Our gift card resources page lists a couple of sites (Bidees, DFWbid) that have special types of auctions where you bid on items with specially purchased auction credits and any bids that are not winning are lost. From the get go I felt these were nothing more than scammy auctions that benefited the company much more than the customers, and the tech blog TechCrunch has an excellent post on a similar site BigDeal that shows just how stupid these type of auctions are. Think of them as a pyramid scheme – the winner of the auction probably gets a decent deal, but everyone else, the vast majority of people, get screwed.
Archive for the ‘Scams’ Category
I recently came across a story about an IRS employee arrested for stealing gift cards from the mail being delivered to the IRS facility where he worked. Apparently stealing gift cards from the mail isn’t limited to Postal employees. Now you have to work about the workers in the mail room at your business.
If you send gift cards by mail, some simple precautions will make them more likely to arrive.
Don’t put them inside a holiday card. Thieves look specifically for holiday cards and can feel the shape of the gift card inside. Instead, ship them in a box, a padded envelope (to make it look like something other than a holiday card), or a larger manila envelope (so it won’t look like a holiday card). If you can feel the gift card in the packaging, so can someone else.
If you do mail it along with a holiday card, make sure the envelope is sealed properly and the contents inside aren’t too loose. If they are, the Post Office’s automatic sorting machines may shred the envelope.
Buy Postal Service insurance to protect the gift card. To insure an item up to $50, it costs $1.75. Up to $100 costs $2.25. You get the idea.
This story about gift card thieves is both amusing and educational. On the amusing side, the thieves were caught because Toys-R-Us officials became suspicious when 4,600 calls to the automated gift-card balance line came from a single phone number at the thieves house, which ultimately resulted in thieves being arrested.
On the educational side, it reminds us that closed-loop (Target, Toys-R-Us, Borders) gift cards are generally not safe because the numbers are not protected from view (or swiping) as open-loop cards are, in protective packaging. This makes it very easy for thieves to copy the numbers. They then monitor the card using the card’s support line or at the retailers website to check when it is actived. When it is activated, they encode the newly activated cards number onto a phony gift card and go spend all the money on the card. When the customer tries to use the card, it is drained of all value.
Even worse, hackers are starting to target gift card websites (such as described in this story), for instance, using brute-force to check number after number until they find one that is valid and clone a card to match it. That could be your card.
To protect yourself, check your cards value immediately after you buy it and then a few days later. If thieves are going to steal your cards value, it will typically be very shortly after you purchase it. Continue to check the balance regularly and spend than as soon as possible. As soon as you notice some abnormalities, report this to the store where you purchased your card and ask for a replacement.
This is interesting. Here is an article that completely hammers what they call “rebate cards.” The claim is that companies make rebates incredibly hard to get and by issuing rebate cards instead of checks, they make them hard to spend too. They are so bad in fact that the Canadian government calls them deceptive and has outlawed issuing rebates in cards; rebates in Canada must be sent by check.
Why are Canada, the FTC, Attorneys General, Offices of Consumer Affairs and others so down on rebate cards?
1. You can’t check the balance except by going to a particular website.
2. You can’t tell how much is left at the point of sale.
3. It is very difficult to use the card as well as another form of payment for a single purchase
4. It is nearly impossibly to spend all the money on the card.
5. The cards additionally carry onerous fees.
6. The terms of the card were not fully disclosed at the time of issue.
Does any of that sound familiar? Rebate cards it turns out are nothing more than open-loop (Visa etc.) preloaded gift/debit cards.
Why is it that when these cards are issued as rebates everyone is hopping mad, and yet when they are called gift cards, people are running out to buy them? Open-loop gift cards have been the fastest growing segment of the gift card market for several years.
It is an interesting piece of consumer psychology to understand why losing money on a rebate card gets people fuming and yet the many billions more that are lost every year on open-loop gift cards harly raises an eyebrow. Perhaps understanding why people react differently to these two scenarios will help us understand how to get people outraged at the almost smash-and-grab tactics of the gift card issuers that causes consumers to lose so much money every year. Then we might see some meaningful legislation to fix this problem.
A startup called rackup has developed a new discount gift card site that uses a complicated short and quick auction scheme to sell gift cards at a discount (plus the chance to win an added value bonus). The average discount is 18%. They have apparently managed to attract $3.5 million in funding?
Consumers can already get a 15% or better discount on most gift cards at one of the MANY discount gift card sites out there. I’m not sure a complicated auction scheme like this would have a significant appeal to consumers.
I suspect this site will dump their auction scheme eventually and turn into an ordinary gift card resale site.
But then again, the very fact that consumers spend so much money on an obviously deficient product (gift cards) probably means that many of them will play this silly bidding game thinking they are getting a great deal, when in fact they are not.
It is never a good idea to buy something from Criagslist that you can not verify on the spot. Gift cards are no different, as evidenced by a recent sting against two individuals selling bogus amusement park gift cards.
I’ve paid enough attention to know that, while open-loop gift cards (Visa, MasterCard, etc.) may be a rip off, you shouldn’t be too concerned about the cards being hacked, which is actually a big problem with store-specific gift cards. With close-loop/store specific cards, hackers often scan the cards in-store to get the numbers, wait for them to be activated, and then create a phony card with the just activated information to drain the cards value (i.e. purchase things) before the customer knows anything is wrong. Because open-loop cards are so well packaged, they aren’t prone to this type of hacking.
However, as a merchant, I would be VERY worried about accepting open-loop cards. Hardly a week goes by without one or two stories about scams involving gift cards that are hacked to contain stolen credit card information. Thieves then use then use them as gift cards while the charges come from a stolen credit card. It is not too hard to imagine that the stories in the news represent just a fraction of the cases of this kind of fraud.
Often times, banks and credit card processors hold merchants responsible for any fraud that passes through their credit card machines, which can be a huge liability.
From experience, I know that it is incredibly hard to distinguish between gift cards and credit cards just from the card numbers. If Visa and MasterCard and the likes have a way to tell the difference between gift cards and credit cards, they aren’t giving merchants the benefit of this information. I suspect the only way to tell is through the merchant network, meaning that the issuing banks database can identify which numbers represent gift cards and which represent credit cards. The current merchant processing interfaces do not include any information which might help. It is quite possible that providing such information might not be possible without redesigning the merchant processing system, which might break much of the existing hardware and software.
There have been major class-action lawsuits by merchants against the card networks for making merchants swallow the fraud. As gift card/credit card fraud becomes more prevalent, the Visas and MasterCards of the world may be forced to address this by altering their systems to distinguish between gift cards and credit cards, lest they be forced to swallow the fraud themselves.
Update 8/26/09: If you are a merchant, you can protect yourself against this kind of fraud by checking the last 4 digits on the card against those printed on the receipt. If they don’t match up, you’ve got an altered gift card.
I saw this article in the Wall Street Journal today and was going to write a piece on it when I came across such a bit from cato-at-liberty.org:
Posted by Mark A. Calabria
Little noticed in the recently enacted credit card bill was a provision prohibiting retailers and financial institutions from issuing gift cards that expired with a set time, except under certain circumstances. While card issuers had been using expiration dates to estimate and manage their liabilities, many States had been “collecting” the value of these unused cards as “abandoned property”, as discussed in today’s Wall Street Journal.
Some states have even been going after cards with no expiration date, arguing that if you leave that gift card sitting around your house or in your wallet for too long, then you’ve abandoned. What’s next, funds sitting unused in your bank account will next be considered abandoned. The States that require unused gift cards, or unused portions, to be turned over require retailer and card processors to maintain databases tracking card amounts and usage.
There is some comfort, however, in knowing that some States do allow you to re-claim your “abandoned gift dollars,” for instance of the $9.6 million collected by New York State last year in unused gift cards, rightful owners were able to recover $2,150.
Clearly the States’ motives are suspect here when a state such as New York, under the guise of protecting consumers rights is able to return only 0.02% of funds they confiscated.
In this story, a Boston police officer suggests an easy way to spot gift cards that have been reassigned with stolen credit card numbers; compare the numbers on the card to the last four digits on the receipt. If they don’t match, it is a fake.
Scratch that (see post below). One theory is that hackers are merely purchasing iTunes gift cards with stolen credit cards and reselling them.
In a major blow to Apple, Chinese hackers have cracked the iTunes gift card algorithm and are selling iTunes gift cards for pennies on the dollar. (article)
Don’t we know this already? Here is another example of a store that had their gift cards on display so anyone could copy down the numbers or scan the cards, clone them, and wait until they were activated. Don’t we know that card data needs to be protected already? The incidence of this kind of thing with Visa/MasterCard type gift cards is almost nil because the card data is protected.
Apparently a member of the night crew at a Post Office in Willow Grove Pennsylvania stole gift cards that were intended to be used to reward employees of the post office. In all, he stole 35 of the $5 gift cards. Five dollar gift cards? This could help explain what is wrong with the Postal Service, thinking that $5 actually motivates anyone.
GiftCardRescue.com has launched a site GiftCardBalance.com that lists the contact information (URL’s and phone numbers) for quite a few gift cards. It is a convenient place to find the balance check information. Or, you could just look on the back of your card for the same information, seeing as you are going to need your card to actually check the balance.
A site where you could actually enter any gift card number and select the issuer to check the balance would be more helpful.
Update 5/19/10: Something is funky with the GiftCardBalance.com site and it appears that it may no longer be trustworthy, especially in light of recent scams involving fake gift card balance sites.
February 22, 2009 by Advocate · Leave a Comment
Filed under: Fees & Breakage, Legal & Regulatory, Scams
Filed under: Fees & Breakage, Legal & Regulatory, Scams
This has to be the most blatant example of the government not “getting” gift cards and the ridiculous fees they charge. The governments in 30 states are essentially using reloadable gift cards issued by banks such as BofA, Chase, and US Bancorp to pay people their unemployment benefits. The problem is, the cards include all sorts of fees, such as overdraft fees (on a debit card?), and fees to withdraw funds. Don’t state governments have enough clout to issue cards for the UNEMPLOYED that don’t carry fees? (article)
I don’t quite understand exactly what the thieves are doing to the gift cards, but apparently they are modifying them and trying to pass them off as regular credit cards. (article) The bad news is that more of this kind of thing will only make retailers more reluctant to accept open-loop gift cards.
Apparently open-loop (Visa) type gift cards are a favorite of thieves that work with stolen credit card numbers because gift cards when presented at the cash register are generally easier to scan with – they don’t require any ID since they don’t actually have a name on them. So, thieves like to load gift cards with real stolen credit card numbers and use them to buy goods which they can then sell for cash or return for cash. (article)
Undoubtedly, as this gets more popular with thieves, it will make retailers more reluctant to take these gift cards and harder for consumers to redeem them.
In setting up my own business that dealt with gift cards, one of the hardest things was to try to distinguish between gift cards and normal credit/debit cards. After a lot of work, I figured out the fingerprints of a gift card but it wasn’t easy and they aren’t obvious. Perhaps the industry would do well to make gift cards unique in some way so retailers can tell the difference.
This will be the third case of fraudsters managing to hack open-loop gift cards I have seen. (article) They are generally harder to scam because they are so well packaged it is nearly impossible to get the card out of the packaging and swipe it (to then later clone it and wait for it to be activated) without ths showing on the packaging.
I pay attention to stories related to gift cards and this story is the second case of open-loop gift card fraud I have ever seen. In this case, as in the previous case, it was an inside job. You should feel pretty safe buying an open-loop gift card (rip-off fee considerations notwithstanding) as long as the packaging appears intact.
There have been more and more instances of employees getting caught putting value on their own gift cards instead of customers gift cards when they purchase them, like this story from Wal-Mart. This is in addition to the scams where people scan gift cards still on the shelves and then clone them when they are activated. If you purchase a gift card or receive one, it behooves you to check the value the minute you get it home.
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