Fraudulent online sales of cars, recreational vehicles, boats, and outdoor equipment are soaring, with the scams typically funded through the victims’ gift cards, according to recent FBI data.
A public-service announcement the FBI posted last week on its Internet Crime Complaint Center (IC3) Web site says the site received 26,967 complaints from May 2014 through December 2017 about the variant of online fraud, with adjusted losses of $54 million. That works out to an annual average of about 7,500 complaints with an average loss of $2,004 per incident for the period.
In a November 2014 report, the FBI said similar online fraud for the five-year period from June 2009 through June 2014 generated more than 6,800 complaints and losses exceeding $20 million. The FBI did not give exact figures, but based on the published numbers, the annual average for the period was 1,360 complaints, and the average loss per incident was $2,941—47% higher than the average loss in the 2014-17 period.
An FBI spokesperson did not respond to a Digital Transactions News request for comment. The IC3 site says a typical scam begins when criminals post a false online advertisement purporting to sell an item such as an automobile, boat, lawn mower, tractor, a piece of heavy equipment, or similar item at bargain prices. The ads include a contact email address or telephone number.
“Once the initial contact is established, the criminal sends the intended buyer additional photos along with a seemingly logical explanation for the item’s discounted price and the time-sensitive nature of the transaction,” the FBI’s recent post says. “The criminal makes the fraud appear legitimate by deceptively claiming partnership with reputable companies, such as eBay, and using the names of these third parties with whom they have no actual association.”
Adding to the deception, scammers claim the transaction will use a third party’s buyer-protection program. But the fraudsters want buyers to use prepaid cards to fund the sale.
“The buyer is told to purchase prepaid gift cards in the amount of the agreed upon sale price and is instructed to share the prepaid card codes with the criminal,” the post says. “The criminal notifies the buyer they will be receiving the vehicle within a couple of days. After the transaction goes through, the criminal typically ignores all follow-up calls, text messages, or emails from the buyer, or demands additional payments. The vehicle is not delivered, and the buyer is never able to recuperate their losses.”
Fraudsters prefer gift cards, including digital versions, because moving funds with them can be easier than moving cash, especially in cross-border situations, according to Kevin Morrison, a senior analyst at Boston-based Aite Group LLC who formerly managed U.S. Bank’s prepaid business and has worked at First Data Corp., First National Bank of Omaha, and H&R Block. “Gift cards are pretty much anonymous,” he says.
Prepaid card program managers have become more diligent at monitoring potential fraud indicators, including unusual numbers of cards sold and load amounts, than they were in the past, although “I think there’s probably some work left to be done there,” Morrison says. He also notes that private-label gift cards are not subject to know-your-customer government regulations to the extent that network-branded ones are.
Morrison says he can only speculate about why the average loss per incident has declined. “I would imagine the low dollar volume attracts less attention, he says, adding that it also could be a function of comparatively low load limits on gift cards.