San Francisco City Attorney David Chiu on Monday announced a lawsuit against the makers of popular gift cards that line racks in grocery stores and other retailers around the country, saying they are very vulnerable to scammers.
Chiu said he's suing InComm Financial Services, Inc. and its partner banks over insecure cardboard packaging of Vanilla gift cards that makes them "susceptible to rampant 'card draining' and unauthorized transactions."
Because of loose packaging, scammers can surreptitiously obtain the Vanilla card number, reseal the card and use the funds before a customer has a chance to use it, Chiu said.
The city attorney alleges Georgia-based InComm has known about the security problems with the non-reloadable debit cards for more than a decade and has refused to make fixes or provide refunds to consumers.
"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," Chiu said.
Although consumers have long reported the issue, the company hasn't modified its packaging, according to the city attorney.
"Many consumers either never hear back from InComm or are placed on hold for hours," Chiu said in a news release.
"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," Chiu said.
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.
InComm representatives reached by email on Monday didn't address the lawsuit, but said the company reviews every complaint on a case-by-case basis to find a solution.
"Fraud prevention is a top priority at InComm Payments, and we continuously collaborate with security experts, merchant partners and law enforcement to combat emerging threats," according to a statement from the company.
"While we do not comment on active litigation, we understand that fraud is an upsetting and stressful experience for our customers, and we are committed to minimizing its occurrence and providing our customers with prompt and satisfactory assistance when it does occur," the statement said.
The lawsuit from San Francisco seeks penalties, restitution for impacted consumers, and injunctive relief to ensure additional consumers are not harmed.
Any consumer who may have had relevant interactions with InComm or Vanilla Gift Cards may contact the city attorney's office through its consumer complaint web portal or hotline at (415) 554-3977.
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