Crazy design flaw that should have been caught and resolved prior to sale, and certainly during assembly. As mentioned by
Trakhak , you may be able to space the pads in order to move the brake levers outwards for more clearance. I that doesn't work the other options are to: 1) replace the pads with thicker ones that would require the arms to move outwards, 2) replace the brake arms with shorter ones. It looks like you have as much as 10 mm clearance above the fender or 3) replace the V-Brake with cantilever arms, though this would probably require a different bake lever as cantilevers use short-pull levers.
Also, it would be worth a call to Schwinn. Even though you are not the original owner, this is a significant safety issue that they should attend to. If they resist, you should nudge them a bit by mentioning reporting the issue to the CPSC