A federal judge has dismissed a class-action lawsuit against Visa over its Vanilla gift cards, saying the payments giant isn't responsible for refunding consumers who fell victim to a common type of prepaid card fraud.
Lawsuit Over 'Card Draining' Scheme
The case was brought by Ira Schuman in 2024, a New York resident who bought eight $500 Visa Vanilla cards in 2022 and 2023. According to the complaint, scammers tampered with the packaging, stole the card details, and later drained the funds before Schuman or his gift recipients could use them.
The lawsuit claimed Visa's branding gave the false impression that the cards came with fraud protection and that Visa would make customers whole in the event of theft.
Judge Rejects the Claims
U.S. District Judge Gregory Woods in Manhattan dismissed the proposed class action, ruling that it was unreasonable to expect Visa to guarantee full protection against third-party fraud. He noted that the risks associated with prepaid cards were already widely known and that Visa provided appropriate disclaimers and instructions with the product.
"No reasonable consumer would expect one of the industry's major suppliers to be immune from scams," Woods wrote in his opinion.
The judge also emphasized that Visa's placement of its logo on the cards did not imply liability or a promise to reimburse users. He said consumers could not rely on branding alone to assume fraud coverage.
Why This Matters
Prepaid card fraud, particularly "card draining," has become a growing problem. This scam typically involves thieves tampering with cards at retail displays, copying the information, and waiting until they are activated to steal the balance. Victims often do not realize the funds are gone until after attempting to use the card.
Schuman's lawsuit follows similar legal and regulatory efforts. In 2023, the San Francisco City Attorney filed a separate lawsuit against Vanilla card issuer InComm Financial Services and issuing bank Pathward, citing the same scam. Visa was not named in that case.
Visa's Broader Anti-Fraud Strategy
Visa has continued to expand its fraud prevention efforts. In March 2025, the company launched a Scam Disruption Practice within its Payment Ecosystem Risk and Control division. The team combines analytics, machine learning, and human-led investigations to block fraud attempts at scale.
According to Visa, the company helped stop more than $350 million in scams in 2024 alone, and its broader network protections prevented more than $40 billion in attempted fraudulent transactions.
Consumer Protections Still in Question
While Visa prevailed in court, the case raises broader questions about the effectiveness of consumer protections in the prepaid card space. Packaging vulnerabilities remain a weak point. Thin sleeves make it easy for criminals to open, reseal, and monitor the cards.
There are online portals that let scammers track card balances and strike as soon as funds are loaded.
The court's decision suggests that responsibility may fall more on retailers, manufacturers, or consumers themselves to detect and prevent these scams. Some consumer advocates argue for stricter packaging controls or stronger regulations requiring refund policies for fraud victims.
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