Gift card 'draining' fraud cost U.S. consumers $212 million in 2024, but retailers bear zero financial liability for tampered cards sold in their stores because gift cards are classified as prepaid instruments exempt from Regulation E chargeback protections

The FTC received over 41,000 gift card fraud reports in 2024, representing $212 million in consumer losses. The most common technique -- 'card draining' -- involves criminals copying numbers from poorly packaged unsold gift cards on retail store racks, then spending the balance before the legitimate purchaser can use it. Target gift cards carry the highest average fraud loss at $2,500 per victim, with 30% of victims losing over $5,000. Why it matters: 34% of U.S. adults have been targeted by gift card payment scams, so retailers sell billions of dollars in gift cards annually (projected $308 billion in 2024 sales) while bearing no liability when those cards are drained through in-store tampering, so the consumer who purchases a tampered card has no chargeback rights because gift cards are classified as prepaid access devices exempt from Regulation E protections that cover debit cards, so the retailer profits twice -- once from the sale commission and again from breakage (unredeemed balances) -- while the consumer absorbs the entire fraud loss, so this creates an accountability sink where no party in the gift card supply chain (retailer, card network, brand) has financial incentive to invest in tamper-evident packaging or real-time activation verification. The structural root cause is a regulatory classification gap: gift cards are excluded from the Electronic Fund Transfer Act's Regulation E, which provides consumers with error resolution rights and liability limits for unauthorized transactions on debit cards. This means a consumer who loses $2,500 to gift card draining has no legal right to a refund, while the same consumer losing $2,500 to debit card fraud would be made whole. The gift card industry has successfully lobbied against reclassification because breakage revenue ($3+ billion annually) depends on maintaining the current unregulated status.