Scams involving gift cards have increased tremendously, with hundreds of millions of dollars in losses over the last few years. An investigative study of gift card scams by Better Business Bureau was released last week.

The study – Gift Card Payment Scams: Why Scammers Love Gift Cards — looks at the scope of fraud involving gift cards as a payment method, the way various cards work, the scammers who exploit them, the efforts to combat the scams and the steps that the industry can take to further tackle this scourge.

According to the study, payment by gift card is a common thread among many scams that have been the subject of previous BBB studies, including government impersonators, business email compromise frauds, tech support frauds, romance scams, fake check scams, prize/sweepstakes scams and online sales of nonexistent vehicles.

“If you’re asked to make payment via gift card for whatever reason, you almost certainly are dealing with a scam,” said BBB President Dick Eppstein. “Gift cards don’t carry the same protections as credit or debit cards, so funds spent on gift cards are funds you cannot get back.”

Available data suggests that gift card payment scams are growing fast. The losses reported to BBB Scam Tracker for this payment type nearly tripled between 2017 and 2020, with a median loss of $700 in 2020; consumers over 65 were more likely to lose money than younger consumers.

The Federal Trade Commission reports that roughly one in four people who lost money to a scam not related to an online purchase paid with a gift card, with reported losses of $245 million since 2017 in complaints made directly to the FTC.

A Bowling Green-area businessman got a phone call at 11:30 on Feb. 26 that his electricity was being cut off at 12:15 for nonpayment. He protested but was told the cutoff could only be prevented if he bought gift cards from a local store.

He bought three cards totally $1,372, called the scammers and read the card numbers to them over the phone. He was then called and told that his meter was being removed and he needed to buy another $1,500 in cards, which was a deposit he would get back. They called him a third time on Saturday and got another $1,500.

Only later did the business owner realize that these calls were scams. He ended up losing $4,372.

Typically, when gift cards are requested as payment in scams, the scammer instructs the consumer to buy a gift card and either read the numbers on the back over the phone or send a photo of the numbers on the back.

If victims ask questions about why gift cards are being used for payment, scammers invent a plausible excuse, such as that the government has recently entered a contract with a gift card company to handle transactions. Commonly requested gift cards include eBay, Google Play, Target, iTunes, Amazon and Steam, an online gaming company. The scammer might promise to reimburse the consumer later or may send a check in advance for the consumer to deposit. In reality, the funds never materialize or the check is invalid, and the consumer has lost the funds forever.

Gift cards cannot be tracked easily and do not carry the same legal protections as credit or debit cards, making them an attractive option for scammers. While the FTC’s Telemarketing Sales Rule has extensive provisions governing telemarketing — which prohibits the use of reloadable cards such as Green Dot cards — it does not currently prohibit the use of gift cards in telemarketing.

Red flags to know and avoid include:

· Government agencies requesting payment. No government agency requests money through gift cards.

· Statements that buying gift cards is a safe way to make a payment. Providing the numbers for a gift card is like sending cash, and the money is rarely recoverable. Gift card payment requests are a big red flag for a scam.

· Keep the receipt when buying a gift card. Keep the physical card as well. These may help prove that the card was paid for and activated if problems arise later.

· Inspect the card carefully before buying it to be sure it has not been tampered with. Some scammers open the card to get the numbers on the back so that they can take the money when the card is later activated.