Credit card issuer Visa has been hit with a proposed class-action lawsuit after consumers alleged the company knowingly marketed and sold gift cards susceptible to theft and then refused to refund defrauded customers.
A consumer named Ira Schuman filed the complaint Tuesday in the U.S. District Court for the Southern District of New York after claiming he lost $4,000 when he purchased eight $500 Vanilla Visa gift cards in 2022 and 2023 that they were part of a “card drain” scam.
A “card drain” scam occurs when thieves remove the silver lining covering the security code from the back of gift cards, tape the security code, register the cards, and then put the card back on the shelf with another silver stripe.
The complaint alleges that Visa knew that gift cards were subject to this type of theft and did not take adequate security measures to prevent this from happening.
Related: Scammers have found a new way to steal money from your gift cards this holiday season — here’s what to look for
“When a consumer purchases a vanilla card, he or she selects a card at a retailer, then presents it to a cashier who loads the consumer’s desired amount of funds onto the card,” the lawsuit explains. “Thieves, however, can track the balances of Vanilla Visa cards they previously accessed on Vanillagiftcard.com. When funds are loaded onto Vanilla Visa cards, thieves transact with the cards until the funds are depleted before the consumer has the chance to use them.”
Anyone with the 16-digit number on the front of the card, the expiration date and the CVV number can access the card information and balance online. Once used up, the card cannot be recharged.
“Vanilla Visa cards do not include a registration process that protects against fraudulent transactions. Typically, this ‘card drain’ occurs even before the card purchaser has the opportunity to use the card or gift it,” the lawsuit states . “Defendants are aware of this problem and have failed to make necessary improvements to the security features of Vanilla Visa cards to prevent known widespread fraudulent conduct.”
The lawsuit did not specify the amount the class action sought in damages.
Visa did not immediately comment on the pending charges.
How to avoid scams that “drain” your cards
In December 2023, Target warned customers about gift card scams, telling customers not to buy, sell or check a gift card balance anywhere other than on Target’s website.
Check the front and back of the card and see if the silver stripe appears to have been manipulated.
“Do not purchase a gift card if the packaging appears to have been altered or manipulated,” the retailer says. “If you have questions about a gift card, please ask a Target team member for assistance.”