Why Scammers Use Gift Cards to Steal Your Money

We have all received a wide variety of scam phone calls, and most of them end with demands for immediate payment, often using what may seem to most of us as strange ways to send money. With so many of us spending our days at home right now, we are likely to receive even more of these calls.  If we are lonely and bored, we may even be tempted to engage in a conversation with the strangers who call our home.  This is a terribly bad idea!

Some of these callers will claim you owe money to the IRS, or you missed your jury duty and if you do not pay a fine, you will be arrested.  Other callers pretend to be your grandchild or another relative, crying hysterically that they are in a desperate situation and need you to send money for bail or some other need. They may even claim to have been kidnapped.

The call may come from a salesperson who offers to sell you a home coronavirus test kit or, even worse, a fake cure for the disease.

The request for money may seem polite or even humble, and come from someone you have met on a dating site or somewhere else on the internet, pleading that they have had an unexpected emergency and need to "borrow" some money until they get things straightened out. 

What all of these callers may have in common is they often suggest that the fastest way to send them money is for you to purchase a gift card at a local convenience store and read them the numbers from the back of the card.  They usually do not want you to mail them a personal check.  They want gift cards.

If you ever get a request from anyone asking for gift cards they can use to cover their bail or to pay a bill, hang up and report the phone number to the police.  No legitimate government agency, salesman, friend or relative will insist the only way you can pay a bill or help them financially is by reading them the numbers off the back of gift cards. 

You need to know that gift card numbers are the preferred method of payment for scammers, and too many senior citizens fall for these smooth talking criminals every day.

How Scammers use Gift Cards

What the scammers do with gift cards is actually quite ingenious.  They will ask you to go to a convenience store or a business such as Target or WalMart and purchase a large denomination gift card or two.  After you purchase the cards, they want you to call them back and read them the code numbers or PINs on the back of the cards.  They nearly always try to rush you to get this done, by threatening that you will be arrested, or something awful will happen to a loved one, if you do not meet a specific deadline.

Why gift cards?  Scammers ask for them because they are nearly as untraceable as cash and are easily transferred over the phone, which makes it very easy for them to cash, take the money, and disappear.

How Scammers "Launder" the Money on the Gift Card

Within minutes of giving the numbers to a scammer, they will pass the number to a "washer" who uses the gift card number to purchase other gift cards, with smaller denominations, in a store.  For example, if you have been told to purchase two $500 WalMart gift cards, and you read the numbers on the back to the scammers, they will pass the numbers to someone who will immediately use those numbers in a WalMart to purchase several gift cards for other stores, such as Best Buy, ranging in value from $50 to $250.  In less than an hour, your original gift cards have been used.  The "washer" gets to keep two to five percent of the value of the cards. 

Then, the codes for the new gift cards are resold online at a discount.  For example, there are sites where you can purchase a $100 Best Buy gift card for $90 or less.  By the time the scammers have destroyed the gift cards they purchased with the numbers you gave them, and resold those new gift card codes online, the money is completely untraceable.  There is almost no chance you will ever be able to get your money back.

The scammer may even skip the washer and specify that you purchase gift cards for iTunes, Google Play, Best Buy or other stores.  Then, as soon as you give them the numbers, they will immediately list them for sale at a discount.  The cards didn't cost them anything, so they do not mind selling them for far less than face value.  Before you know it, the scammer, the cards and your money are all gone.

How to Prevent This Type of Crime

The good news is that stores are starting to become aware of these types of crimes and they are questioning people who come into their stores and purchase large denomination gift cards.  Some stores will no longer let people use gift card codes to purchase other gift cards.  Businesses and police departments are working together to reduce these crimes, but they need the public to stop making things easy for the scammers.

Consumers can help prevent these crimes in several ways:

First, educate yourself about these scams and how they work.  You need to know that gift cards cannot legally be used to pay for bail, taxes or court fees.  There is no reason you should ever need to rush to a store to get gift cards, especially if you have been financially threatened by a stranger on the phone, or because you believe you are "rescuing" someone.

You may want to learn more about this and other scams by reading the AARP book, "Outsmarting the Scam Artists: How to Protect Yourself from the Most Clever Cons."

Second, think twice about purchasing discount gift cards on the internet.  While many of them are being sold by legitimate people who have been given gift cards they really do not want, when you purchase cards from these sites you could also be inadvertently helping someone who is in the process of committing a crime.

This is unlikely to be the last way scammers will try to get money from you.  When gift cards stop working as a payment method for their scams, they will try other things.  Scammers used to ask people to wire money into foreign bank accounts, but when banks began to train their tellers to question their customers who were making a large transfer to a foreign bank account, we began to see less of this.  That is when the gift card scams became more popular.

Whenever a stranger calls, be skeptical and do not hesitate to hang up.  Legitimate government agencies will contact you by mail, if they need to. They will rarely call you and, when they do, they will never ask for immediate payment over the phone.  In particular, they will not ask you to pay them with gift cards.  If you are unsure if a grandchild or relative really needs your help, always try calling them or other family members directly to confirm what is going on.  Finally, if someone you meet online asks for money, regardless of how nice and polite they seem to be, ignore the request.  This is especially true of dating sites on which one person may be scamming multiple lonely people at the same time.  Keep reminding yourself that people who are asking you for money may be lying to you, and you should either turn them down or seek legal advice.

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