By Deborah Lynn Blumberg
For years, Shakopee struggled with fraudulent purchases of third-party gift cards. Crime rings from Florida and Chicago would breeze into Minnesota and use stolen credit cards to buy up gift cards at gas stations and stores.
“These are sophisticated criminals, and they’d hit dozens of stores in the Twin Cities area, and then just disappear,” says Shakopee Police Chief Jeff Tate.
Investigating the growing number of cases was becoming a problem. Detectives from the Shakopee Police Department were spending countless hours digging into the cases, which detracted from other pressing work.
The problem was also costing the department money in additional staff time. Detective Phil Sendelbach found himself drowning in fraudulent gift card cases — several a week — which demanded immediate attention.
Tate, Sendelbach, and others in the city put together a successful plan to stop the fraudulent activity, and the initiative was the winner of a League of Minnesota Cities 2020 City of Excellence Award.
The gift card problem was becoming “this huge snowball of time,” Sendelbach says, with tasks like hunting down gift card serial numbers and pulling surveillance videos.
“These cases are time-sensitive because the video footage from the stores can disappear if you don’t get on it right away,” he says. “If you’re going to solve the case, you have to put other cases on the back burner.”
Cases were urgent because, while some stores save surveillance video footage for up to a year, others only keep footage for days. “Video storage is expensive, and a lot of businesses aren’t interested in paying for month-to-month retention,” Sendelbach says.
In the spring of 2018, the escalating problem was on Tate and Sendelbach’s minds, but they weren’t exactly sure how to address it.
Then, an especially disturbing case came across Tate and Sendelbach’s desks. They watched a surveillance video from one of the big-box stores in town. A man used a self-checkout station to swipe 36 cloned credit cards before finding one that took. He left the store with $500 in stolen gift cards without one employee questioning him.
“When we saw that video, a light bulb went off,” Tate says.
Tate and Sendelbach began working together with another department investigator, the administrative captain, and the city attorney to draft an ordinance aimed at stopping the rampant gift card theft problem at 34 businesses in town, including Lowe’s, Target, Walmart, Walgreens, and CVS.
“Our ultimate goal was to deter fraud in Shakopee,” Tate says. “We started with a pretty ambitious ordinance, and we knew it wouldn’t be popular.”
The ordinance mandated that gift cards could not be purchased at self-checkout stations and that anyone buying a gift card with a credit card had to present a government- issued photo ID that matched the card to make the purchase. Tate likens it to having to show an ID to purchase drugs like Nyquil or Sudafed. It’s an extra layer of protection designed to help deter abuse of the system.
The original ordinance covered all gift cards, not just third-party loadable ones, which Tate and the other officers soon learned was unpopular with the business community. The team sent the draft ordinance to key stakeholders — including the local Chamber of Commerce and Minnesota Retailers Association — and then arranged a series of meetings over the next year, where everyone’s voices could be heard.
At first, the Chamber was strongly opposed to the new ordinance, says Angie Whitcomb, who was president and CEO of the Shakopee Chamber of Commerce at the time. One concern was that there might be long-term repercussions for store employees if they were to be punished for a slip-up with a fine and a misdemeanor.
“We didn’t want an ordinance put on the retailers that we felt was punitive for them when they weren’t breaking the law,” Whitcomb says.
At the same time, the Chamber and businesses in the community were concerned about the fraud. “It hit a critical level in our community,” she says. “As a Chamber, what we want is a strong and healthy retail and economic environment that inspires consumer confidence.”
If people feel like their credit card could be stolen and then used in Shakopee, that doesn’t bode well for the city’s reputation, she says.
Over the course of the year during numerous meetings, Whitcomb felt the business community’s voice was truly heard. “We had a lot of meetings, and they were all very solutions-focused,” she says. “It was never contentious. The process and discovery and iteration of the ordinance from the very first draft to what it ended up being was fantastic.”
Tate says those listening meetings were important because “we knew we had to get buy-in.”
But, he adds, the Police Department doesn’t have the budget, time, or resources to keep adding officers every year to keep up with caseloads. “They needed to see our side of the story, too, and in the end, we came up with a palatable compromise.”
The officers finalized the ordinance, making several changes inspired by the business community — such as including only reloadable third-party gift cards — and presented it to the City Council in June 2019. The final ordinance requires stores to ask for an ID when customers use a credit card to buy a reloadable third-party gift card from Visa, American Express, or Mastercard, and all cards must be bought at the register, rather than the self-checkout stand.
Also, under the final ordinance, employees can be charged with a misdemeanor if they don’t follow these requirements. “Our intention was to educate employees, not ticket them,” Tate says. “That remains the focus, and nobody has been charged to date.”
A drastic reduction in fraud
The City Council passed the ordinance — with one stipulation: The Police Department had to report back with solid data that showed the ordinance was in fact making a difference.
A local high school student took on the task of amassing the data for the Police Department as part of a final school project. The student spent several weeks reviewing police reports and found that in the first 13 months after the ordinance passed, the department saw just one incident of gift card fraud.
Now, one-and-a-half years after the ordinance passed, there has been just one additional case due to an employee who forgot to ask for an ID before purchase.
“The ordinance is working,” Tate says, “It’s had a significant impact on us here at the department. It’s freed up investigators to work on other crimes. And the comments we’ve received from local businesses have been fantastic. It hasn’t had the adverse effects some thought it would.”
The ordinance has saved potential fraud victims in the community an estimated $20,000, and the Shakopee Police Department approximately $23,000 in officer time spent investigating the frauds.
Sendelbach hasn’t been assigned a single case of gift card fraud since the ordinance passed. “Not having to spend my time on all of those cases has really helped,” he says.
Other cities interested
Tate is now eager to see other communities adopt a similar ordinance to help continue cutting down on this type of fraud. Since the ordinance was enacted, more than a dozen police departments from across the country have contacted Tate to replicate the ordinance in their own communities.
“We did a lot of the heavy lifting in terms of researching the ordinance and studying its impact,” Tate says.
For other cities interested in enacting a similar ordinance, the process shouldn’t take a full year. “It can be easily replicated,” he says. However, he does recommend involving local businesses in the process from day one.
“We simply would not have gotten this passed had we not put the legwork in with the business community,” Tate says.
Whitcomb says the ordinance has been a positive for the business community, and she credits Tate and his team with the resounding success.
“We’re super fortunate to have such a proactive police department that solves problems before they become too big of a problem,” she says. “That helps us maintain a strong and a welcoming business community here in Shakopee.”
Deborah Lynn Blumberg is a freelance writer.