Visa Gift Card Class Action Lawsuit: Dismissal and Related Cases

The most prominent class action lawsuit over drained Visa gift cards, Schuman v. Visa USA Inc., was dismissed on June 23, 2025, when a federal judge in the Southern District of New York ruled that no reasonable consumer would expect a gift card to be “impervious to scams.” A separate government enforcement action against the card’s maker, filed by the San Francisco City Attorney, is still active and has climbed to the U.S. Supreme Court on a jurisdictional question.¹

What the Lawsuit Claimed

Ira Schuman, a Scarsdale, New York resident, bought eight Vanilla Visa gift cards worth $500 each during the 2022 and 2023 holiday seasons. Every one of them was empty by the time he or his intended recipient tried to use it. He sued on January 30, 2024, in the U.S. District Court for the Southern District of New York (case 1:24-cv-00666), represented by Wolf Popper.²

The complaint named three defendants: Visa USA, whose logo appeared on the cards; InComm Financial Services, which manufactures and services the Vanilla brand; and Pathward NA, the issuing bank.³

At the center of the case was a fraud method called card draining. According to the complaint, thieves peel open the thin cardboard sleeves sold at retailers like CVS, Target, and Walgreens, record the 16-digit account number, expiration date, and CVV, then reseal the packaging and return it to the shelf. They monitor the card’s balance on VanillaGift.com, and the moment a customer buys the card and loads it with money, the thieves spend the funds first. Some scammers also swap barcodes so that when a cashier scans the card, the money loads onto a different card the thief already controls.⁴³

Schuman argued the packaging was defective because it could be opened and resealed without any visible sign of tampering. He also alleged the defendants failed to require any registration process that could catch fraudulent use, failed to warn buyers about the risk, and refused to refund consumers whose cards had been drained.⁵

The case was brought under New York General Business Law § 349, which prohibits deceptive business practices. Schuman sought to represent every New York resident who had bought a Visa Vanilla card after January 30, 2021, and had it drained before use. He asked for the drained amounts plus the $5.95 activation fee per card, treble damages under the statute, injunctive relief forcing better security, and attorneys’ fees.²⁵

Why the Judge Dismissed the Case

U.S. District Judge Gregory Woods ruled that it was “unreasonable for consumers to consider gift cards impervious to scams,” and that the Visa logo on the packaging did not amount to a guarantee against fraud.¹

The court then turned Schuman’s own argument against him. Because card draining has been so widely reported in the news and discussed online, the judge concluded, buyers were already on notice. That widespread awareness cut against the claim that Visa had failed to warn consumers about the risk.⁴

The judge also noted that Vanilla packaging does carry some tampering warnings, and that Schuman himself had received a refund from InComm the one time he asked for one, which weakened the claim that the companies categorically refused to reimburse victims. On the request for a court order forcing security changes, the judge found Schuman had no standing because, now aware of the scam, he faced “no risk of future deception.”⁶

The practical effect: in the Southern District of New York, a plaintiff bringing this exact theory faces a court that has already held the fraud is too well-known to be actionable as a failure to warn. That reasoning would likely reach any similar consumer class action filed in the same district on the same facts.

The San Francisco Case Is Still Alive

A different kind of legal action against InComm is still moving. In November 2023, the San Francisco City Attorney sued InComm and its partner banks in San Francisco Superior Court (case CGC-23-610333), not as a consumer class action but as a government enforcement action on behalf of the People of California.⁷

The complaint alleges InComm has known about card draining for at least a decade and has ignored hundreds of consumer complaints logged with the Better Business Bureau and the Consumer Financial Protection Bureau. It also alleges that when consumers reported unauthorized charges, InComm routinely denied refunds by claiming its investigation showed the card was “physically present” during the fraudulent transaction, even when that transaction happened hundreds of miles from the consumer.⁷ The City Attorney is seeking restitution for affected consumers, civil penalties, and a court order forcing better security.⁸

InComm, based in Georgia, has fought the case on jurisdictional grounds rather than on the merits. The trial court found in April 2025 that InComm’s “substantial and purposeful” California sales supported jurisdiction. The California Court of Appeal denied relief in August 2025, and the California Supreme Court declined review in October 2025. In January 2026, InComm petitioned the U.S. Supreme Court, challenging how California courts interpret the jurisdictional “relatedness” requirement. The San Francisco City Attorney filed an amended complaint in December 2025. The case has yet to reach a ruling on the underlying fraud allegations.⁹

A Separate Prepaid Card Settlement in Quebec

A different class action, on a different theory, did produce money for buyers. In Quebec Superior Court (file 500-06-001203-229), a case against Peoples Trust Company alleged that prepaid cards sold under brands including Vanilla, Perfect Gift, and American Express did not display activation fees “clearly and legibly” alongside the card’s face value.¹⁰

The court approved a CAD $5.5 million settlement on March 25, 2026. The class covers anyone who bought a Peoples Trust prepaid card in Quebec between May 9, 2019, and February 11, 2026. Approved claimants receive between $3 and $100 by electronic transfer depending on how many people file. No proof of purchase is required; claimants attest to the purchase and give a valid email address. The claim deadline is July 8, 2026. Peoples Trust also agreed to make activation fees at least as large as the face-value text on packaging, in the same area, with all new inventory updated within twelve months.¹¹

This case is about how fees are displayed. It is not about drained cards, and buying a Vanilla-branded card outside Quebec does not make you a class member.

If Your Visa Gift Card Was Drained

The Schuman dismissal does not mean refunds are impossible. Schuman himself got a refund from InComm the one time he asked, and that fact was part of why the court threw out his case. Consumers who report drained cards to the issuer can and sometimes do recover their money, though the San Francisco City Attorney alleges that InComm routinely denies these requests by relying on internal “card present” findings.⁶⁷

The fraud methods described in these cases go beyond peeled packaging. Scammers also hack online gift card accounts, phish for credentials, and trick people over the phone into buying cards and reading back the redemption codes. Physical tactics include heating adhesive to reopen sleeves, placing stickers over PINs after copying them, and swapping barcodes so loaded funds route to a different card.¹² Before buying, it’s worth inspecting the packaging for reseal marks, mismatched stickers, or a PIN scratch-off that has already been touched.

1
PYMNTS. Visa Defeats Proposed Class Action Lawsuit Over Gift Card Scams
2
Bloomberg Law. Visa USA Hit With Lawsuit Over Gift Card Draining Vulnerability
3
ClassAction.org. Ongoing Scam Lawsuit Says Visa Knows Vanilla Gift Cards Are Vulnerable to Tampering
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Yahoo Finance. Visa Defeats Lawsuit Over Card Draining Scams
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Wolf Popper. Schuman v. Visa USA Inc., Initial Complaint
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Patterson Belknap Webb & Tyler. Firm Obtains Dismissal of Consumer Class Action on Behalf of InComm Financial Services
7
City and County of San Francisco. City Attorney Sues Maker of Vanilla Gift Cards Over Consumer Scams
8
Yale Law School. SFALP Files Suit in Gift Card Scamming Case
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Supreme Court of the United States. InComm Financial Services v. People of California, Petition for Writ of Certiorari
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LPC Avocat. Prepaid Cards Activation Fees Class Action
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Règlement Carte Prépayée. Prepaid Card Class Action Settlement
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WBTV. Man Loses $500 to Gift Card Draining Scam