Online Resale of Gift Cards Raises Fraud Alarms

July 23, 2007 — -- That gift card you spotted on the Internet offered at a nice discount look enticing? Buy it and you may be helping a cybercrook complete a slick money-laundering scheme.

In what security experts describe as "cyber money laundering" or "e-fencing," scammers have perfected yet another way to convert stolen data into cash while sitting at a computer.

How it works: Thieves use a stolen credit card number to buy a gift card online, then sell it to the highest bidder at an online auction website or for a set discount at a gift-card exchange website.

"People have found that purchasing gift cards with stolen credit card information and selling them online is very lucrative," says Joseph LaRocca, vice president of loss prevention at the National Retail Federation.

The ruse helps crooks make use of pilfered credit card numbers before the victim has a chance to deactivate the account. It "extends the life of credit card fraud," says Paul Cogswell, vice president of loss prevention and risk services at Comdata, one of the nation's largest gift card producers and processors.

Precise measures of the scam are tough to pin down. But gift cards have become a multibillion-dollar enterprise. Banks and retailers will issue a record $97 billion of them this year, up from about $82 billion last year, says market researcher TowerGroup.

Major retailers popularized gift cards in the late 1990s, and Visa USA, MasterCard and American Express followed suit.

Since late 2002, merchant- and bank-issued gift cards have been increasingly turning up for resale at eBay, Craigslist and card-exchange sites such as cardavenue.com, plasticjungle.com and swapagift.com.

EBay now lists more than 3,400 for resale. To stem fraud, eBay in 2003 began limiting sellers to offering one $500 or less gift card per week. But LaRocca, who monitors the resale market, says that policy is routinely violated.

Some sellers legitimately resell cards they received as gifts, which they know they'll never use, he says. "But when you start seeing hundreds of gift cards selling at a 30% to 50% discount, you have to question where that product came from."