Gift cards and return merchandise fraud scheme

Be careful when using gift cards, cyber criminals have learned how to exploit this popular form of gift-giving, especially during the Holiday season.


Every day, users receive dozens of gift cards from top retailers for sale online, some of these are legitimate gift cards sold through third-party sites that resell used or unwanted cards, but a good portion result of illegal activities.

Some discounted gift cards are in fact the product of merchandise return fraud.

As explained by the security expert Brian Krebs, this kind of scam mainly impacts retailers that issue gift cards when clients return merchandise at a store without presenting a receipt.

Brian Krebs reported the case of one of his readers, who was aware that crooks steal merchandise from a physical store in the retail chain and return the merchandise to another store of the same chain without a receipt and then offer for sale the gift cards to websites like raise.com and cardpool.com at a discounted price.

Many stores for returns more than 60 days after the purchase, or if the receipt is unavailable, offer the value of the goods returned will be refunded to a merchandise card.

The Kreb's reader confirmed she was not aware that the card was a merchandise return card, a fact that was printed on the front of the card she received.

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Krebs noticed searching for available gift cards for sale online discovered that the cards are routinely sold for at least 25 percent off their value.Clothier

"Clothier H&M's cards average about 30 percent off."

Krebs made other interesting discoveries analyzing discounts for industries that haven't customers return (i.g. fuel stations, restaurants). The value of the cards from merchants that don't take customer returns allows discounts that tends to be much lower, between 3 and 15 percent (i.e. gift cards from Starbucks and Chevron).

Twenty-five percent off is really high and experts invite customers to be wary of such offers.

"Normally, it is around 5 percent to 15 percent." said Damon McCoy, an assistant professor at New York University and an expert on fraud involving stored value cards.

This means we are facing with a consolidated illegal activity, that according to the National Retail Foundation will cost U.S. retailers nearly $11 billion this year.

"Investigators say the crimes very often are tied to identity theft rings and drug addicts. Last month, authorities in Michigan convicted a 46-year-old father of four for running a large-scale fencing operation that used teams of prostitutes, heroin users, parolees and panhandlers to steal high-priced items from local Home Depot stores and then return the goods to a different Home Depot location in exchange for store debit cards." wrote Krebs in a blog post.

Clearly gift cards are also a privileged cashout method for criminals specialized in the sale of stolen credit cards. Crooks used stolen card data to buy gift cards from a range of retailers and offer them for sale online at 20-30 percent discounts.

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