Visa Sued In US Over "Vanilla" Gift Card Scam Known As "Card Draining"

A group of consumers have filed a lawsuit against the Visa card company, claiming that the card payments network did not take adequate measures to prevent the theft of funds from prepaid "Vanilla" gift cards. According to Reuters, Ira Schuman, who is leading a proposed class action in the federal court of White Plains, New York, claimed that he bought 8 "Vanilla" gift cards worth $500 each as holiday gifts for employees in both 2022 and 2023. However, he was disappointed to find out later that the cards had been emptied, which led him to take legal action. 

In his complaint, Mr Schuman has alleged that Visa and two "Vanilla" card issuers were aware of their cards' vulnerability to tampering but did not provide refunds when money was stolen. He also alleges that the defendants have violated a New York state law that prohibits deceptive and unfair consumer practices. 

According to the complaint, the non-reloadable debit cards are commonly available for purchase at popular retailers such as CVS, Target, Walgreens, and various grocers. The cards are typically packaged in thin cardboard sleeves, which unfortunately present an opportunity for theft. Thieves can open these sleeves, record the account information, and then reseal them without raising suspicion or being detected. They can then monitor www.vanillagift.com, to learn when money has been loaded, and make purchases using the stolen account information, the complaint said. The scam is known as "card draining," it added. 

According to Reuters, Mr Schuman is now seeking both compensatory and punitive damages on behalf of individuals who purchased Visa-branded Vanilla cards in New York since January 30, 2021, and experienced the unfortunate depletion of their funds.

Meanwhile, in a similar case in November, San Francisco City Attorney David Chiu sued Incomm, Pathward and two card issuers over the Vanilla cards. Visa, based in San Francisco, was not named as a defendant.

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As per CNN, the lawsuit alleged InComm and its partners have "known for years that its nonreloadable Vanilla debit card's lax security features (have led) to numerous card-draining incidents," but have "not sufficiently improved the cards' packaging or implemented other changes to prevent those losses.

The compaint accused InComm of poor customer service after the fact saying, "contrary to their legal obligations, defendants regularly fail to provide refunds for unauthorized transactions on Vanilla cards".