Apple settles lawsuit after being accused of benefiting from gift card scam

Apple this week agreed to settle a lawsuit over its gift cards that was filed in 2020. More specifically, the company had been accused of not helping victims of a scam involving its prepaid gift cards – and even of benefiting from these scams. Now Apple has reached an agreement with the plaintiffs after working with a mediator.

As reported by Reuters, a filing with the federal court in San Jose, California, revealed that Apple has decided to settle the lawsuit. “They are drafting a formal settlement to be presented to U.S. District Judge Edward Davila for preliminary approval,” the report says.

How scammers used Apple gift cards to steal money

Victims typically receive a call from someone claiming to work for the Internal Revenue Service (IRS), and are told that there’s a problem with their tax filling. The scammers then instill panic and urgency in the victims to pay their debt, and tell them that they can pay it off with Apple gift cards, either for retail or digital stores.

Despite Apple explicitly instructing users never to share their gift card codes with other people, a lot of people did so with the scammers. Unsurprisingly, after a victim shared the code, the scammers used the gift card to buy Apple products. For iTunes gift cards, the scammers bought their own apps available on the App Store to receive the money in their bank account.

According to the lawsuit, Apple told the victims of the scam that there was nothing the company could do once the money was spent, since there’s a no-refund policy for gift cards, not to mention that it’s the owner’s responsibility not to share the code with others. But there were some counter-arguments against Apple.

When it comes to iTunes gift cards, Apple holds 100% of the funds for a period of 4 to 6 weeks before paying the developer. In addition, there’s also the 30% commission from each sale kept by Apple. Apple was also accused of not helping the victims because it benefited indirectly from the scam.

What happens next

In June 2022, Judge Davila rejected Apple’s appeal to dismiss the lawsuit on the grounds that the company could do more to help the victims even after they had been scammed. The lawsuit covers those who were victims of the scam between 2015 and July 2020.

It’s still unclear how much Apple will pay the victims and when they will receive any money. The case is Barrett et al v Apple Inc et al, U.S. District Court, Northern District of California, No. 20-04812.

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