed enough to spot someone, at the moment, being scammed to buy a gift card.”

Reyes, who has been working at Best Buy for the past two years, said he has not received any training on gift card scams.

Opposition from retailers

Meanwhile, retail and industry groups that receive steady revenue from the roughly US$200bil (RM956.80bil) Americans spend on gift cards every year have pushed back against some of these measures.

In Maine, retailers helped defeat a bill that would have required them to provide verbal or written warnings of gift card scams. Nate Cloutier of HospitalityMaine testified at a March hearing that the bill targeted retailers – including a US$500 (RM2,390) penalty for non-compliance – without adding meaningful protections for consumers.

Curtis Picard, president and CEO of the Retail Association of Maine, testified that the bill was “wider ranging than it needs to be”.

“These scams most often take place at retailers where multiple cards are sold, or that sell some specific types of cards like iTunes, Google Play or other brands that are recognised across the country or across the world,” Picard testified. “It is not likely that these scams are targeting smaller, Maine-based or regional retailers.”

In the hearing on the Nebraska bill, Rich Otto, testifying on behalf of the Nebraska Retail Federation, argued that the legislation unfairly singled out gift cards.

“There’s nothing in this bill that targets payments through Bitcoin or other digital assets, peer-to-peer payments, nothing that targets social media sites that are complicit in the process of the scammer being able to reach out to the customer and those getting scammed,” Otto said. “Businesses that sell gift cards want to help customers from being scammed.”

Under the Maryland legislation, retailers who want to sell gift cards that are not in secure, enclosed packaging must only sell chip-enabled, numberless cards that can be safely activated by the consumer via the card issuer’s website.

InComm Payments, a major manufacturer of gift cards, has been a prominent opponent of that bill. InComm is best known for its so-called open loop gift cards – which often appear under Visa, MasterCard, American Express or Discover branding – that can be used at any store.

InComm spokesperson Anthony Popiel said the Maryland bill would bind gift card issuers into packaging rules that couldn’t be changed without further legislative action.

InComm’s packaging also has come under fire in California, where San Francisco last year filed a lawsuit alleging that “lax security features” in its packaging made it easy for scammers to access activation information. The lawsuit also alleges that InComm has routinely refused to refund scammed consumers, as required under state law. InComm denies the allegations.

“While the vast majority of cards we sell are not impacted by fraud, our highest priority is supporting our customers who have been affected,” InComm said in a statement. – Stateline.org/Tribune News Service

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