Santa Rosa woman loses over $1,500 to gift card draining scam - The Press Democrat

Oct 17, 2024

— Inspect the packaging of any gift card. Look for wrinkled, torn or otherwise damaged cardboard where someone may have removed and then replaced a card.

— Look for tampering with the card. Sometimes security pins will be scratched off or a sticker with a different bar code has been applied on top of the real one, meaning when you pay at check out, you could be adding cash to a scammer’s account rather than to your new card.

— If you suspect any tampering or damage, pick a different card and bring the one in question to customer service.

— Look for cards that are kept in locked cases or behind cash registers as they are more protected.

— Check the terms and conditions for any card you purchase for reimbursement policies.

— Purchase cards using a credit card if possible, and always keep your receipt in case you wind up needing to seek compensation. Register your gift card if that’s an option.

— If funds are stolen, report it to the card issuer as soon as possible as policies often set time limits for issuing refunds.

— Beware of websites that offer to check your gift card's balance. Some are set up to steal card information. Use the website URL printed on the gift card instead or call the number provided.

— For tracking purposes, you should report card draining scams to the local retailer and law enforcement. You can also submit a report to the Better Business Bureau at www.bbb.org/scamtracker.

For the holidays last year, Suzanne Guerra wanted to do something nice for her kids, grandchildren and great-grandchildren. Standing at the Safeway in Santa Rosa’s St. Francis Shopping Center, Guerra saw the tall display rack with rows and rows of gift cards, and it seemed like a no-brainer.

“I thought, ‘that’s what I’ll do. I’ll buy cards for everybody, and then they can get what they want,’” she said. She loaded $1,650 onto five Vanilla Visa Gift Cards with the cashier.

But, when family members tried to use the cards, there was no money. All except one had been zeroed out.

Guerra had fallen victim to an increasingly common scam known as “card draining.”

It works like this: Scammers visit stores where cards are sold and record or replace the numbers on the card or replace them with counterfeits.

Then, they monitor when the cards are activated and spend or transfer the funds before the recipient can. They might scan or write down the activation information or add a sticker with a different bar code and reseal the card in its packaging. The potential involvement of organized crime rings in these schemes has prompted the creation of a U.S. Department of Homeland Security task force.

“It’s becoming more and more common to get a card, and there’s no funds on it,” said Alma Galvan, spokesperson for the Better Business Bureau’s California Bay Area and North Coast division. “It’s happening here in this area and across the entire US.”

The trend has grown with the popularity of prepaid cards, and it spikes around the holidays.

“We’re all in a rush buying gifts or companies are buying gift cards for their staff,” Galvan said. And, “at grocery stores, for example, it may feel safer because you're in person, and you're exchanging the money face-to-face as opposed to giving away personal information online.”

That’s how Guerra felt. Unlike scams where someone is asked to give up sensitive details or pressured to hand over money (also often using gift cards), “Safeway has been around a long time,” Guerra said. “It’s a story of trust.“

Last year, card draining and other gift card-related fraud accounted for $217 million in losses according to the Federal Trade Commission. The agency has received almost 20,000 such complaints reporting $100 million in losses in the first half 2024. A quarter of consumers in a 2022 AARP survey had given or received gift cards drained of funds.

Recouping losses can be a confusing, frustrating and time consuming process. Guerra said she’s been passed around various contacts at Safeway and had a discouraging conversation with a Vanilla Visa representative.

A spokesperson for InComm Payments, the company behind Vanilla Visa and other prepaid cards, said that it is the “highest priority is to protect consumers, and support those who have been affected by fraud.”

The company asked to be put in touch with Guerra. An InComm webpage on gift card fraud prevention states that while refunds are determined on a case-by-case basis, “the majority of cases” are “resolved in (customers’) favor.”

To avoid the headache, there are signs to look out for, like damaged packaging or manipulated card numbers, but sometimes there’s no outward evidence of tampering, Galvan said.

That’s why “when you're buying a gift card, you fully have to understand the store’s and cardmaker’s policy.” Manufacturers and retailers may have different terms when it comes to responsibility and liability. In some cases, a retailer may be on the hook, or maybe it’s the card issuer. Sometimes both will try rebuff reimbursement efforts. “As the consumer, you have to do your due diligence,” Galvan said.

California state law affords some protection in limiting consumer liability and requiring refunds for unauthorized transactions.

Some have turned to the courts to try and address the problem. In November, the San Francisco city attorney filed suit against InComm and its partner banks alleging the companies involved in producing and selling Vanilla Visa gift cards have known about security problems, failed to take protective measures and refused refunds or made the process unreasonably slow and difficult, in violation of state laws. A class action, filed in New York earlier this year, also accuses Visa, Incomm and others of failing to to properly investigate and resolve consumer complaints about drained cards.

An “exceedingly small portion of the hundreds of millions of cards we have sold has been affected by fraud,” InComm said. “Category leaders are naturally lightning rods for frustrations when difficult issues arise. Generally speaking, we understand and accept that comes with the territory, and we are happy to engage on this important issue and be accountable to consumers.”

But the spokesperson characterized lawsuits as “engineered by self-interested lawyers,” noting one lawsuit had been defeated and an expectation the others would meet a similar fate. Additionally, he said InComm Payments “continuously leverages new technologies, packaging techniques, monitoring systems, and other security practices to help protect consumers against fraud.” The company is working with law enforcement to monitor and root out international crime outfits that may be involved.

Lawmakers have also tried to crack down on gift card scams, sometimes amid staunch opposition from retailers and industry groups. In 2021, New Jersey enacted a law that requires gift card sellers to train employees to identify and respond to scams. According to a 2023 New York law, retailers have to post gift card fraud warning notices. A similar law in Rhode Island also includes a $250 civil fine for failing to do so. Five other states proposed related legislation this year. In May, Maryland’s governor signed a first-of-its-kind law to curb card draining specifically by mandating secure packaging for gift cards sold in person.

Although not foolproof, experts say that retailer efforts to secure gift cards can be a major help — for instance, training employees, posting warnings and tips and keeping gift cards locked up or behind or near cash registers.

A spokesperson from Safeway’s Northern California Division said, “this is an industrywide issue and like other retailers, we have practices and procedures in place to protect our customers. Our front-end associates are trained for signs of potential fraudulent acts and may ask questions at checkout for gift card purchases to deter customers from being a victim of a scam.” She also said that if someone ends up with a gift card with no value and is unable to get assistance and compensation from a gift card vendor, they can contact Safeway at (877) 258-2799 or visit customer service at their local store for resolution.

No one flagged anything for her, Guerra said. She’s still in the process of trying to be made whole, either through Vanilla Visa or Safeway. At the very least, she wants to get the word out to others.

She made a police report and has suggested to Safeway representatives they move gift cards behind the register. For now, they’re located on a tall display near the store’s entrance — over 100 bank gift cards, most of them with the Vanilla brand, and many more cards for specific stores and restaurants. The closest registers are self-checkout kiosks with in-person stations further away.

When it comes to gift giving now, Guerra’s at a loss. At 81, and with her husband’s recent passing, it’s not easy to get around, but now she’s wary of all the potential for fraud. “They tell you don’t put checks in the mail,” now this,“ she said. ”I don’t know what to do. I know I’ll never buy another Visa card.”

“In Your Corner” is a column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or [email protected]. On X (formerly Twitter) @InYourCornerTPD and Facebook @InYourCornerTPD.