As I blogged about late last year, a scam called "gift card draining" has become very prevalent in the marketplace since the pandemic and has caused considerable consumer loss. Thieves remove gift cards from their packaging on retailers' shelves, record the cards' account numbers, return the cards to their packaging, and when purchasers of the cards load funds onto them, the scammers use the account numbers to quickly make purchases before the recipients of the gift cards can. In response to this scam, at least one state has passed a law requiring gift card sellers to put extensive security measures in place for retail sales of gift cards. Others are pending.
One draining victim, robbed by scammers of $1500 from cards intended as holiday gifts for his employees, decided to exercise a little self-help: he sued Visa, In-Comm (the gift card management vendor) and Pathward (the gift card issuer). He, on behalf of himself and others in a putative class, argued that the cards' prominent display of the Visa logo gave him the false impression that the card funds would be secure from fraud, and that without this peace of mind, he would not have purchased the cards. He also argued that the cards' express warnings on their packaging regarding tampering and other potential security threats did not do enough to put him on notice of the potential that the cards would be subject specifically to "card draining." Accordingly, he asserted that the defendants violated New York's UDAP law. The defendants moved to dismiss the complaint.
The Court concluded that, even accepting Plaintiff's well-pleaded allegations as true, no reasonable consumer would fail to recognize the possibility that a gift card may be subject to a third-party scam. Indeed, the packaging itself warned consumers "IF TAMPER EVIDENT, DO NOT PURCHASE" and included other security instructions. In fact, the Court noted, prepaid card scams are so "known and widespread" that sellers are required under New York law to provide notices at point of purchase cautioning about potential scams. In addition, the Court found, no one would "reasonably expect that the Visa logo, standing alone, was a promise that no scam could ever occur."
Accordingly, as New York's UDAP law requires a plaintiff to show that the allegedly deceptive conduct was "likely to mislead a reasonable consumer acting reasonably under the circumstances," a standard plaintiff here could not meet, the Court granted defendants' motion to dismiss.
Schuman vs. Visa USA, Inc., et al., 2025 WL 1731795 (S.D.N.Y., 6/23/25)
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