Gift Card Scams: Are Sellers Complicit?

9 hours ago

6 min read

(And how to protect yourself anyway)

Thirty-four percent of American adults have been targeted in a scam demanding payment by gift card. I bet you have, too. I won’t ask if you fell for it. You wouldn’t be alone; in 2024, reported losses hit $212 million.

You know how it goes: Someone talks you into buying a gift card. They might pose as a person you know, like your boss requesting gift cards before a client meeting or a clergy member asking you to pick up cards for him to drop off at the local hospital. Or they could be someone you know you don’t know but convinces you to buy gift cards anyway, like the 70-year-old woman in California who lost $24,000 after a pop-up sent her to a phony Microsoft line. At some point in the heist, the gift card requestor asks you to either mail them the physical cards or to provide the codes for them. Once either has been done, your funds are irretrievable.

In a practically different but equally damaging scheme, called “leakage”, criminals lift cards off the rack wherever they’re sold, record the number and PIN, and reseal the package. When you load money at checkout, you activate the card for the thief who had been laying in wait for just that moment.

THIEVES AREN’T THE ONLY ONES BENEFITTING

Retailers are sitting pretty to benefit from your gift card purchase—whoever ends up using it. Indeed, there is really no reason beyond an antiquated sense of customer loyalty, that gives retailers a financial reason to secure their gift card racks. This is likely why the gift card industry has fought so hard against limitations, which some states are trying to impose.

A gift card retailer profits when you buy the card, either unknowingly activating a previously drained card or sending a filled card to a scammer, through card activation fees. For instance, InComm’s Vanilla Visa charges activation fees of up to $7.95. And some retailers charge their own additional start-up fees at the point of sale.

A merchandiser profits when the criminal converts the balance into goods or services, at an estimated $5.5 billion to $27.5 billion in annual receipts for them.

Federal prosecutors convicted three people in 2025 for running a leakage ring. More than $100 million in compromised cards had been converted almost entirely into Apple products and shipped to Asia. The cells clustered in sales-tax free New Hampshire, where Apple confirmed shipping 46,364 items worth $47 million to a single warehouse over ten weeks and $35 million in iPhones to another. That’s over $80 million of revenue directly to Apple.

Even if the scam is intercepted, the card retailer still keeps the activation fee and the merchandiser still profits. Indeed, if you end up realizing you’re being scammed, sometime between buying the cards and actually handing them over to the thief, you’ll have to hold onto them since most retailers won’t accept card returns. You can use the cards yourself the next time you go to Target, if that’s the card you bought. And when you return to Target, if you’re like most people, you’ll spend more than the amount of the gift card simply because you have the gift card. Another win for Target.

Or, perhaps, you don’t use the card at all because, like one scam victim I know, you don’t even know what GooglePlay is, but now you have a drawer full of cards for it. Now the retailer benefits even more: they get to keep the money you paid for the card and never have to provide any benefit at all (aka “breakage”).

Should companies be on the rack?

Excuse the pun, but shouldn’t the companies that are benefitting most from the gift card trafficking have to do something to stop it?

Certainly some class action attorneys think so. In Shay v. Apple, consumers whose App Store and iTunes cards had been drained before they could spend them recovered $1.8 million. In Barrett v. Apple, consumers who scammers had talked into buying cards and reading the redemption codes aloud recovered $35 million (Apple denied wrongdoing). Target now defends two similar cases. The draining complaint alleges that tampering at Target runs rampant and widespread and that Target knows it but keeps selling the cards anyway.

These are just tips of the potential legal iceberg, however, if you consider the size of the problem; after all, an estimated seventy-three million Americans experienced one version of the fraud or the other in 2025 alone.

Should the companies be doing more?

Most of the public policy to protect consumers has been focused on the point of sale—to try to prevent thieves from draining cards before you buy them and to try to better alert consumers to the threat of card scams.

While most states do not require any retailer protection for gift card scams, the tide is changing. In 2021, New Jersey enacted a law requiring sellers of gift cards to train employees to identify and respond to gift card scams. New York now requires retailers to post notices warning consumers of gift card fraud. Rhode Island requires warning signs with a $250 civil fine on retailers who don’t comply. Maine tried to pass a similar bill requiring scam warnings at point of sale, but retailers successfully argued that a $500 penalty would burden them without protecting anyone.

I have not found policy moving towards holding the redeeming companies responsible (although the aforementioned civil case law has tried). But with the most to gain, shouldn’t they be?

Five Ways to Make the Sellers Pay Attention

1. Move drainage loss to the seller

Today the consumer absorbs the entire loss on a drained card. Which is insane, if you think about it. That’s like walking into Walmart and buying a lego set that, when you get home, you discover is empty. And Walmart says, “too bad! You should’ve looked inside the sealed package before purchase!” Instead, the seller who failed to prevent the drainage should have to reimburse the consumer.

2. Reversal windows

Many scam victims report realizing within moments of gift card check out that they were scammed. Or as soon as the imposter requests the card pin numbers or for the cards to be mailed to them. Sellers should offer a remedy for these victims (instead of just benefitting when the victim ends up having to use the cards herself): For 24 hours after activation, the issuer should have to honor a purchaser’s request to void the card and reissue the balance.

3. Redemption-side controls

Sellers should decline purchases pending review (just like your credit card does) if there are indications of fraud or theft. For instance, if a card is purchased on one continent and redeemed on another; or there is a significant concentration of gift card purchases delivered to one address.

4. Publish the denial rate.

Require companies to report how many refund requests they have received and denied in a year.

5. Escheat dormant balances & require remittance on denied claims.

Thirty-seven states let companies keep the money on cards nobody ever spends. Every state should require full remittance of dormant balances to unclaimed property.

Require any company that denies a documented drain claim to remit the disputed amount to a state fund that pays victims.

UNTIL THEN, PROTECT YOURSELF (NO ONE ELSE WILL)

Here’s how:

Avoid them if you can. Gift cards aren’t good for you, even if they are being honestly purchased. They carry fees, often get lost, and yes, can be drained before they even make it to your intended recipient. Just give cash if you must!
If you must (but you probably don’t). Buy from behind the customer service desk or choose cards sealed inside cardboard.
Check yourself. Ask the cashier to scan the card and confirm the full balance before you leave.
BE ON HIGH ALERT. Treat any request for payment in gift cards, from anyone, for any reason, as a scam.