Will Gift Card Sites Become a Fraud Problem?

This morning, I read a story in the San Jose Mercury about organized retail theft - which mentioned how shoplifting gangs are stocking up for the Christmas season.

The story quoted Joseph LaRocca, of the National Retail Federation:

"Goods stolen by organized or professional thieves are sometimes sold cheaply at flea markets, on street corners or in impromptu home boutiques, say retail security experts. They can end up as fraudulent returns to stores. And in a high-tech age, they can be "e-fenced'' on online auction sites."

Also mentioned was how gift cards are being bought and stolen with fraudulent checks and credit cards.

Not mentioned in the article is the fact that gift cards are also issued as refunds when someone doesn't have a receipt and that "hackers" have been able to load "blank cards" in the past.

And new "gift-card auction sites" seem to be popping up all over the Internet.

Marshall Loeb of MARKETWATCH recently did a story on these sites, which attributed this new trend to consumers not using up their old cards. While this might be true -- gift card fraud is nothing new -- and I have to wonder how many cards sold on these sites were the result of one fraudulent transaction, or another?

And even the article states that consumers should be wary:

Consumer advocates warn that you should be careful when doing business on these sites. There is virtually no way to avoid fraud completely; a seller could post and sell cards that have no value. Some sites have built in safeguards to prevent this from happening. CardAvenue.com, for example, validates cards listed at more than $100 and will cover up to $100 of a card's value if it proves to be a dud (you have to pay a $10 deductible, though).

After reading this, I had another thought, which was that eBay warns people all the time not to do off-eBay transactions, but they do anyway - and there are many of them who become fraud victims.

It's amazing what a few "too good to be true deals" will harvest in the way of victims.

Will we see the same thing on these "gift card sites?"

A couple of years ago - eBay limited the number of cards that could be sold by any one seller - as a result of all the fraud and some pressure by corporate victims (retailers).

Now - it seems - that these gift card sites are stepping into to fill the "void" left by eBay's change in policy.

A lot of these sites are too new to have developed a history, but given the history of gift cards being tied into fraud - it's probably a matter of time before we see problems.

I would strongly recommend that buyer's be careful (caveat emptor) and that the "retail industry and law enforcement" keep a "watchful eye" on these sites.

Of course - my guess - is that they already are!

A closing thought is that even if the cards work - if they were a result of a fraud transaction - we all end up paying for it in the end.

Businesses wouldn't stay in business otherwise.

If you are interested in how much gift card fraud there is out there, click on the title of this post.