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Gift Card Fraud & Scams Series – Part I


Secret Credit Card Recording & Gift Card Windfall

As I mentioned on May 10th, in celebration of the newly redesigned giftcardblogger.com, I will be running a four part series on Gift Card Fraud and Scams.

I will be discussing the major types of gift card scams out there and provide you with tips on how to avoid becoming a victim. Today’s post will focus on credit card skimming and how that is used to perpetrate gift card fraud.

A recent arrest of two men in Herkimer, NY has led police into what could be one of the most sophisticated gift card and credit card schemes out there. According to a story on uticoad.com, police seized about 100 debit and gift cards from the two men, which were apparently used to defraud local Wal-Mart stores.

The case began to unfold as one of the men tried to buy $800 in Wal-Mart gift cards using multiple credit cards that were each denied. Police found that during the two day period, the suspects had purchased $39,000 worth of Wal-Mart gift cards and electronic equipment in Herkimer and Rome, NY. At the Rome, NY Wal-Mart alone, the two men made about $8,000 in purchases in one hour. So how does the scheme work?

Credit Card Skimming

The key to this gift card fraud is something called “credit card skimming”. According to Wikipedia, skimming is the theft of credit card information used in an otherwise legitimate transaction. It starts with a dishonest employee of a legitimate merchant, who can either photocopy credit card receipts or swipe the card information into an electronic recorder. This is more common in places where the employee has possession of the customer’s credit card out of their immediate view, like in restaurants, bars, or gas stations.

Skimming devices are now being placed on ATMs to read the magnetic strip as the user unknowingly passes their card through it. In addition, a pinhole camera is used to read the user’s PIN at the same time. This practice is also spreading to DVD rental stalls.

Example of Credit Card Skimming

  • A person working in a restaurant, gas station, or any retail store would secretly swipe a customer’s credit card into a credit card “skimmer” during a regular transaction.
  • The credit card information gathered is transferred into the magnetic strips of fake debit cards
  • The fake debit cards are then use at a retail store (like Wal-Mart) to buy gift cards. This allows the person to max out the stolen credit card account.
  • The gift cards are then used to purchase merchandise at a store in another location. In this case, a nearby Wal-Mart.
  • The purchased goods are then sold for cash.

Police estimate that this scheme alone has been used to defraud Wal-Mart of as much as $2 million. The scheme is known to be currently going on in New York, Maryland, Ohio, Pennsylvania, and New Jersey.

How You Can Be Affected

There are two ways you can be impacted by this fraud. First, your credit card number and security code could be skimmed (secretly recorded) and used to purchase a large amount of gift cards. These gift cards will be redeemed quickly for merchandise or sold online for cash.

Second, you could be at the receiving end of a gift card or merchandise bought with a skimmed credit card and sold online.

How to Protect Yourself

Here are tips on how you can protect yourself from becoming a victim of credit card skimming or at the receiving end of gift cards or merchandise purchased using skimmed credit cards.

  1. Be Vigilant: It may sound obvious but this is the one thing you can control. When you give your credit card to someone to swipe, watch what they are doing. This is not the time to be chit-chatting or reading the tabloid newspapers. The cashier is unlikely to do anything if they see that you are watching them. If they are using a secret camera to get your information, it may only take a second, so make sure you keep your eye on things. If they take your card somewhere to swipe, there is nothing you can do about that.
  2. Review your Card Statement: There are certain situations you cannot control, like in restaurants and bars. That is why it is important to review your credit card statement to make sure you authorized all the transactions listed on your statement. If you have online access to your credit card or bank account, it is a good idea to log-in every few days to make sure nothing funny has happened. The earlier you detect things, the better. If you notice suspicious activity, call the card company or bank immediately and in most cases, you will get your money back if they determine it is fraud. But that is a big IF.
  3. Don’t be Greedy: When buying things online, if it is too good to be true, it probably is. There are legitimate gift card being sold online and you can find some great deals. However, if someone is loosing a lot of money to sell you a gift card, you should think twice about it. My recommendation is to walk away. People with stolen gift cards are happy if they can even turn half of the value into cash. Using the case mentioned earlier, if two men are able to buy $39,000 worth of gift cards and merchandise in two days. If they are able to turn half of that (about $20,000) into cash, that is a $10,000 pay day each for just two days of work. I don’t think they will hesitate to take that. For more tips on buying gift cards online, click here.

As you can see, credit card skimming can be used to do a lot of damage on your bank account or credit card if you are not vigilant. And you need to make sure you don’t end up buy goods that are purchased with stolen credit cards by not being greedy when buying things online. The police may trace it back to you and result in unwanted attention to yourself.

Readers, have you been a victim or do you know someone who has been victimized by gift card or credit card fraud? Share your story in the comments section below.

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3 Comments

  1. Great post. Gift card scams are rampant, and it’s difficult to track how much fraud happens. I studied Criminology back at UCI, and it’s a case of white collar crime. A lot of times, the culprits are employees who have access and the knowledge about the company and the fraud they are committing. Many time, the statistics that are reported are only a fraction of the loss that occurs. I’m curious to the see the other parts of your series!

  2. GiftCardBlogger™

    Austin, good point. Employees do play a role in this, whether at the post office, as the next post will show, or at restaurants and even cashiers at retail stores. I don’t want to generalize about all employees but there are a few bad apples out there that help perpetuate gift card fraud.

  3. BA in VA

    To file online fraud complaints you can go to: http://www.ic3.gov however keeping stats is their specialty, not resolution.

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