Home PublicationsCommentary The FTC Should Improve Data Collection To Mitigate Gift Card Scams

The FTC Should Improve Data Collection To Mitigate Gift Card Scams

by Becca Trate

A new report from the Federal Trade Commission (FTC) shows that gift card fraud continues to harm Americans. Policymakers and retailers need better data about this problem to address it.

The FTC aggregates data about consumer fraud in the Consumer Sentinel Network (Sentinel), a repository of data submitted directly by consumers, as well as other data contributors, such as federal, state, and local law enforcement agencies, the Better Business Bureau, companies, and non-profit organizations. In total, 23 states contribute data to Sentinel.

Fraud is a serious problem for consumers. In 2022, the total number of fraud cases reported to the FTC fell as compared to 2021, but the total consumer losses grew by $2.7 billion to $8.8 billion. The increase was heavily related to investment and cryptocurrency fraud. However, fraudsters also continue using a tried-and-true method to defraud consumers: gift card scams. Consumers reported 48,800 cases of gift card fraud in 2022, reaching more than $228 million in total losses. This is only a slight decrease in reported cases and total losses compared to 2021.

Gift card fraud and imposter scams, the most reported fraud category in 2022, often go hand-in-hand. Imposter scams are scams perpetrated by individuals falsely claiming to be a romantic interest, government agency, loved one in distress, well-known business, or technical support expert or service, to solicit money from a consumer. The fraudster will then claim they are in trouble, the victim owes a debt, or there is a service the fraudster can complete for the victim, before instructing the victim to purchase and “pay” with gift cards.

According to the FTC, fraudsters gravitate to gift cards because they are ubiquitous, offer fewer consumer protections when compared to payment methods like credit cards, and are relatively easy for scammers to turn into cash. Fraudsters can use gift cards to purchase products to resell, sell the cards on gift card resale markets, or convert cards into cash at gift card conversion facilities. Consumers ages 50 and older are more likely to report gift card fraud and tend to suffer higher losses.

Despite these insights, the new data does not reveal the full impact of fraud, the methods favored by fraudsters, or how victims became aware of the scam, regardless of monetary loss. The FTC uses self-reported information and information reported by law enforcement agencies to build Sentinel. However, research shows that victims of fraud tend to underreport or not report monetary losses, meaning the reported losses may not reflect the total consumer impact. Better understanding the true cost to consumers of gift card fraud, the methods favored by fraudsters, and the success of different mitigation tactics will help law enforcement and industry address the problem.

The FTC should improve data collection for Sentinel. First, it should launch a data-sharing pilot with retailers, gift card issuers, and gift card resale markets to track potential gift card fraud and payment anomalies. Large retailers already identify potentially fraudulent transactions and detect fraud in their systems. The FTC should encourage these retailers to report this data by offering retailers access to Sentinel, which the FTC currently limits to participating law enforcement. Providing retailer access would incentivize participation and allow retailers to use Sentinel data to better train their employees and customize their fraud detection systems based on real-time fraud trends. Retailers would know what brands of gift cards are targeted, language fraudsters use to trick victims, and the prevalence of fraud at stores, even if a victim didn’t report to the retailer directly.

Second, the FTC should collect data about the type of gift cards—virtual, mobile, or physical—involved in each fraud report. Currently, the FTC does not collect this information and so it can only report overall gift card payment fraud, not by type of technology. Better data categorization will help researchers, consumers, policymakers, and law enforcement understand fraud trends and lead to more effective fraud detection and policy decisions.

Finally, the FTC should solicit and report information on how consumers learned they were victims of fraud, and what, if any, intervention strategies impacted the consumer awareness of fraud. This would help the FTC understand the success of various programs, including the FTC’s own education campaign, in stopping fraud.

Overall, improved data collection will allow policymakers, retailers, gift card issuers, and law enforcement agencies to understand and respond to gift card fraud with greater efficacy and efficiency. Fraudsters will continue to exploit vulnerabilities to hurt American consumers, but small changes could help consumers not pay the price.

Image Credit: Flickr

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