Class action lawsuit alleges security negligence amidst rising ‘card draining’ incidents

Visa, a global financial giant, is now embroiled in a legal battle over the security of its popular prepaid ‘Vanilla’ gift cards, with consumers filing a proposed class action lawsuit in White Plains, New York. The suit alleges Visa’s failure to address vulnerabilities that make the cards susceptible to theft.

Led by plaintiff Ira Schuman, an employer who purchased eight Vanilla cards for holiday gifts, the lawsuit claims that despite loading $500 on each card, the funds were completely emptied by thieves before recipients could use them. The complaint focuses on the cards’ packaging, sold at major retailers such as CVS, Target, and Walgreens, which the lawsuit argues is easily tampered with.

The filing contends that the thin cardboard sleeves housing the cards can be opened by thieves who then record the account information. Afterward, they can reseal the non-reloadable cards without detection. The thieves, employing a tactic known as ‘card draining,’ can monitor the Vanilla gift card website to track when money is loaded onto the card, enabling them to make purchases using the stolen information.

Schuman asserts that Visa, along with two Vanilla card issuers, should have known about the vulnerability of the cards and failed to implement security features to prevent tampering. Moreover, he alleges that the companies did not provide refunds for stolen funds, violating a New York state law against deceptive and unfair consumer practices.

The lawsuit seeks compensatory and punitive damages for customers who purchased Visa-branded Vanilla cards in New York and experienced fund draining since January 30, 2021. This legal action follows a previous lawsuit in November, where San Francisco City Attorney David Chiu targeted Incomm, Pathward, and two card issuers over the Vanilla cards’ security shortcomings. While Visa was not named in the earlier lawsuit, consumers are now demanding accountability from the financial giant.

Visa has yet to respond to the lawsuit, and the ongoing legal battle underscores the growing concerns over the security of widely used prepaid gift cards.