June 16, 2024

Payment giant Visa is facing lawsuits from consumers claiming that the company didn’t take steps to reduce fraud associated with prepaid ‘Vanilla’ gift cards.

Ira Schuman, the plaintiff spearheading this class action lawsuit in the federal court of White Plains, New York, reported his purchase of these gift cards as holiday tokens for employees in 2022 and 2023 amounting to $500 each only to find out that these were drained.

Reportedly, these non-reloadable debit cards available at CVS, Target, Walgreens, and other retailers are enclosed in thin cardboard sleeves that does not deter thieves from stealthily recording the cards’ information and resealing them.

Suspected thieves are then able to track when funds have been loaded on http://www.vanillagift.com and make fraudulent purchases using the compromised card details as specified in the complaint. This process is referred to as ‘card draining.’

Schuman, a resident of Scarsdale, New York, accused Visa along with two issuers of Vanilla cards of knowingly ignoring the vulnerability in their card system. He further stated that despite the serious financial loss due to theft, the defendants refused to provide refunds or introduce additional security measures.

Neither Visa nor the other defendants, Incomm Financial Services and Pathward Financial, have made statements about the accusations.

Notably, Incomm, Pathward, and two other issuers faced a lawsuit from David Chiu, the City Attorney of San Francisco, over Vanilla cards in November. In this case, Visa wasn’t named as a defendant.

Closeup of a VISA gift card with smart chip on wood background texture.

The latest lawsuit leveled against Visa and its co-defendants accuses them of breaching a New York state law that protects consumers against deceitful and unfair business practices.

This legal action seeks compensatory and punitive damages for individuals who purchased Visa Vanilla cards in New York starting from January 30, 2021, whose funds ended up drained.

The lawsuit was filed under the case name Schuman v Visa USA Inc et al, in the US District Court, Southern District of New York, under the case number 24-00666.

Frequently Asked Questions

What is ‘card draining’ in terms of gift cards?

‘Card draining’ is a term used to describe the fraudulent act of stealing the monetary value from a gift card. This is usually done by thieves who gain access to the card information and then spend the balance before the card has been received and activated by the legitimate cardholder.

How can consumers protect themselves against ‘card draining’ scams?

Consumers can take several steps to protect themselves against ‘card draining’ scams. This includes making sure the card hasn’t been tampered with before purchase, inspecting the packaging for signs of resealing, checking that the card number on the packaging matches the card, and buying gift cards from trusted retailers or directly from the card issuer.

What consequences could Visa face as a result of this lawsuit?

In this case, Visa could face serious financial and reputational consequences if found guilty. The lawsuit seeks both compensatory and punitive damages. In addition, negative media coverage of the situation could lead to a loss of customer trust in Visa’s gift card products, potentially affecting their sales and market share.