Last week, the New York Attorney General announced an ongoing initiative to help protect consumers from gift card fraud.  Reacting to a rise in complaints about scam artists demanding payment in the form of gift cards, the NYAG has been working with Best Buy, Target, and Walmart to reform their gift card policies.  The NYAG's initiative is a joint effort with the Pennsylvania Attorney General.

According to the NYAG, there are many types of gift card scams, including:

  • Grandparent scam - In the "grandparent scam," the scammer pretends to be a grandchild of the victim who needs money because he or she is in some sort of trouble;
  • IRS scam - In the "IRS scam," the scammer impersonates someone from the IRS who is collecting taxes and who threatens arrest if the debt is not paid immediately; and
  • Tech support scam - In the "tech support scam," the scammer appears to be a tech support employee who claims to need to fix a virus on the victim's computer and then demands payment for the services.

With each of these scams, the scammers direct victims to purchase gift cards, provide them with the numbers on the back of the cards, and then destroy them (which prevents the consumers from asking retailers to freeze the cards).  Scammers then use the gift cards almost immediately -- often to purchase third party gift cards.  

Some of the changes that the retailers have implemented as part of this initiative include: 

  • Reducing the total amount that a consumer can purchase in one transaction in store-branded gift cards;
  • Reducing the dollar limit that can be loaded on store-branded gift cards;
  • Placing restrictions on the redemption of store-branded gift cards, including prohibiting the redemption of store-branded gift cards for other gift cards; and
  • Enhancing employee training to help employees identify the warning signs of gift card scams.

Although this announcement only involved three retailers, others should consider taking a look at their own gift card policies and making changes, as appropriate, to help combat fraud.