June 16, 2024

Visa faced a lawsuit on Tuesday concerning a gift card scam. (Representative pic)

Several consumers have initiated legal proceedings against Visa, alleging that the card payments corporation failed to sufficiently safeguard prepaid “Vanilla” gift cards from funds theft. Ira Schuman, the representative for a proposed class action in the federal court of White Plains, New York, made a statement via Reuters that he had purchased 8 “Vanilla” gift cards each worth $500 for holiday presents for employees in both 2022 and 2023. It was to his dismay that he discovered the cards had been drained, prompting him to seek legal redress.

Schuman’s lawsuit claims that Visa and two “Vanilla” card providers were cognizant of the cards’ susceptibility to fraud, but still failed to issue refunds once money was filched. It further alleges that these defendants have brazenly contravened the New York state law forbidding deceptive and unjust consumer trade practices.

Card Draining Fraud: A Close Look

As per the lawsuit, these non-reloadable debit cards can be found in well-known retail outlets like CVS, Target, Walgreens, among many food stores. The cards are usually enclosed in slim cardboard sleeves, which sadly, provide an easy route for pilfering. Malignants can stealthily open these sleeves, jot down the account details, and then restore them with no suspicion or detection. Following this, they keep a close watch on www.vanillagift.com, to ascertain when funds have been credited, and make unauthorized purchases employing the pilfered account details, as elucidated in the complaint. This notorious fraud is widely referred to as “card draining,” the complaint adds.

As reported by Reuters, Schuman’s suit is not only seeking indemnity for the loss but also pushing for punitive damages on behalf of individuals who have purchased the Visa-branded Vanilla cards in New York post January 30, 2021, and unfortunately, faced the draining of their funds.

Precedence of Similar Litigation

On a related note, in November, a similar lawsuit was lodged by San Francisco City Attorney David Chiu against Incomm, Pathward, and two card providers concerning the Vanilla cards. Interestingly, Visa, which is headquartered in San Francisco, was not implicated in this case.

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According to CNN, the lawsuit propounded that InComm, along with its associates, have “been aware for years that the paltry security features of its nonreloadable Vanilla debit card have resulted in multitudinous card-draining incidents,” but have made no effort to strengthen the cards’ packaging or undertake any measures to preempt these losses. The lawsuit chastises InComm for its substandard customer service and states, “in blatant violation of their legal obligations, the defendants consistently fail to offer refunds for unauthorized transactions on Vanilla cards”.