When it comes to buying Christmas gifts, Dom Einhorn has a long list of people to shop for — 17 nieces and nephews just on his wife’s side of the family.

A couple of years ago, he took what seemed the easy route: He got gift cards.

“Convenience is what pushed us down this road in the first place,” says Einhorn, founder and chief executive officer of a consumer financial website. “Rather than try to figure out what to buy for what person, especially when you have a large family, you just buy them dollar-denominated gift cards and let them buy whatever they would like.”

He and his wife Hanh Mia Nguyen spent more than $1,000 on gift cards from a Chicago reseller.

Time passed, and Einhorn didn’t hear anything — until the next big family gathering.

“My wife asked one of the nieces, ‘How did you like your gift card? You never mentioned anything.’ And the kid turned beet red and said, ‘Well, Auntie, there was nothing on the card.’ ”

Dom Einhorn and Hahn Mia Nguyen lost more than $1,000 on worthless gift cards they bought from a reseller.

Dom Einhorn and Hahn Mia Nguyen lost more than $1,000 on worthless gift cards they bought from a reseller. | Provided photo

One by one, others spoke up: Their gift cards also were empty.

Scammers apparently had pocketed the money.

Even worse than the lost money, Einhorn says, was the embarrassment.

The reseller has a money-back guarantee for problems within 12 months. But that didn’t help Einhorn, who learned of the issue too late.

Even if you do discover problems in time, Einhorn says, “The damage is already done. If you bought it as a gift, you look like a pretty poor gift-giver.”

How scammers do it

American consumers spend more than $130 billion on gift cards every year, according to the financial services firm CEB TowerGroup. Their popularity attracts all sorts of scams.

Because gift-card transactions are anonymous, scammers can use a variety of tactics to deplete the value before consumers get the chance to use them.

In one such scam, fraudsters remove gift cards from displays at grocery or convenience stores and use a skimmer to read the card’s magnetic strip, or they just copy the card number.

For cards that have a scratch-off code to be activated, some scammers go so far as to buy replacement stickers after scratching off the PIN. Then, they return the gift cards to the rack and monitor the cards online until some unsuspecting consumer takes them to the register and adds value — which the scammer quickly grabs.

“As long as a bad guy can get to the card, there’s a real chance that the bad guy can take over the card in a way that you’ll never notice,” says Alan Brill, senior managing director for cyber risk at the corporate investigations firm Kroll. “Buyer beware doesn’t stop when you switch from physical merchandise to gift cards.”

What’s being done to fight back

Erin Wood, spokeswoman for the Retail Gift Card Association, says the industry is investing in technology to flag suspicious activity on physical and digital gift cards, offering randomized PIN codes, using CAPTCHA software during purchase and registration and providing more secure packaging for physical gift cards.

“Consumer confidence in gift cards, that they’re going to work as expected when you buy them or gift them, is critical,” Wood says.

If you receive a gift card, you’re entitled to some important consumer protections under federal and state laws. Under Federal Reserve rules, a gift card can’t have an expiration date of less than five years from purchase.

But, if a card goes unused for 12 months, federal law says monthly fees can be deducted for inactivity, dormancy or service charges.

Gift cards sold in Illinois can’t deduct fees, though there are exceptions for cards that can be used in multiple places, such as credit card-branded gift cards.

Experts say consumers should use gift cards and gift certificates as soon as possible to avoid scams and also the unexpected closing of a store or restaurant they are for. Significant money is lost to forgotten gift cards left to languish in junk drawers.

Tips to stay safe

  • Check to see whether the gift-card packaging is bent or appears tampered with.
  • Look at the code number or PIN. If it’s scratched off or the covering looks odd, don’t buy that card. Compare gift cards from the front of the rack to ones at the back.
  • Consider buying gift cards from stores that keep them behind the counter or locked up. Buying directly from the customer-service desk minimizes the risk of tampering.
  • Keep your receipt with the gift card.
  • E-gift cards bought online — and also gift cards ordered and mailed to your home — are less likely to be scammed.
  • If you’re considering discounted cards from a reseller, check complaint records to make sure it’s a trusted site, and look for a money-back guarantee.
  • If you receive a gift card, use it as quickly as possible.

AARP Illinois logo

This is the sixth story in the series “Be On Guard,” reported by the Chicago Sun-Times and made possible through the support of AARP Illinois. The AARP Fraud Watch Network can help protect you from frauds and scams. Call this free helpline (877) 908-3360 to speak with volunteers trained in fraud counseling.

• PART ONE: How to avoid identify theft and keep your data safe

• PART TWO: How military veterans can protect themselves from scammers who target them

• PART THREE: How to spot imposter fraud, what you can do to protect yourself

• PART FOUR: Traveling for holidays? Stay safely connected at airport, hotel, in rental car

• PART FIVE: How to ensure this holiday season that you’re giving to charities, not scammers