As consumers lose millions to gift card scams, lawmakers are squeezing companies. •Nebraska Examiner

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

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

Scammers pick up a gift card by removing the barcode, CVV number, PIN code or activation code from under the thin cardboard packaging. They reseal the card, wait for a consumer to purchase it and load money onto it, and then spend the balance before the consumer can.

In 2023, card swipes and other gift card fraud made up $217 million of the record-high $10 billion in money lost to scams nationwide, according to the latest data released by the Federal Trade Commission.

Attorneys general and lawmakers are trying to combat gift card scams with consumer alerts, arrests and warning signs on store displays. Some even tell gift card makers how to package their products. However, retailers and card manufacturers are pushing back, saying micromanagement is unnecessary and would hurt small businesses.

Easily found at almost any big box retailer, gift cards are a popular gift for holidays, birthdays and graduations. Scammers like gift cards because they are money that can be easily transferred, often irreversibly, with little protection for the consumer, fraud specialists say.

Maryland Senator Benjamin Kramer thinks new packaging requirements could help. He wrote a bill that would require secure packaging to hide the barcode 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, scammers take all the numerical 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 $500 on the gift card and it is immediately emptied by the scammer, who has all that information from when he pulled the gift card off the rack.”

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

“Scammers are always very creative in coming up with schemes to get their money,” he says. “This fraud is becoming more common.”

Charging cards is just one way scammers are taking advantage of the popularity of gift cards. Some fraudsters pose as government officials or a friend in an emergency and intimidate victims into purchasing gift cards and giving them the card numbers and PINs, rather than obtaining information from gift card displays.

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

“I don’t really know how people get scammed these days,” Brown said. “I don’t want it to be taken advantage of because I know some friends who have been scammed out of a few hundred dollars.”

States intervene

According to a 2022 survey conducted by AARP, the advocacy group for older adults, 34% of American adults said they or someone they know has been the target of a scam seeking payment with a gift card. Of those targeted, 24% went on to purchase gift cards and share the activation numbers with a scammer.

A quarter of respondents said they had given or received gift cards that had been used up.

If we can educate consumers and help them spot scams, we can further empower them to stop a scam.

– Suzan DeCamp, President of AARP Nebraska

In recent years, several states have cracked down on these scams. In 2021, New Jersey passed a law requiring gift card sellers to train employees on how to identify and respond to gift card scams. New York passed a law in 2023 requiring retailers to post notices warning consumers about gift card fraud. A Rhode Island law passed last year also requires warning signs and imposes a $250 civil fine on retailers who don’t follow the rules.

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

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

“We are facing an epidemic of fraud that is affecting Americans, especially older Americans, and we all need to do our part,” DeCamp said.

But Christian Reyes, who works at Best Buy in the Bronx, was skeptical that most shoppers would notice warnings at the checkouts.

“There’s already so much at the checkout counter that I don’t think the average person even notices those signs are even there,” Reyes said. “And I don’t think I’m educated or savvy enough to see anyone being scammed into buying a gift card right now.”

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

Opposition from retailers

A Walmart in Washington DC is posting signs at checkouts to warn consumers about gift card fraud. (Barbara Barrett/Stateline)

Meanwhile, retail and industry groups, which receive steady revenue from the roughly $200 billion Americans spend on gift cards each year, have opposed some of these measures.

In Maine, retailers helped defeat a bill that would have required them to provide verbal or written warnings about gift card scams. HospitalityMaine’s Nate Cloutier testified at a hearing in March that the bill targeted retailers — including a $500 fine for noncompliance — without adding meaningful protections for consumers.

Curtis Picard, president and CEO of the Retail Association of Maine, testified that the bill was
“broader than necessary.”

“These scams usually occur at retailers that sell multiple cards, or that sell specific types of cards, such as iTunes, Google Play or other brands that are recognized nationwide or around the world,” Picard testified. “These scams are not likely to target smaller, Maine-based or regional retailers.”

During the bill’s hearing in Nebraska, Rich Otto, testifying on behalf of the Nebraska Retail Federation, argued that the legislation unfairly excluded gift cards.

“There is 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 by which the scammer can reach the customer and those who get ripped off,” said Otto. “Companies that sell gift cards want to prevent customers from being scammed.”

Under Maryland law, retailers who want to sell gift cards that are not in secure, sealed packaging may only sell some chip-enabled cards that can be safely activated by the consumer through the card issuer’s website.

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

InComm spokesman Anthony Popiel said the bill in Maryland would impose packaging rules on gift card issuers that cannot be changed without further legislative action.

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

“While the vast majority of cards we sell have not been affected by fraud, our top priority is to support our customers who have been affected,” InComm said in a statement to Stateline.

This article first appeared in State border, which is part of the States Newsroom network, as is the Nebraska Examiner. Stateline maintains editorial independence.