Ahead of the holiday shopping season, City Attorney is taking action to protect and seek restitution for consumers who have been victims of “card draining”
SAN FRANCISCO (November 20, 2023) — City Attorney David Chiu announced today that he filed a lawsuit against the maker of Vanilla gift cards, which have insecure cardboard packaging that makes the cards susceptible to rampant “card draining” and unauthorized transactions. The lawsuit, filed against Incomm Financial Services, Inc. (Incomm) and its partner banks, alleges Incomm has known about the obvious security problems for a decade and refused to remedy the issue or provide consumers refunds for fraudulent transactions as required by law.
“Incomm’s negligence has opened the door for scammers to defraud thousands of consumers,” said City Attorney Chiu. “To add insult to injury, Incomm regularly refuses, in violation of state law, to refund consumers who are scammed out of their money as a result of Vanilla gift card draining. For over a decade, the company has ignored hundreds of consumer complaints calling for security improvements and refunds for fraudulent charges. As we kick off the holiday season, we are filing this lawsuit to sound the alarm, compel Incomm to adopt industry-standard security features to stop card draining, and obtain restitution for consumers who have been harmed.”
Background
In the United States, consumers load more than half a trillion dollars each year onto prepaid debit and gift cards. The cards are popular gifts and are often given as an alternative to cash. They are also used by many without access to a credit cards or traditional bank account to pay bills, make online purchases, and pay for transactions that are difficult or impossible to complete with cash.
Incomm is the Georgia-based maker of Vanilla gift cards, nonreloadable debit cards that are widely available at grocery stores and other retailers throughout the country.
Due to the lax security of their packaging, Vanilla gift cards are susceptible to “card draining,” a practice in which a scammer surreptitiously obtains the Vanilla card number from beneath its cardboard packaging, reseals the card, and then spends the gift card balance as soon as the card is activated but before the consumer has a chance to use the card. For at least a decade, consumers have reported this issue to the company, and yet Incomm has not modified the packaging to prevent theft.
Consumers are protected by laws that limit consumer liability and require refunds of unauthorized transactions. Despite this, Incomm often refuses to provide refunds to consumer who have been scammed. Many consumers either never hear back from Incomm or are placed on hold for hours. Other complainants state that Incomm refused to issue a refund, claiming that their investigation concluded the consumer’s card was physically present during the fraudulent transaction, even when the transaction occurred hundreds of miles away and right after the card was purchased and activated.
The Better Business Bureau, Consumer Financial Protection Bureau, and other consumer rights organizations have reported hundreds of similar consumer complaints about card draining and Incomm’s refusal to refund unauthorized charges.
The lawsuit, filed on behalf of the People of the State of California, alleges this failure to provide adequate security and refunds for unauthorized charges violates state law. The People are seeking penalties, restitution for impacted consumers, and injunctive relief to ensure additional consumers are not harmed.
The City Attorney’s Office encourages any consumers who may have had relevant interactions with Incomm or Vanilla Gift Cards to contact the Office through its consumer complaint web portal or hotline at (415) 554-3977.
The case is People of the State of California v. Incomm Financial Services, Inc. et al., San Francisco Superior Court, No. CGC-23-610333. The complaint can be found here.
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