New Gift Card Law Tackles Fraud

A new Maryland law—the first of its kind in the country—could thwart gift card scammers far beyond the state’s borders.

The statute takes aim at a tactic called “gift card draining,” in which thieves steal gift cards from a retailer’s rack, record the activation numbers and then return them to the display, where unsuspecting consumers buy them and add money at the cash register. The thieves then quickly drain the funds—leaving the buyer and gift recipient with a worthless piece of plastic.

The measure, which AARP Maryland successfully pushed for during the 2024 legislative session, requires gift card manufacturers to use sealed packaging that makes it harder for criminals to steal the codes without leaving evidence of tampering.

Cailey Locklair, president of the Maryland Retailers Alliance, says manufacturers and retailers loathe patchwork regulations passed state-by-state, so “everybody is trying to stay in line with what Maryland did.” The likely result, she adds, is more secure packaging across the country.

After the Maryland law passed, Target announced it would redesign its gift cards to guard against card draining. Instead of having the codes printed on the cards, a Target employee will add a “security access label” to the card at checkout.

The change “is a win for consumers everywhere,” says Tammy Bresnahan, who, as AARP Maryland’s senior associate director for advocacy, worked with volunteers to push for the law’s passage.

The Retail Gift Card Association, a national trade group, said in a statement to the Bulletin that gift card makers had already been working on new steps to stop fraud, but the Maryland law “did help us drive faster change.”

“As you will see in the marketplace already, some brands are rolling out new packaging in a variety of locations,” while others are still determining what the best solution is, the association said.

A ‘cascading effect’?

Gift card fraud has escalated dramatically in recent years. In 2020, U.S. consumers reported losing about $125 million to schemes involving gift cards, according to data from the Federal Trade Commission; by 2023, that figure was nearly $217 million.

It has become such a significant problem that the U.S. Department of Homeland Security set up a special unit last year—called Project Red Hook—to target Chinese organized crime groups that it says are perpetrating gift card scams and stealing hundreds of millions of dollars.

State Sen. Ben Kramer (D-Montgomery County), who wrote the law, says he originally sought to battle gift card schemes in which scammers falsely tell their victims they owe money—for unpaid utility bills, court fines or other matters—and direct them to buy gift cards to pay the supposed debt.

In addition to the packaging changes, the law also requires Maryland’s attorney general to create a model warning notice that merchants must display at gift card kiosks to help educate consumers about such scams. Retailers must also train their employees to identify and respond to gift card fraud. Most of the law’s provisions take effect June 1.

“Legitimate businesses will never ask you to pay with a gift card,” says Karen Morgan, an AARP Maryland volunteer who testified in favor of the bill.

Criminals “get you into a state of panic,” she says. “They just want you to hurry up and ... get money to them so that they can abscond as quickly as possible. And gift cards make it possible.”

Scammers monitor the cards online to see when they have a balance and are activated. That’s their signal to drain the funds.

Kramer says gift card industry representatives initially balked at his proposal but came around with some compromises. Once the language was set, they told him they would likely retool gift card packaging for all markets because it wouldn’t make sense to have a different manufacturing process just for Maryland.

Says Seth Boffeli, senior adviser to AARP’s fraud prevention programs: “It’s an incredible example about how an advocacy issue in one state can really have this cascading effect.”

Mary Dieter, a freelance journalist, spent two decades covering Indiana state policy and politics for The Courier-Journal of Louisville, Kentucky.

Also of interest:

• How Much Do You Know About Gift Cards and Scams? Quiz
• 25 Great Ways to Avoid Scams
• Read This Before Accepting a Stranger's Check