Greater consumer protections are needed to battle gift card fraud, which bilked Americans for more than US$233 million in 2021 alone, according to a report released Monday by an international think tank that focuses on data, technology, and public policy.
Among the recommendations in the Center for Data Innovation report is broadening the Electronics Fund Transfer Act — a federal law that includes consumer protections for various electronic payment systems — to include gift cards.
The report recommended gift cards be treated more like debit cards, which are regulated under the EFTA. “By treating gift cards like debit cards, there would be more consumer protection. Now when consumers fall victim to fraud, there’s very little recourse,” the report’s author, policy analyst Becca Trate, told the E-Commerce Times.
While federal and state laws protect consumers from gift card expiration and inactivity fees, with special reporting requirements to prevent money laundering, they do not protect consumers against misuse or unauthorized charges, the report explained.
It added that this makes gift card protections significantly different — and weaker — than protections for credit and debit cards.
Consumers of gift cards did get a measure of protection in the Credit Card Accountability and Responsibility Act of 2009 — such as fees and expiration dates disclosures, limits on gift card inactivity fees, and minimum periods before a gift card can expire — but omitted some key protections granted to debit and credit cards, the report explained. Most notable among those omissions are protections for misuse and unauthorized charges.
Chips Foil Scammers
“Classifying gift cards under the same EFTA rules as debit cards would make gift card issuers and merchants more liable for gift card fraud,” observed Paul Bischoff, a privacy advocate at Comparitech, a reviews, advice, and information website for consumer security products.
“The idea behind this policy is to force issuers and merchants to implement better security measures, like chip and RFID readers, on gift cards. They will do so in order to alleviate risk,” Bischoff told the E-Commerce Times.
“A similar policy worked for debit cards and credit cards in the past, which is now why we all have RFID and chips in our credit cards,” he added. “However, such a policy could also have unintended consequences. Businesses could stop issuing gift cards altogether, and merchants might stop accepting them.”
If gift cards were protected by RFID chips and tap-to-scan like many credit and debit cards today, that would significantly reduce scams like strip readers and scams where gift card numbers are stolen and their balances skimmed by scammers once the cards are activated, noted Chris Hauk, a consumer privacy champion at Pixel Privacy, a publisher of consumer security and privacy guides.
“I would also like to see gift cards — at least those from Visa and MasterCard — be able to be added to Apple Pay and Google Pay wallets like credit and debit cards are. This would provide an extra layer of protection for users,” Hauk told the E-Commerce Times.
Better Accountability Needed
Increasing accountability for gift cards would improve existing conditions, maintained Amy Nofziger, director of fraud victim support at AARP.
“Currently, if a consumer has trouble with a gift card, whether through a scam or not, there isn’t much help,” Nofziger told the E-Commerce Times. “The consumer is passed from the vendor of the card to the backer of the card, to the store where the card was purchased. Which of these owns the responsibility of the customer satisfaction of the card?”
The report also called on the Federal Trade Commission to introduce an alert system on point-of-sale systems to increase awareness of gift card scams at the point of purchase.
“What we envision are digital alerts that the consumer would have to interact with. This would increase awareness of gift card scams at the point of sale,” Trate said.
She explained that currently the FTC has a program that provides literature and signs that merchants can print and place around displays.
“When you’re running around trying to pick up a gift card, you’re not likely to read those signs,” she maintained. “But if a popup alerts you to fraud that you have [to] interact with, you’re presented with an opportunity to become aware; that’s more engaging than just static signage.”
POS Alerts Impractical
As much as education is crucial and needed, there also needs to be in-store interventions in place, added Nofziger. The interventions could be a series of questions on a keypad asked of the consumer, such as “Did someone ask you to buy this?” or “Is someone on the phone with you while you purchase this?”
“If the consumer answers yes to any of these questions, the purchase would be declined,” she said.
Some consumer advocates, however, question the effectiveness and practicality of such an alert system.
“Digital alerts on point-of-sale systems might increase awareness but won’t entirely prevent gift card fraud,” observed Bischoff.
“While point-of-sale alerts may help cut down on fraud, it may be too difficult to implement,” noted Hauk. “Point-of-sale machines are manufactured by multiple companies and use various methods of operating.”
“Meaningful fraud warnings at the point of sale are not practical at scale and already exist in many financial transactions with limited impact on fraud rates,” James E. Lee, chief operating officer of the Identity Theft Resource Center told the E-Commerce Times.
Better Data Sharing
The report also recommended that the FTC launch a data-sharing pilot program designed to increase the number of data contributors to its Consumer Sentinel network, and that the agency categorize gift card fraud data into virtual, mobile, and physical cards.
The report contended that retailers would benefit from the data-sharing pilot by having greater access to reported scams from all data-sharing agencies.
In-depth information about the type of scams impacting victims could help retailers train employees to better spot and respond to gift card scams in their stores, the report explained.
Breaking gift card fraud into multiple categories would help consumers, researchers, and businesses better understand the impact of different kinds of payment fraud from gift cards.
Making this change, it continued, would allow interested parties to understand the difference and impact of gift card fraud from virtual gift cards, mobile gift cards, or physical gift cards purchased in stores so they can appropriately respond.
“Like so many other solutions to identity crimes, these suggested solutions are more about monitoring what happened and mitigating fraud exposure of financial institutions and less about preventing crimes,” Lee observed.
“The best deterrent to gift card fraud and scams is education about how gift cards are and are not used, and who will and will not ask for payment using a gift card,” he said.
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