The Perils of Gift Cards: What Loyalty Program Members Need to Know

Gift cards are everywhere—tucked into birthday cards, handed out as workplace rewards, and offered as redemption options in nearly every major loyalty program. While they promise convenience and flexibility, gift cards come with risks that can leave consumers frustrated or out of pocket. Here's what every loyalty program member should know before choosing gift cards as a reward or purchasing them for personal use.

Gift Card Fraud: A Growing Threat

Gift cards are a favorite target for scammers and organized crime. In Canada alone, the gift card industry is worth over $11 billion, and fraud is on the rise, with millions lost to scams each year7. Criminals have developed sophisticated methods to drain gift cards before recipients even have a chance to use them:

Tampered Cards: Scammers steal cards from store racks, record the numbers and PINs, then return them to the shelves. Once a customer buys and activates the card, the thief quickly drains the funds using the stolen information7 3.
Counterfeit Cards: Fake cards, often sold at a discount on third-party websites, look real but are worthless when you try to use them1.
Barcode Swaps: Some fraudsters cover real barcodes with their own, funneling funds to their account instead of yours7 3.

Once your gift card is compromised, getting your money back is extremely difficult. Unlike credit cards, gift cards typically offer little to no consumer protection if funds are stolen or the card is lost7 1.

Gift Cards and Loyalty Programs: Double the Risk

Loyalty programs often allow members to redeem points for gift cards. While this seems like a safe, flexible reward, it can actually double your risk:

Redemption Fraud: Hackers target loyalty accounts, draining points and redeeming them for gift cards, which are then quickly resold or used. This is a common tactic in loyalty program data breaches4 8.
Fake Loyalty Program Offers: Scammers may impersonate loyalty programs, claiming you've won a prize and asking you to pay a fee or provide gift card details to claim it. These are always scams�legitimate programs never ask for payment via gift cards6.
Abuse and Manipulation: Insiders or savvy fraudsters may exploit glitches in loyalty program systems to redeem points for gift cards multiple times or at inflated values, undermining the program for everyone9.

Hidden Fees and Expiration

Many gift cards come with hidden fees, such as purchase charges or monthly maintenance fees if the card isn't used quickly2. Some cards may expire, or their value may diminish over time, especially if you forget about them'an issue known as 'breakage.' In fact, up to 20% of gift cards go unused each year, representing billions in lost value for consumers2.

Lack of Consumer Protection

Unlike credit or debit cards, gift cards often lack robust fraud protection. If your card is lost, stolen, or compromised, most issuers provide little or no recourse�even if you have a receipt7 1. This is especially problematic when cards are purchased from unauthorized sellers or third-party websites, where counterfeit and empty cards are common1 3.

Identity Theft and Personal Data Risks

Buying gift cards from unverified sources can also expose you to identity theft. Fraudsters may use fake websites to collect your credit card details and personal information, putting you at risk for further scams and financial loss1 3.

How to Protect Yourself

Buy from Trusted Sources: Only purchase gift cards directly from reputable retailers or the issuing company. Avoid third-party marketplaces and 'too good to be true' deals1 3.
Inspect Before Buying: Check packaging for signs of tampering. If possible, choose cards kept behind the counter or in locked displays7 3.
Register Your Card: Some issuers allow you to register your card, making it easier to report and recover lost balances3.
Redeem Quickly: Use gift cards soon after purchase to minimize the risk of theft or expiration7 2.
Be Skeptical of Unsolicited Offers: Never pay fees or provide gift card information to claim loyalty program prizes or sweepstakes6.
Monitor Loyalty Accounts: Use strong passwords and keep an eye on your loyalty program balances to spot unauthorized redemptions4 8.

Conclusion

Gift cards may seem like a safe and flexible reward, but they're fraught with pitfallsespecially when tied to loyalty programs. By staying vigilant, buying from trusted sources, and redeeming promptly, you can enjoy the benefits while minimizing the risks. Remember: if a gift card deal or loyalty program offer sounds too good to be true, it probably is.