Visa sold prepaid gift cards that it knew could easily be siphoned off by fraudsters, a lawsuit says, giving hope to victims of the cruel scam.
And when customers in New York complained to the payments giant about money disappearing on its vanilla gift cards, it claimed they were ignored.
Now the victim, Ira Schuman, is suing Visa for $4,000 in losses. He purchased eight vanilla cards worth $500 each for his employees between 2022 and 2023 – only to later learn that the cards had been emptied.
He is leading a proposed class action lawsuit in the U.S. District Court for the Southern District of New York to get his money back as well as damages to punish Visa.
He hopes to get compensation for other victims too.
Visa has been sued by consumers who said the card payment network failed to protect its “vanilla” prepaid gift cards from exploitation by criminals
It's the second major lawsuit against gift card providers – following a similar lawsuit in California last year – and offers hope to the estimated hundreds of thousands of victims.
The cases come amid police warnings of a rise in this cruel “card heist” scam, which renders the cards completely useless as gifts.
Vanilla Visa cards sold at CVS, Target and Walgreens are preloaded with cash and can then be used at retailers similar to a debit card.
However, according to the complaint, the cards are sold in thin cardboard sleeves that thieves can open undetected and reseal after taking account information.
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 did not provide refunds to customers who were targeted by criminals.
The lawsuit accused Visa and fellow 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 Visa-branded cards in New York since January 30, 2021 and whose funds were depleted.
InComm Payments said in a statement that while it could not comment on the individual claims, it categorically denies the allegations.
“While fraud only impacts 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 “, says a statement.
A separate lawsuit filed last year in San Francisco by state Attorney General David Chiu alleged that Incomm had known about the “lax security features” of its cards “for years,” leading to “numerous card withdrawal incidents.”
What is a “lost card” scam?
He added that the company “did not sufficiently improve its packaging or make other changes to prevent these losses.” Incomm vehemently denies all allegations.
Chiu filed the lawsuit on behalf of residents of California — where gift card providers are required by law to compensate customers whose cards are used for unauthorized transactions.
The attorney said Incomm — a Georgia-based company — should refund its California customers affected by the card fraud.
“Incomm’s negligence has opened the door for fraudsters to defraud thousands of consumers,” Chiu said.
He also called for victims to receive “reparation,” which would likely be a refund of money taken from the cards by fraudsters.
This comes after police and security experts repeatedly raised the alarm about “card swipe” scams also affecting other manufacturers and major retailers.
The cards are increasingly being targeted by criminals who steal them from store shelves, copy the card number and PIN code – and then put them back in their pockets.
A customer then purchases the card and loads it with money, which thieves can then spend online using the stolen information. The person who is given the card won't find out until they try to use it.
Last year, victim Suzanne Gdovic told how she accidentally gave her friend's daughter a worthless baby shower gift card – which would have been worth $200.
Suzanne, 64, of Arvada, Colorado, bought the card in September. Weeks later, she received a text message from the recipient saying she had tried to spend the balance, but was told the balance was at $0.
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 sorry for her. You're willing to spend $200 and then suddenly it's not there. And then of course she had to pay for it.”
She added, “I asked for all the cards to be removed from the shelves as people were buying them when I spoke to the manager. 'Target has my money and the crook has the gift!'
Suzanne Gdovic accidentally gave away a worthless gift card – which was supposed to be worth $200 – after it was targeted by criminals
Target later refunded her the card.
Customers are now encouraged to check for signs of tampering before purchasing a gift card. Telltale signs include scratch marks or parts of the card missing.
In order to get to the numbers, the criminals usually scratched off the silver security foil. They then replace it with a nearly identical sticker or another film that is sold online on sites like Alibaba.
In some cases, fraudsters even secretly open the sealed envelopes in which the cards are stored, cut off the part of the card with the activation code and keep it.
They then put the cut card back into the envelope – with the barcode still visible so a cashier can scan it and add money – which they can then steal.
How to avoid card emptying scams
- Make sure a card has not been tampered with – including scratches or scuff marks near the barcode on the back of the card
- Make sure the gift card is sealed and the protective PIN code or activation code cover is intact
- Check that the full card is in the case and the activation code has not been cut off
- Keep the receipt in case you discover the card has been compromised
- If you discover that the card has been compromised, report it to the gift card company and request a balance freeze and refund