You Better Watch Out… for Scammers

ABSTRACT: In a year full of financial hardship, retail fraud and e-commerce scams threaten to damage both businesses and consumers. So, what are consumers to do if they believe they are the victim of a gift card scam? And what steps can retailers, banks and other financial institutions take to limit potential heartache during the season of giving?

As we approach the holidays, financial institutions, retailers, and consumers alike are all well-advised to be on the lookout for financial scams.

Just days ago, the Kansas City Police Department stopped gift card scammers that had defrauded an elderly woman, inducing her to purchase and send them gift cards, and threatening to harm her and her family if she did not comply. But much damage was already done, as authorities believe the scammers had already made purchases in excess of $75,000. The police became involved after Target employees notified them of the suspicious transactions.

Given the unique financial hardships presented by COVID-19, fraud is of particular concern this year. According to recent TransUnion financial hardship studies, 35% of consumers report they have been targeted by e-commerce fraud scams.

The FTC reports there are several versions of the recently popular gift card scams, including false IRS threats; callers pretending to be utility companies; sellers of cars, motorcycles boats, and expensive electronic devices on online auction or e-commerce sites; and buyers promising to pay more than the purchase price but then seeking reimbursement for the difference. They all have one thing in common – they demand payment be made in the form of gift cards from various retailers, which is surely never a requested form of payment for a legitimate transaction. Typically, the scammer will ask the victim to provide the gift card number and its pin number located on the back of the card.

So, what are consumers to do if they believe they are the victim of a gift card scam? The victim should tell trusted loved ones and report the incident to local authorities, the retailer, as well as to the FTC here.

There are steps retailers can take as well, including strengthening security by setting additional PIN numbers, limiting maximum gift card amounts, and educating employees to detect signs of gift card fraud, such as the purchaser requesting large amounts, or texting/talking on their phone through the transaction, since the scammers often demand the victim stay on the phone with them during the transaction. And it is key that retailers educate their consumers by including preventative tips near gift card racks and cash registers. Amazon, a frequent involuntary party to these scams, has published such guidance on its website.

Gift card fraud pertains to not only retail gift cards, but also prepaid cards from financial institutions. Banks and other financial institutions are reminded of their obligation to report suspicious transactions to the Financial Crimes Enforcement Network (FinCEN) and also encouraged to educate their account holders about gift card scams as the holidays approach. These efforts could save the financial institution and the consumer from substantial loss, as well as heartache, during the season of giving.