Company that makes gift cards sold in Walgreens, CVS and Walmart SUED over lax security features – raising hope those affected by cruel ‘card draining’ scam get their money back

A gift card maker is facing a lawsuit over claims it failed to protect customers from so-called “card draining” scams, which police warn are widespread this holiday season.

Legal action raises hope for Americans who received gift cards for birthdays, anniversaries or Christmas, only to discover they are totally worthless.

The case specifically centers on Vanilla Gift and One Vanilla prepaid cards purchased in California. These are sold at Walgreens, Walmart and CVS, but can be used at any retailer just like a debit card.

The crux of the matter is that lawyers say the makers of the cards – in this case InComm Financial Services – knew crooks could easily steal card information, but didn't do enough to prevent it.

While this case focuses on Vanilla Cards and uses a law relevant to California, it could open the door to other victims of card swipes – whether from other providers or from people living in other states live.

Gift cards from all manufacturers are increasingly being targeted by scammers who steal them from store shelves and copy the card number and PIN before returning them.

A customer then purchases the card and loads it with money, which thieves can then spend online using the information they stole. The person who gets the card won't find out until they try to use it – which could mean this holiday season if they try to shop online on Christmas Day.

The lawsuit, filed by San Francisco City Attorney David Chiu, alleges that Incomm and its partners — believed to mean the stores that sell their cards — have known about their cards' “lax security features” for “years.” It claims this has led to 'numerous card clearing incidents'.

According to Chiu's complaint, the packaging of Vanilla cards makes it easy for thieves to take them off the shelves, write down their information (such as the card number and PIN), and discreetly replace them.

He adds that the company “has not sufficiently improved its packaging or made other changes to prevent these losses.” Incomm strongly denies all allegations.

Chiu filed the suit last Thursday on behalf of residents of California, where gift card providers are required by law to refund customers whose cards were used for unauthorized transactions.

The attorney says Incomm, a Georgia-based company, must reimburse its California customers targeted by the “card draining” scam.

“Incomm's negligence has opened the door for scammers to defraud thousands of consumers,” Chiu said.

“As we kick off the holiday season, we are filing this lawsuit to raise alarm, force InComm to implement industry-standard security features to combat card depletion, and obtain refunds for consumers who have been harmed.”

The 'refund' would likely be a refund of money taken from cards by scammers.

A Vanilla Gift representative shared CNN that the company “categorically denies the baseless allegations in the San Francisco complaint and is proud of our long history of innovation and consumer focus that has made us an undisputed industry leader.” DailyMail.com has also contacted the company for comment.

It comes after police and security experts repeatedly raised the alarm about 'card draining' scams.

Christopher Peltz, cybersecurity expert at Guidepoint Security, explains CNN: “So far, card empties are the most common scam this holiday season.”

And last weekend, victim Suzanne Gdovic told DailyMail.com that she lost $200 on a gift card she bought at Target for a friend's daughter's baby shower.

Suzanne, 64, of Arvada, had purchased the card in September. Weeks later, she received a text message from the recipient saying she had tried to spend the money but it had a $0 balance.

A message also appeared on the cashier's screen stating that the gift card was linked to someone else's account.

“It was embarrassing,” Suzanne said. 'I felt bad for her. You're willing to spend $200 and then suddenly it's not there anymore. And then of course she had to pay for it.'

She added: 'I asked for all the cards to be taken off the shelves because people were buying them while I was speaking to the manager. Target has my money, and the crook has the gift!”

Target later refunded her for the card.

Customers are now being urged to check for signs that a gift card has been tampered with before purchasing it. Indicators are, for example, scratches or missing parts of the card.

This is because – to get the numbers – the crooks have usually scratched off the silver security foil. They then replace this with an almost identical sticker or more foil, which is sold online on sites like Alibaba.

In some cases, fraudsters even subtly open the sealed envelopes in which the cards are kept, cut off and retain the part of the card containing the activation code.

They then put the cut-out card back in the envelope – with the barcode still visible so a cashier can scan it and add money – which they can then steal.

Last week, DailyMail.com reported how authorities across the country have warned about the scam, which also affects Apple, Amazon and Visa Vanilla gift cards, among others.

Victims from across the country reached out and explained how they had lost as much as $650, mistakenly handing completely worthless gift cards to loved ones.