Visa sued over ‘Vanilla’ gift card scam

A group of consumers has filed a lawsuit against Visa, claiming that the card payments network did not take adequate measures to prevent the theft of funds from prepaid Vanilla gift cards.

Ira Schuman, who is leading a proposed class action in the federal court of White Plains, New York, has claimed that he bought eight Vanilla gift cards worth $500 each as holiday gifts for his 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.

Schuman, a resident of Scarsdale, NY, alleges that Visa and two Vanilla card issuers were aware of their cards’ vulnerability to tampering but did not provide refunds when money was stolen.

Visa, along with the other defendants, Incomm Financial Services and Pathward Financial, has not yet responded to requests for comment.

The lawsuit filed on Tuesday alleges that the defendants have violated a New York state law that prohibits deceptive and unfair consumer practices. The case, identified as Schuman vs Visa USA Inc. et al., is currently being heard in the U.S. District Court for the Southern District of New York, with case number 24-00666.

It seeks 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.

Also Read: Gift cards scam: Apple agrees to settle lawsuit

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.

Thieves can then monitor http://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.”

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.