Visa sold prepaid gift cards that it knew crooks could easily take money from, says a legal complaint that gives hope to victims of the cruel scam.
And when customers in New York complained to the payments giant about money disappearing from Vanilla gift cards, it was claimed it was ignored.
Now victim Ira Schuman is suing Visa for $4,000 in losses. He purchased eight Vanilla cards, each worth $500, for his employees between 2022 and 2023 – only to later learn that the cards had been emptied.
He is leading a proposed class action in the U.S. District Court for the Southern District of New York, seeking his money back plus punitive damages to penalize Visa.
He also hopes to receive compensation for other victims.
Visa has been sued by consumers who said the card payment network failed to protect its prepaid ‘Vanilla’ gift cards from misuse by criminals
It is the second major lawsuit against gift card providers, after a similar lawsuit in California last year – AIt gives hope to the estimated hundreds of thousands of victims.
The cases follow warnings from police about a rise in this cruel ‘card draining’ scam, which renders the cards completely useless when given as gifts.
Visa Vanilla cards, sold at CVS, Target, Walgreens, are preloaded with cash and can then be used at retailers just like a debit card.
But according to the complaintthe cards are sold in thin cardboard sleeves that thieves can open and, after recording the account details, close again without being noticed.
Fraudsters can then track when money is loaded onto the card and make purchases using the stolen account information.
Schuman, of Scarsdale, New York, said Visa and two Vanilla card issuers knew or should have known that their cards were vulnerable to tampering, but had not added security features to prevent it.
He also said the companies were not providing refunds to customers targeted by criminals.
The lawsuit accused Visa and the other defendants, Incomm Financial Services and Pathward Financial, of violating a New York state law against deceptive and unfair consumer practices.
It seeks compensatory and punitive damages for people who purchased Vanilla-branded Visa cards in New York since January 30, 2021, and saw their funds depleted.
InComm Payments said in a statement that while it cannot comment on the individual claims, it categorically denies the allegations.
‘While fraud affects an extremely small proportion of total cards sold, our top priority is to support our customers affected by this issue, and we encourage those who suspect fraud to contact our customer service team immediately’ , the company said in a statement.
A separate lawsuit filed in San Francisco last year by city attorney David Chiu alleged that Incomm “had been aware for years” of the “lax security features” of their cards, leading to “numerous incidents of the cards going blank.”
He added that the company “had not sufficiently improved its packaging or made other changes to prevent those losses.” Incomm strongly denies all allegations.
Chiu filed the lawsuit 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 said Incomm, a Georgia-based company, must reimburse its California customers targeted by the card scam.
“Incomm’s negligence has opened the door for scammers to defraud thousands of consumers,” Chiu said.
He also demanded that the victims receive “restitution,” which would likely be a refund of money taken from cards by scammers.
It comes after police and security experts repeatedly raised the alarm about ‘card draining’ scams, which are also affecting other manufacturers and major retailers.
The cards are increasingly being targeted by criminals steal them from the store shelves and copy the card number and PIN before putting them back.
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 receives the card only finds out when he tries to use it.
Last year, victim Suzanne Gdovic told DailyMail.com how she accidentally gave her friend’s daughter a worthless gift card for her baby shower – which was supposed to be worth $200.
Suzanne, 64, of Arvada, Colorado, 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!”
Suzanne Gdovic accidentally gave away a worthless gift card after it was targeted by criminals – which was supposed to be worth $200
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.