Gift card draining scams have become a huge problem with some estimates as to the amount of money lost to this type of scam anywhere from $200 million to a billion dollars in the last two years.  Longtime readers of Scamicide may remember that I have been warning you about these scams since 2012.  Organized crime groups including Chinese cybergangs operate wide scale gift card draining in the United States. The Department of Homeland Security is investigating these Chinese gangs through Operation Red Hook.   Gift card draining occurs when scammers tamper with gift cards so that when an unwitting customer buys a gift card, the value of the gift card becomes under the control of the scammer.

Recently the Texas Financial Crimes Intelligence Center led a multi-agency investigation that resulted in the break up of a gift card draining ring operating in Texas and Arkansas arresting four people accused of running the scam.

The most common way gift card draining occurs involves scammers going to racks of gift cards in stores and using handheld scanners that are easy to obtain, read the code on the strip of the card and the number on the front.  They then put the card back in the display and periodically check with the retailer by calling its 800 number to find out whether the card has been activated and what the balance is on the card.  Once they have this information they either create a counterfeit card using the information they have stolen or order material online without having the actual card in hand.

Another common way gift card draining occurs is when scammers place a sticker with the barcode of a a gift card that the scammers possess over the actual barcode of the gift card in the rack.  Thus when the card is taken by the gift card purchaser to the checkout counter to have the card activated, the funds used to purchase the gift card are credited to the card of the scammer.  It is not until the gift card purchaser tries to use his or her card that it is discovered that there are no funds credited to the card.

Some retailers, in an effort to reduce gift card fraud put a PIN on the gift card so that if the card is used online, the user must have access to the PIN which is generally covered and must have the covering material scratched off in order to be visible.  Unfortunately, many purchasers of gift cards are not aware of this so they don’t even notice that the PIN on the card that they are purchasing has already had the covering material scratched off by the scammer who has recorded the PIN. Target has redesigned its gift cards to have a blank space where access codes used to be printed.  Instead the code is applied to the gift card by the cashier at checkout.  Other gift card retailers are adding tamper-proof packaging or disc=plays that prevent cards from being put back once removed.

TIPS

When buying a gift card, only purchase cards from behind the customer service desk and if the card is preloaded, always ask for the card to be scanned to show that it is still fully valued.  This avoids all of the problems of tampering with the card before it is sold.

Always inspect the card carefully to make sure that the barcode has not been tampered with in any fashion and that the PIN is still covered.

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