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Holiday Shoppers Should Be Wary of Gift Card Fraud

Holiday shopping latecomers generally spring into action as Dec. 25 gets closer and closer. But, this year, shoppers are not necessarily roaming the malls to scoop up perfume, slippers, sweaters and other last-minute presents. Instead, growing numbers of consumers are purchasing what the National Retail Federation considers the “hottest gift” of all: gift cards.

Gift card and gift certificate purchases grew only slightly from 29.9 percent in 2010 to 31.4 percent in 2011, according to the NRF. But the numbers jumped to 39.2 percent of more than 8,000 NRF respondents polled earlier this month. That figure translates into every four in 10 consumers purchasing gift cards as presents.

But as America’s reliance on gift cards continues to climb, the risk of fraud does, too. Experts say it is a real issue that retailers are actively combating.

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High-volume gift card sellers, such as Apple, Amazon and Macy's, are known to “deploy reliable state-of-the-art fraud detection systems," according to Avivah Litan, senior fraud analyst at Gartner Research. “They have no choice,” Litan said. “The fraudsters would eat their lunch, and they would lose a lot of money. They wouldn't be able to sell them otherwise.”

Consumers, too, can take simple precautions to avoid losing out. There are two common scams they should know about, Litan said. The first is when thieves use stolen credit card numbers to purchase gift cards. Unlike a credit card, gift card magnetic strips don’t contain information about an individual's identity, which makes them virtually untraceable until they're registered.

Scammers also take digital photos of serial numbers on blank gift cards sold in stores. Then, after a major holiday, like Christmas, scammers use these numbers to purchase items, using up the “electronic cash” before a rightful recipient has a chance to enjoy their gift.

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Consumers can easily avoid such mishaps with a few easy steps.

The Federal Trade Commission recommends buying gift cards from the original retailer. Avoid purchases from any third party on Craigslist, eBay, online auctions or a live scalper hawking cards at a flea market or outside a physical retail store. “If Apple or another retailer knows these gift cards were purchased fraudulently, they could deactivate those cards,” Litan said.

When purchasing gift cards in bulk at Costco, Target or other mass merchants, examine the packaging closely. Check to make sure the cards haven’t been tampered with and that no PIN numbers are exposed (it’s a sign that scammers may have scratched off the package’s protective coating). “Even better,” Litan said, “go for the back of the stack.”

If you’re on the receiving end of a gift card this holiday, immediately register it online and hold on to the receipt. A printed receipt is no longer gauche to give or receive. Receipts can confirm the value of the gift card as well as its date of issuance and date of expiration. The NRF reported that 62 percent of holiday shoppers include a gift receipt "some or most of the time" to verify a purchase and facilitate returns.

Receipts also prevent loss when magnetic strips fail. Be sure to continue to request receipts when making incremental purchases and maintaining a gift card balance.

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Above all, if you’re the recipient of a gift card, use it quickly. Gift cards are easy to forget about so be sure to use them as soon as possible. “Sometimes balances expire, so if you haven’t used it, you lose it,” Litan said. And until you do, treat gift cards like cash and store them in a safe place.

To file a complaint or get free information relating to gift cards and other consumer issues, visit ftc.gov or call toll-free, 1-877-FTC-HELP.

Lisa Alcalay Klug is a financial contributor for Manilla.com, a free and secure service that lets consumers manage their bills and accounts in one place online and via mobile apps. Klug is also the author of hundreds of articles on business, personal finance, arts, culture and travel.