Thursday, July 18, 2013

Prepaid Cards and Consumer Protection

Prepaid credit cards help control your spending. You can control over your spending limits and are great option for teens or college students. Once you activate the card you are able to start using it. Each time you make a purchase the amount is automatically deducted from your credit card balance.  This forces you to keep track of your balance so you will never go over your limit because you can only spend the money you have on your card. 

Prepaid cards are reloadable and can be used for purchases at businesses that accept credit cards and can sometimes be used for ATM withdrawals. A prepaid card should be used in addition to having a traditional bank account but should not solely for money transactions.  Prepaid cards work similar to debit cards for making payments or purchasing items.

Prepaid cards are helpful for those who cannot get a credit card or open a bank account due to bad credit. Prepaid cards are also helpful if you don’t want to carry large amounts of cash but should only be used as a temporary measure until your financial situation improves.

Prepaid cards have activation fees, monthly fees and other hidden fees.  Some prepaid cards have activation fees up to $39.95 but most fees range from $2.95 - $9.95. They also have less protection against loss or theft.  Be sure that the bank prepaid card you use is FDIC insured. Prepaid cards are not reported on your credit report and cannot help rebuild your credit.

Comparison shop and read all the fine print before choosing a prepaid card. Ask about security, identity theft policies and system error resolution. Prepaid cards do not adhere to the same security guidelines as traditional credit cards.  Here is some helpful information on what prepaid cards have and don’t have regarding security consumer protection.

What They Have
  1. May dispute unauthorized charges or other mistakes within 60 days.
  2. Every bank determines what protections are available if any and sets its own policy for prepaid cards. 

What They Don’t Have
  1. The bank may not be FDIC insured.
  2. Prepaid cards are not reported on your credit report and cannot help rebuild your credit.
  3. No protection against identity theft and scams. 
  4. If your prepaid card is stolen the thief has access to all of the money on your card.
  5. Some banks may assess overdraft fees even if the card was stolen.
  6. Not regulated by Electronic Funds Transfer Act which governs debit transactions.
  7. Not governed by the Fair Credit Reporting Act (FCRA) which regulates information reported on your credit report.
  8. Not sure who the money belongs to when identity theft occurs since the money is loaded onto a prepaid card and is not placed into an actual bank account. The way the prepaid card issuer sets up an account determines whether each cardholder is protected. Accounts may be setup individually or as one pooled account.  Just the pooled account may be protected so each individual is not insured. Prepaid cards that claim they are FDIC insured by be referring to the pooled protection insurance for the pooled account which does not protect every customer from loss.
  9. Prepaid cards are not regulated by same laws as standard debit or credit cards. 

1 comment:

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