Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—S.D.N.Y.: Lawsuit against Visa over draining of gift cards dismissed, (Jun 25, 2025)

By Brian Craig, J.D.

No reasonable consumer would fail to recognize the possibility that a gift card may be subject to a third-party scam.

In a proposed class action lawsuit brought by a consumer against Visa USA, Inc and other companies alleging deceptive business conduct over a “card draining” scheme of Visa gift cards by scammers, the federal district court in New York has dismissed all claims. In granting the motion to dismiss brought by Visa the court held that no reasonable consumer would fail to recognize the possibility that a gift card may be subject to a third-party scam. The court also held that no reasonable consumer would expect that the Visa logo on the Vanilla Visa cards, standing alone, was a promise that no scam could ever occur (Schuman v. Visa U.S.A., Inc., No. 1:24-cv-00666-GHW-GS (S.D.N.Y. Jun. 23, 2025)).

A consumer in New York bought eight Vanilla Visa cards at a CVS Pharmacy store as holiday gifts for his employees and loaded $500 on each of the cards. Three of the cards, however, had been emptied of funds by scammers. The scammers allegedly stole the funds in a “card draining” scheme. In the scam, the thieves removed the cards from the packaging on the shelf, recorded the cards’ account numbers, returned the cards to their packaging, and when money was loaded onto the cards, the scammers used the account numbers so quickly to make purchases before the holder of the card. The consumer filed a proposed class-action lawsuit against Visa U.S.A., Inc.; InComm Financial Services, Inc.; and Pathward, N.A. alleging violations of New York state law on behalf of other similarly situated consumers in New York. Specifically, the consumer brought a claim alleging violation of Section 349 of the NY General Business Law which prohibits deceptive acts or practices in the conduct of any business, trade, or commerce in New York.

Visa and the other defendants moved to dismiss.

Reasonable consumer test. The court held that the complaint fails to sufficiently allege deceptive business practices under the reasonable consumer expectation text. Under New York Law, a plaintiff must plausibly allege that the deceptive conduct awas likely to mislead a reasonable consumer acting reasonably under the circumstances. The mere presence of a prominent Visa logo on the cards would not plausibly mislead a reasonable consumer into believing the cards were immune from fraud. The Visa logo consists simply of the word “VISA” and makes no asserts about the security from the possibility of fraud of the cards or of the packaging, the court found. Nothing about the word “Visa” would imply to a reasonable consumer security from fraud.

The court also held that the cards did not misleadingly omit any material about the scams that allegedly affected the consumer's cards. The complaint alleges that the gift cards and their packaging were misleading because they did not warn consumers that the cards are defective, unsecure, and easily subject to known fraud. For an omission-based claim, the complaint must allege that the plaintiff could not have reasonably obtained the omitted information. In this case, the complaint does not plausibly allege that the consumer could not reasonably have obtained the relevant information about the cards' potential susceptibility to fraud. The consumer could have reasonably obtained this information because the risk of card fraud is known and widespread, according to the language in the complaint. The complaint fails to allege that the consumer could not reasonably have obtained the well-known and widely publicized information. No reasonable consumer would expect the allegedly widespread practice of third-party scams affecting prepaid cards to somehow not affect one of the industry’s major suppliers. Card scams, including for Visa-branded cards, are known and widespread. The VISA logo on the cards would not deceive a reasonable consumer into failing to recognize the possibility that they might lose funds in a scam and be forced to ask the card issuers for a refund.

Standing for injunctive relief. The court also held that the consumer lacks standing to seek injunctive relief. If the consumer purchases the card again in the future, the consumer will not be harmed in a similar way because any future purchase will be made with knowledge of the cards’ susceptibility to fraud.

Therefore, the court granted the motion to dismiss the complaint. The court, however, granted the consumer leave to amend the complaint within 21 days because this was the first time the court ruled on the sufficiency of allegations.

The Case is No. 1:24-cv-00666-GHW-GS.

Judge: Woods, G.

Attorneys: Philip M. Black (Wolf Popper LLP) for Ira Schuman. Daniel Hershel Tabak (Cohen & Gresser, LLP) for Visa U.S.A., Inc.

Companies: Visa U.S.A., Inc.

Cases: StateUnfairTradePractices NewYorkNews