Target recently upgraded its gift cards to make them more secure. Walmart is now being sued for not doing the same.
A New Jersey woman has filed a lawsuit against Walmart, accusing the retailer of selling her a compromised gift card, refusing to reimburse her, and allegedly doing the same to hundreds or thousands of other Walmart shoppers.
In a case initially filed in state court and now transferred to federal court, Kimberly Palazzi accused Walmart of knowing that its gift cards are susceptible to fraud, doing nothing to prevent it, not making it right for victimized customers, and joining the criminals in profiting from the scheme.
Individuals and criminal organizations have been known to use various methods to steal gift card balances before the gift cards are even sold. The most sophisticated methods involve taking gift cards off the shelves and out of the store, replacing the bar codes, and returning the gift cards to the shelves for unsuspecting shoppers to purchase. Once they’re sold and scanned at the register, the compromised bar codes load money into accounts controlled by the criminals.
Less sophisticated methods involve removing and replacing the scratch-off strip to copy down the access code, so the gift card can be redeemed online once a customer buys and activates it.
Palazzi said that happened to her. This past July, she explains in her lawsuit, she bought a $100 Walmart gift card at a store in Ledgewood, New Jersey. It “did not appear to be altered or tampered with in any way.” But when a family member went to use the gift card two days later, the “funds had been drained,” with the gift card already having been redeemed on Walmart’s website. The gift card “was compromised while still on the shelf,” Palazzi alleges. And when she complained to Walmart, the retailer refused to provide her with a refund.
“Even though Defendant sells and markets these Walmart Gift Cards as safe and secure ways to hold credits to be used at Defendant’s stores, Defendant has not prevented these gift cards from being scanned, hacked, or otherwise compromised prior to their sale,” Palazzi’s lawsuit states. She claims Walmart “has had longstanding knowledge of these practices and has failed to prevent” them, and that the retailer “refuses to provide refunds to customers who purchase compromised Walmart Gift Cards.”
While the case was transferred to federal court just last Thursday, the initial lawsuit in state court was filed just as Walmart rival Target began introducing new gift cards that aim to address the very problems that Palazzi says are prevalent with Walmart’s gift cards. Target’s updated gift cards have new security features – most notably a blank spot where the access code would normally go. Now, when shoppers take a Target gift card off the shelf and take it to the register, the cashier will apply a sticker with the access code in order to activate it. A gift card at the shelf without a sticker is worthless, so there’s nothing for criminals to steal.
Earlier this year, the federal government’s Homeland Security Investigations launched “Project Red Hook” in order to raise awareness of gift card theft, and how Chinese organized crime groups in particular are responsible for much of the fraud. The gift card balance that victimized customers had hoped to use in a store or online is instead used to fund “the illicit activities of Chinese organized crime groups, such as fentanyl production and smuggling, illegal migration and human trafficking,” HSI explains.
The group advises retailers to “adopt tamper-evident gift card packaging,” and advises consumers who “suspect that a gift card you purchased may have been tampered with” to “contact the customer support number on the back of the gift card.”
That didn’t help Palazzi. So now she hopes the courts will. She’s accusing Walmart of breach of contract and violating the Consumer Fraud Act, and is seeking class-action status on behalf of all other New Jersey residents who may be in her same situation. In an initial response, Walmart did not admit or deny any wrongdoing, but noted that its business records reflect that “in just the past year, more than 1,200 unique customers purchased and activated Walmart gift cards in the six Walmart stores in Morris County, New Jersey, alone.” No word on how many of those gift cards may have been compromised. But it is, potentially, a large class of consumers that Palazzi aims to represent.
So as this case makes its way through the court system, take note if you’re giving gift cards for the holidays. Your friends and relatives may be the intended recipients – but criminals thousands of miles away could be the ones who are thanking you for your generosity.
Image sources: Walmart/HSI
