Washington

Discount Gift Cards Popular With Families, Money Launderers

Secondhand gift cards, which sell by the billions online, are growing in popularity. Families are discovering that they can save anywhere from 5 to 30 percent on everyday purchases such as gasoline, groceries, and restaurants.

But criminals are exploiting this fast-moving market.

SIMPLE SAVINGS

The legitimate transaction is simple. People who have unwanted gift cards sell them to others for less than face value. The buy pockets the savings.

That’s what Daniel Yang was after.

“It was a great deal,” he said.

Yang simply wanted to save money at a place he goes regularly: Chipotle.

“I wanted to maximize my discount because I go there often with my kids,” he said.

So, he found a website called CardCash.com where he bought a $100 Chipotle gift card for just $70.

But the deal quickly fizzled.

“I went to Chipotle, and Chipotle said, ‘your card is not valid,’” he said. “That was the first time I ever used it.”

Daniel contacted us and aroused our suspicion. We began looking into secondhand gift cards and discovered criminals exploiting them.

A SIMPLE CRIME

“A gift card sounds so innocent to all of us, but if you have this criminal mindset, you're going to find a way to use it to your advantage,” said Bob Moraca, Vice President of Loss Prevention for the National Retail Federation.

Moraca tracks crime trends and says thieves are using everyday gift cards to convert stolen credit cards into cash.

“That’s what the criminal wants at the end of the day, they want the cash,” he said.

Here’s how it works:

A criminal steals a credit card.

Next, they go to stores and rapidly buy stacks of gift cards.

Then they immediately re-sell them online.

That’s it. It only takes minutes.

But, when a bank later catches onto the scam and cancels the gift cards, buyers like Daniel can wind up with a worthless code.

That’s what happened to Daniel yang’s Chipotle card.

“It’s a learning experience for me,” Yang said.

Chipotle confirmed Daniel’s card was initially bought fraudulently.

The restaurant’s spokesman, Chris Arnold, said Yang’s case mirrored the scenario Moraca described.

“The same person who purchased [Daniel’s] card purchased several others.”

Chipotle called this breed of money laundering “a big and growing problem with pre-paid cards of all kinds.”

Moraca agreed.

“It’s happening every day,” he said.

A COMMON CRIME

Our research discovered it’s virtually everywhere.

In one burst outside Washington, D.C., $8,500 worth of gift cards were purchased with a stolen credit card in just eight minutes.

Near Miami, $9,000 in seven minutes.

And at a Petaluma target, $15,000 worth in just 12 minutes. Police suspect the couple spotted on surveillance hit two other stores for more gift cards and later likely laundered them for cash.

“Some of it can be organized crime,” Moraca said of the laundering.

No one tracks exactly how much this rip-off costs.  But it is prompting action.

“We probably see more of this activity than anyone on the planet,” said Tyler Spaulding, chief technology officer at Raise.com, which calls itself the world’s largest gift card marketplace.

STOPPING CROOKS

Spaulding told us the industry is building new software to detect suspicious sellers and is even hiring money laundering experts to police the gift card market. 

“At the simplest sense, we’re essentially selling money,” he said.

The only good from this fast-moving fraud is a new benefit for consumers. Some re-sellers are now guaranteeing the advertised value of their secondhand gift cards.

Raise gives buyers a one year guarantee.

“We’re willing to put our money where our mouth is,” Spaudling said.

Policies vary site by site.

The one Daniel used, CardCash.com, offered a 45-day guarantee.

He tried to use his Chipotle card after that and paid the price.  

“Oh yeah, I did pay,” he said with a chuckle.

Daniel’s $70 loss is a laugh.

But also a call for banks and stores: to improve their systems.

“I think the computer should be smart enough to detect this kind of activity and put a hold on it. Put a freeze on it,” he said.

CHANGES AT STORES

You will see new countermeasures at cash registers -- where this gift card fraud starts.

Some stores, like Walmart, might ask for identification when you buy a gift card with a credit card. Other stores are limiting how many gift cards you can buy. A few require cash.

One last note: everyone we talked to for this story cautioned us that buying a gift card from an individual on Craigslist or E-Bay is a risky proposition. There’s little or no built-in protection there.

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