Gift card due diligence 101

According to most statistics, the buying public spent approximately $100 billion on gift cards last year. Because of their popularity, gift cards are used to commit fraud fairly frequently, also.

Retail criminals use fraudulent credit cards, debit cards and checks to buy large amounts of gift cards. Since a lot of sites exist, where anyone can sell these cards, criminals can turn them into cash fairly easily.

Shortly after the much talked about TJX data breach -- where 90 million personal and financial records were compromised -- a group was caught in Florida buying $8 million in gift cards using credit card numbers stolen in the data breach.

In another method to commit fraud, cards are picked up off a display and taken to a more private location in the store. The numbers and PINs are then recorded -- either with a portable card skimmer, or written down by hand. The people doing this then simply call in to check the value of a particular card, and use them when they discover they've been activated.

I've seen articles written on this that recommend buying cards from behind a counter. While this may be safer, we have to remember that most retailers have a problem with dishonest employees. This is more prevalent during the holiday season, when retailers hire a lot of temporary help.

In wouldn't be too far fetched to have a dishonest employee skim the details of these cards and drain them when they are activated.

There have also been reports of employees stealing credit card numbers and then using them to activate gift cards.

A couple days ago, TwinCities.com did a story about a Target employee stealing $19,500 in gift cards.

Since gift cards can be purchased on the Internet, fraudulent payment devices are used to purchase them on websites, also.

I would be extremely wary of buying any gift card on an auction, or gift card site. These sites rarely offer very much protection for people using them. It is a lot safer to visit the site that issues the cards, if you prefer shopping on the Internet.

Simply stated, a gift card purchased on a third-party website might not work, might not have the advertised value, or you might never receive what you bought.

I'm not saying not to buy gift cards. Being a lazy shopper, I buy them myself. Saying that, here are some tips to make sure you are getting what you pay for:

Make sure you buy them from a reputable retailer.

Keep your receipt and if possible, use a credit card to purchase them. Credit cards offer a little extra protection if there is a problem.

Inspect any card you buy for signs that it has been tampered. If the card is in a cardboard holder remove it and inspect it, the PIN should be protected up with a plastic coating that has to be scratched off.

Please note that if you work at a reputable retailer be wary of people returning gift cards. Stolen blank cards are often replaced for the cards that were previously activated.

I haven't seen anything come out about gift card fraud from the National Retail Federation (NRF) this year yet, but here is an interesting press release they released on the matter last year.