Posts Tagged ‘bad ideas’

Holiday shoppers need to watch out this year for yet another red flag that might indicate fraud. Gift cards purchased with stolen credit cards have been sold online as a tool for money laundering.

Picture this: Your credit cards are stolen. The thief then uses your credit cards to purchase gift cards from Wal-Mart, Target or any other store. He doesn’t want to actually use those gift cards because they might have been flagged as fraudulently purchased, so he sells them on eBay or Craigslist or any other Web site for a discount off the actual face value of the cards.

Consumers think that they’ve found a hot deal when they purchase a few gift cards at 50 percent of their value, but are shocked to discover that the cards are useless. The original card holder has reported his credit cards stolen, which has subsequently flagged the gift cards. If you fall into this trap, you’ve just put money in a scam artist’s pocket.

The beauty of this scam is that regular consumers with no thought of deception sell gift cards every day. They receive cards from stores where they are unlikely to shop, so rather than letting them go to waste, they sell them at a discount online so they at least walk away with some money they can use. So how can you tell the scam artists from people who just received gifts they didn’t want?

A big red flag is the sale of numerous gift cards at once or over a short period of time. This is a serious indicator that the seller is using stolen credit cards to fund his sales, and you should at least consider that he might be into money laundering. Check out the seller’s past history if you’re using an auction Web site such as eBay, and stay clear of him if most of the previous sales have been gift cards.

Money laundering might also be afoot if you find gift cards for sale that are significantly discounted. Since the seller is using stolen credit cards, he wants to dump the gift cards as quickly as possible. To facilitate the sales, he might mark them down by as much as 75 percent; why would a legitimate seller take that much of a hit?

This holiday season, you might be better off paying full price for gift cards at individual retailers rather than purchasing them online. Stolen credit cards are a serious problem in this day and age, and you don’t want to help money-laundering scam artists — even unwittingly — to line their pockets.

See also: Online Resale of Gift Cards Raises Fraud Alarms, ABC News

Steve Thompson

Credit card kiting is one of the only ways some people see to keep their heads above water.

Similar to check kiting, credit card kiting involves using cash advances from one credit card to pay the monthly minimums on other cards. The debt doesn’t go away; it’s just transferred in a roundabout fashion. It can wreak havoc on your finances, but some don’t see any other way around their bills.

Credit card kiting is a bad idea for a number of reasons, not the least of which being that interest rates are usually much higher on cash advances than on regular purchases. You might be tempted by the pristine courtesy checks you receive in the mail from the credit card companies, but don’t fall for this trap.

Additionally, credit card kiting can lead to investigations by your bank or credit union. Although not necessarily illegal (depending on how you do it), there is legal precident that has labeled it ”nondischargeable”. Also, credit card kiting looks like suspicious activity and could lead a financial institution to believe you are laundering money. This is especially true if you engage in credit card kiting by initiating balance transfers with two credit cards from the same issuer.

“…debtor’s intent to deceive can be inferred from fact that cash advances were used to make minimum payments on other credit cards…”

See 5-19.3.5.1 Remedy: Nondischargeability

Most people don’t have the best of excuses to explain their kiting practices, and this can lead to increasingly worse offenses that could damage your credit and financial stability for the foreseeable future. Most financial experts caution against balance transfers and using courtesy checks in general, but credit card kiting is another animal entirely.

So what should you do in this situation? Rather than credit card kiting, try to live without credit card balance transfers. Design a budget that encourages you to live within your means. Get rid of your debts and any unnecessary expenses.

As soon as you consider credit card kiting to solve your financial woes, you should realize that you’re likely in a financial rut. You need to take steps to permanently improve your situation. At best, credit card kiting is only a temporary fix; at worst, it will further worsens your situation. It is important to leverage your strengths in your favor rather than resorting to less-than-honest behavior like credit card kiting.

Steve Thompson