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Visa has successfully defended itself in a class action lawsuit that claimed the company failed to warn consumers about fraud risks linked to its prepaid Vanilla gift cards.

The decision was handed down Monday, June 23, by US District Judge Gregory Woods in Manhattan.

The lawsuit centered on "card draining," a scam in which criminals steal gift card information before the card is sold.

They later empty the funds once the card is activated. The lead plaintiff, Ira Schuman from New York, filed the case after discovering that eight $500 Vanilla gift cards he purchased during the 2022 and 2023 holiday seasons had been drained before being used, Reuters said.

Schuman argued that Visa and the card issuers didn't properly warn buyers about how easily the cards could be tampered with.

He said the cards, often sold at major retailers like CVS, Walgreens, and Target, came in flimsy cardboard sleeves that scammers could open, copy, and reseal without detection.

However, Judge Woods dismissed the claims. He said it wasn't reasonable for consumers to believe that gift cards were completely safe from scams or that Visa's branding guaranteed fraud protection.

"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," Woods wrote in his ruling.

Court Rules Against Plaintiff in Visa Gift Card Scam Lawsuit

The judge also noted that public warnings about gift card scams—like news reports and discussions in online forums—made it clear that fraud is a known risk.

Visa and its legal team have not yet responded publicly to the ruling. Lawyers representing Schuman also did not provide a statement following the decision.

The case Schuman v. Visa USA Inc et al is shining a light on a problem that's been growing fast—gift card fraud.

Law enforcement, including US Immigration and Customs Enforcement (ICE), says these scams are becoming more common.

Criminals are getting creative. According to PYMNTS, some scammers mess with gift card packaging right on store shelves, while others use sneaky tricks like phishing emails or hacking to grab card details online.

In many cases, they target people—often older adults—convincing them to buy gift cards and read out the codes, thinking they're helping a friend or avoiding trouble.

ICE says the damage goes beyond just the victims. These scams don't just empty wallets—they can also harm the economy and create risks for public safety.