When Buying Gift Cards This Holiday Season, Beware of This New Fraud

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Gift card fraud is a rapidly growing issue that is especially prevalent during and just after the holiday season. Find out how consumers can protect themselves from gift card fraud.

This holiday season, experts predict about $25 billion will be spent on gift cards -- the number two most coveted gift on shoppers' lists this year, according to Consumer Reports (clothing is number one). As for individuals, the average shopper is expected to spend over $116 on gift cards this holiday season, says the National Retail Federation.

Yes, gift cards are easy to buy and, in most cases, sure to please, but they are not without a downside. First, gift cards are only a good gift if they're redeemed, and, for unspecified reasons, even though 54 percent of respondents to a Consumer Reports survey received gift cards for the 2005 holidays, 19 percent have not used one or more of their cards a year later.

In fact, over 23 million Americans are still holding on to unused gift cards from last year's holidays, adding up to a whopping $972 million in unredeemed cards, says Consumer Reports.

The second and more serious downside to gift cards is their vulnerability to fraud from a number of avenues.

"Gift card fraud is a growing concern among retailers nationwide," said Joseph LaRocca, vice president of loss prevention for the National Retail Federation. "Gift cards are being used as mainstream currency among retailers, from fast-food restaurants to major department stores."

One way fraud occurs is when a salesperson or waiter sells the customer a gift card, then slips the activated card into his or her pocket, while handing the customer an empty card. However, a more sophisticated scam is making headlines this holiday season.

The Better Business Bureau (BBB) has issued a warning about a new type of gift card fraud. Criminals have figured out a way to take advantage of unactivated gift card displays that many stores have set up. They jot down the card number, then wait a few days and call the card's 800-number to find out whether it's been activated, or how much money is on the account. Then, they shop online using the gift card's number.

"It's just like cash and if anyone gets their hands on the number it can be used," says Southern Colorado Better Business Bureau President Carol O'Dell.

The BBB says this type of gift card fraud is occurring, on average, about five times a day nationwide.

"What the scammers are doing is they are taking those gift cards off the racks, recording the numbers off the back of the card, hanging the gift cards back up, and they hope somebody will pick that up and take it to the cashier, activate it, and then what they do is they call the 800 number within a few days and see if the card's been activated," said Jim Hegerty of the Omaha BBB. "If it is, they go on a free shopping spree."

Gift cards can be a safe bet if you follow some simple precautions.

"Caution is the word here," Hegerty said.

Some easy tips to avoid gift card fraud include:

1) Don't buy gift cards that are located on displays the public can access, or that have all their security codes visible (even if they come from behind the counter).

2) Look for gift cards that have scratch-off security codes. If it has been scratched off, don't buy the card and report it to the store's manager.

3) Don't buy gift cards from online auction sites, which may be selling stolen or empty cards. Purchase gift cards online only from known, reputable retailers, or go to the actual store to get them.

4) Anytime you buy a gift card, call the 800-number to check the balance soon after you get home. You can also ask the cashier to scan the card immediately after you buy it to ensure the balance is correct.

5) Keep your receipt for the gift card in case of problems.

6) Instead of gift cards, give them something "from the heart," so to speak, something you have carefully thought through that is more personal, like unique personalized gifts such as those found at http://www.happybirthdaygiftideas.com/personalized-gifts.html.

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