Gift card scams are back in the news, with two federal agencies issuing warnings about their proliferation and one state now passing a law aimed at stopping its latest iteration called card draining, where scammers deplete the value of gift cards before they are used.
First, the good news. Maryland has enacted the Gift Card Scams Prevention Act of 2024 which mandates several preventative measures and imposes new obligations on merchants and third-party gift card resellers.
The law requires merchants conducting online gift card sales to register annually with the Division of Consumer Protection within the Office of the Attorney General. These merchants must also display a consumer warning about gift card scams online and at physical retail locations where gift cards are sold. The bill also stipulates that physical gift cards be enclosed in secure packaging to prevent tampering unless the card is chip-enabled and numberless or sold exclusively for use at the merchant’s own establishments.
“A merchant may not knowingly sell an open-loop gift card to a consumer unless … the merchant conspicuously displays a notice … and the gift card is enclosed in secure packaging that is sealed in a manner that is not easily opened without signs of tampering,” the law states.
The bill also mandates that merchants provide employee training on identifying and responding to gift card fraud. Third-party gift card resellers must maintain detailed records of transactions for at least three years. These records include the transaction date, the seller’s and buyer’s identification details, and the gift card’s specifics. Law enforcement agencies can request these records if needed for criminal investigations.
Violations of this act are classified as unfair, abusive or deceptive trade practices under the Maryland Consumer Protection Act, subject to enforcement and penalties. The law is scheduled to take effect in two phases: initial provisions on Oct. 1 and full implementation by June 1, 2025. This comprehensive approach aims to enhance consumer protection and mitigate the risks associated with gift card fraud.
According to ProPublica, the Maryland law is part of a growing effort among several government agencies — federal and state — to combat card draining, which escalated during the pandemic at the hands of Chinese organized crime rings. ProPublica recently reported that late last year, the Department of Homeland Security launched a task force to address card draining.
“We’re talking hundreds of millions of dollars, potentially billions of dollars, [and] that’s a substantial risk to our economy and to people’s confidence in their retail environment,” Adam Parks, a Homeland Security assistant special agent in charge, told ProPublica.
The FBI issued a warning on May 6 warning of an increase in gift card scams where fraudsters impersonate legitimate entities, such as government agencies, tech support, or romantic interests, to trick victims into purchasing gift cards. Scammers often create a sense of urgency, claiming immediate action is required to resolve issues or secure prizes. Once the victim buys the gift cards, the scammer requests the card numbers and PINs, enabling them to quickly access the funds. The FBI advised consumers not to share gift card information, scrutinize unsolicited requests for payments, and report any suspicious activity to the Federal Trade Commission (FTC) or the FBI’s Internet Crime Complaint Center (IC3).
The FTC also recently issued a report on general financial scams, in which gift card scams played a major role. The FTC report highlights that in 2023, gift card scams led to $228 million in losses, with a median individual loss of $500. Nearly 44% of scam reports involved gift cards, with Apple, Target, and Google Play being the most impersonated companies. The report also notes that scams often use romance, tech support, and government impersonations to trick victims into buying gift cards. Additionally, people aged 20-29 reported the highest number of scam incidents, although older adults, especially those over 70, reported higher financial losses.
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