Visa defeated a proposed class action lawsuit filed by consumers on June 24, 2025, who claimed the global card payments giant failed to alert users that its prepaid “Vanilla” gift cards were vulnerable to theft and could be easily emptied by scammers.

District Judge Gregory Woods in Manhattan ruled on June 24, 2025, that it was unreasonable for consumers to expect gift cards to be immune to scams.

He highlighted that existing reports on “card draining” and discussions about Visa Vanilla scams were adequate to alert consumers to potential risks.

The lawsuit was filed in January 2024 by Ira Schuman. He claimed that eight US$500 Vanilla cards he bought as gifts in 2022 and 2023 had been fraudulently emptied.

Schuman argued that the cards’ thin cardboard packaging made them easy to tamper with. This enabled thieves to record account information without detection.

The case sought damages under New York consumer protection laws and named Visa along with two Vanilla card issuers as defendants.

Neither Schuman’s lawyers nor Visa have commented on the ruling. The case is titled Schuman v. Visa USA Inc et al, U.S. District Court, Southern District of New York, No. 24-00666.

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🔗 Source: Reuters

🧠 Food for thought

1️⃣ Gift card fraud has become a multi-million dollar problem despite industry awareness

The dismissal of this lawsuit reflects the judiciary’s view that gift card scams are now common knowledge, not isolated incidents consumers couldn’t anticipate.

In 2023 alone, the FTC documented 41,633 cases of gift card fraud totaling $216.6 million in consumer losses, demonstrating the massive scale of this problem 1.

This represents significant growth from 2019, when approximately 38,000 reported crimes involving prepaid cards resulted in $103 million in losses 2.

The court’s ruling aligns with the reality that these scams have become so prevalent that news coverage and online discussions about “card draining” are readily available to consumers.

The specific technique mentioned in Schuman’s lawsuit, where thieves open packaging, record card information, and reseal packaging, is well-documented by consumer protection organizations, including the Better Business Bureau, which specifically warns against this practice 3.

2️⃣ Retailers and card issuers are locked in a security arms race with sophisticated fraudsters

The scams targeting Visa’s Vanilla cards represent just one front in an ongoing battle between security innovations and increasingly technical fraud methods.

In a notable 2017 case, fraudsters used sophisticated algorithms to reverse-engineer gift card barcodes at Target, prompting the retailer to completely modify its gift card system after nearly $800,000 in losses 4.

The gift card industry has responded by implementing advanced packaging technologies and real-time monitoring systems designed to counter tampering and unauthorized access 5.

Companies like Thames Technology have introduced tamper-evident designs and NFC-enabled cards that allow for real-time verification of authenticity, representing the next generation of anti-fraud measures 6.

These security innovations reflect the reality that physical vulnerabilities of gift card packaging, central to Schuman’s complaint, require ongoing industry attention as scammers continually adapt their techniques.

3️⃣ Legal protections for gift cards focus on fees and expiration dates, not fraud prevention

While Schuman’s lawsuit was unsuccessful, it highlights a gap between consumer expectations and actual legal protections for gift card purchasers.

Federal law through the Credit CARD Act focuses primarily on protecting consumers from expiration dates shorter than five years and limiting certain fees, but offers limited recourse for fraud victims 7.

This legal framework puts the primary burden on consumers to protect themselves, with the FDIC and FTC emphasizing consumer vigilance rather than expanding issuer liability for security vulnerabilities 8, 7.

The outcome of this lawsuit reinforces that courts generally view fraud as a risk inherent to prepaid cards rather than a failure of adequate protection by card issuers.

Despite the prepaid card market growing to an expected $3.6 trillion globally, the regulatory approach continues to emphasize consumer education over mandatory security standards for card packaging and systems 2.

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