A Home Depot employee was arrested for selling more than $50,000 of gift cards to customers using stolen credit cards.
Over three days a man and a woman who remain unidentified bought $51,128 in gift cards and merchandise which the clerk:
- Allowed them to do entering card numbers, rather than swiping actual cards
- Above the store limit of $50 that a cashier would normally be able to process
The cashier was in on the scam:
Mitchell told police that the two were strangers who approached him at the store and offered him $500 for every $20,000 that he would allow them to purchase. Mitchell ultimately took a $1,000 cut from the transactions, according to the report.He told police that they would coordinate days and times when Mitchell would be working in order to buy the gift cards. The cashier would accommodate the pair and sell them gift cards valued at more than the $50 limit that line cashiers are permitted to sell, the report said.
There are two major factors which cause stores to tighten policies on purchase of gift cards.
- That these financial instruments are used for money laundering.
- That they are used to perpetrate credit card fraud.
Customers earning frequent flyer miles are generally very very low on the list of priorities, although occasionally a store will determine that the products aren’t being used as intended and aren’t profitable to offer when high transaction fee cards are being used to purchase the low margin products without other offsetting purchases to accompany them.
(HT: Robert G.)
Corporate chain stores won’t sell gift cards because they feel a civic duty to reduce credit card fraud and dry up money laundering? Sure.
@Mike not civic duty, fraud incurs losses and money laundering entails legal risk
Because I have a family member who owns a business that sells reloadable cards (and also only accepts cash as payment for said cards), I can tell you for a fact why companies choose to sell these cards and eventually limit payment options or stop selling the cards altogether.
The average commission paid by the card companies is 1% at best. Sometimes the commission is as low as 0.5%! Credit card merchant fees are anywhere from 1.5 to 3% (or higher). This is ALWAYS a money losing proposition for stores that sell reloadable cards. But many larger businesses chose to sell the cards at a loss to the occasional credit card-paying customer because they often make up the profit loss with ancillary sales such as greeting cards, wrapping paper, gift bags, etc. (Just like most grocery stores sell gas at a loss via store points to draw your loyalty in their stores where they know they make a large profit percentage on grocery items.)
It’s when the stores start seeing an inordinate amount of sales at a loss that they pull the reloadable cards off their shelves or stop the ability to pay for said cards by anything other than cash. I’ve seen internal memos and sat in meetings where those exact words were said.
Thank you HockeyCoachBen. I certainly learned more from your comment than I did from the original blog post. 🙁
Wow, Home Depot automated fraud detection must be beyond pitiful. To think they don’t have auto scans for unusual sales patterns by associates that could catch this early on.
Where do such posts come from ?
Do u even know how much money a good money launderer has to move ? Watch discovery channel sometimes or read some good investigations.
No self respecting good money launderer uses GCs and credit cards – everything is so easily electronically trackable.
The money launderer threat killing GC deals is just a myth in the minds of the uninformed.
Sorry but this is just wrong. Only reason businesses act against GC buying is if their profits are down.
Using stolen credit cards to buy stuff is just plain fraud. Nothing to do with GC buying. One could buy anything with stolen cc & sell.
Not a good post. Misleading for sure. Noticing many misleading posts on this site lately.
@HockeyCoachBen,
Are you talking about something like Starbucks cards? Stored value cards that the owner can use to purchase products?
@Jon – in reality, all cards…SVC (such as Starbucks, McDonalds, etc), one-time and reloadable money/credit cards (GreenDot, Vanilla, AmEx, etc) and pre-paid/services cards (Boost Mobile, GoPhone, T-Mobile, etc)…they’re all very low or no profit propositions for merchants. Like I said, 0.5 – 1.0% commission rate on average. When you factor in the hit from credit card merchant fees, stores lose money on the transaction. But they often consider it a worthwhile loss to bring customers into the store.
Just like most grocery and convenience stores don’t make any money on newspapers (sell them for cost) and very little on milk. Those are tools to bring customers into the store to spend more on other items!
@HockeyCoachBen,
I think you might be thinking about something else. Store gift cards are *extremely* profitable for a number of reasons:
1. Customers often come in and spend more than the amount of the gift card (as I know all too well).
2. A large percent of gift cards never get redeemed because they are lost, forgotten about, or for a business that the recipient is not interested in or not near.
3. A large percent of gift cards don’t get *fully* redeemed because they end up with a small value remaining that the owner doesn’t bother with (as I know all too well).
Here is a good article on the subject: http://www.cbsnews.com/news/why-retailers-love-gift-cards-but-you-shouldnt/
@Jon – You and I are talking about 2 different things…for SVC cards, yes, they are extremely profitable for the store that “owns” the card…for instance, Starbucks makes out quite well on Starbucks cards.
What I’m talking about is when a 3rd party sells the card, such as when Safeway or 7-Eleven sell a Starbucks card, the profit level is the same as all other cards. 0.5 – 1.0% at best. To borrow a phrase, there really is no skin in the game for re-sellers. That applies to all cards…SVC, credit/money and services cards. I have reports to prove such. If I could show a sales report without divulging private information, I would love to. You could see how pathetic the commissions are!