Consumers Sue Visa Over Alleged Security Failures in “Vanilla” Gift Card Scam

Srishti Dey
Srishti Dey January 31, 2024
Updated 2024/01/31 at 11:04 AM

Consumers have filed a proposed class action against Visa, claiming that the card payments network did not put in place sufficient security safeguards for its prepaid “Vanilla” gift cards. The lawsuit, filed in a federal court in White Plains, New York, and headed by Ira Schuman, alleges that non-reloadable debit cards, which are widely available at stores like CVS, Target, and Walgreens, are vulnerable to a fraud known as “card draining,” in which criminals take advantage of weaknesses in the card packaging to steal money.

Specifics of the litigation:

The primary complainant, Ira Schuman, describes how he sent eight $500 Vanilla cards to staff members for the holidays in 2022 and 2023, only to find out later that the cards had been used up. According to the lawsuit, criminals can tamper with the cards—which are distributed in thin cardboard sleeves—by opening and resealing the box after taking account information. Once the cards are filled with money, the stolen information is then utilized to make purchases. According to the complaint, Visa, Incomm Financial Services, and Pathward Financial, the issuers of Vanilla cards, were aware of the vulnerabilities yet did nothing to improve security or return money that had been taken.

The defendants are accused in the case of breaking a state statute in New York prohibiting unfair and misleading business practices. For those who acquired Vanilla cards with the Visa logo in New York between January 30, 2021, and experienced fund depletion, it asks for both compensatory and punitive penalties. Pathward Financial, Visa, and Incomm Financial Services have not yet replied to the lawsuit.

Further Context:

This legal challenge comes after a similar complaint filed in November by San Francisco City Attorney David Chiu against two card issuers, Incomm, and Pathward over Vanilla cards. However, Visa was not named as a defendant in that litigation. The further examination calls into question the security procedures pertaining to prepaid gift cards as well as their vulnerability to fraud.

The litigation against Visa highlights the mounting apprehensions over the safety of pre-paid gift cards, particularly the Vanilla cards, and the purported inability of prominent entities to rectify weaknesses. The outcome of this lawsuit might lead to more scrutiny and possibly improved security measures within the prepaid card business as consumers seek legal redress for money lost to card draining frauds.

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