By Jonathan Stempel
(Reuters) - Visa was sued on Tuesday by consumers who said the card payments network failed to make prepaid "Vanilla" gift cards less likely to being drained by thieves.
Ira Schuman, who leads the proposed class action in the White Plains, New York, federal court, said he bought eight $500 Vanilla cards as holiday gifts for his employees in 2022 and 2023, only to learn later that cards had been emptied.
According to the complaint, the non-reloadable debit cards are sold at CVS, Target, Walgreens and other grocers and retailers in thin cardboard sleeves that thieves can open and, after recording account information, reseal without 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."
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 did not add security features, and did not provide refunds when money was stolen.
Visa and the other defendants, Incomm Financial Services and Pathward Financial, did not immediately respond to requests for comment.
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.
Tuesday's lawsuit accused the defendants of violating a New York state law against deceptive and unfair consumer practices.
It seeks compensatory and punitive damages for people who bought Visa-branded Vanilla cards in New York since Jan. 30, 2021 and saw their funds drained.
The case is Schuman v Visa USA Inc et al, U.S. District Court, Southern District of New York, No. 24-00666.
(Reporting by Jonathan Stempel in New York; Editing by Richard Chang)