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Once you give him some gas, he sloshes the can in your direction and threatens you with a lighter to get you to hand over your credit card.

Or something. I'm having trouble understanding this scam as well.

His family is fine and he just got a few gallons for free off you. Do this a few times to different people and you got like $20

Do... do they then sell the gas? Or do they just get free gas?

I think the scam would be taking a look at your PIN number when you fill his canister up.