People turn to prepaid credit cards for different reasons. For example, they are unable to get a checking account or they are teaching their children to be responsible with money by limiting what they spend.
Unlike credit cards, prepaid reloadable cards aren’t covered by the federal statutes that protect credit-card holders from fraud or limit their losses when cards are lost or stolen. Though many prepaid card companies do offer some consumer protections, they do so voluntarily.
Recently, Congress passed the Credit Card Accountability Responsibility And Disclosure Act, which regulates consumer credit cards. These protections do not extend to pre-paid cards. Consumer advocates want to change that and are urging the Federal Reserve to strengthen guidelines affecting prepaid cards. However, no bill strenthening protections has of yet been introduced or proposed in Congress.
Currently, paying with pre-paid cards offer no protection from VISA and Mastercard (who process transactions against the cards) against unauthorized purchase, forcing consumers to take a risk when paying bills or buying things online. Another disadvantages is that no statements are sent to the holders of cards; it is , making it difficult to know what was charged against the card.
What types of cards are covered under Federal Law from fraud, identity theft and stolen cards1:
- Credit Cards
- Debit Cards
- ATM Transactions
- Payroll Cards
- Electronic Funds Transfers
- Direct Deposits and Withdrawls
What types of cards are NOT covered under Federal Law:
- Prepaid Cards
- Gift Cards Cards
- Wire Transfers
- Payroll Cards
- Securities and Commodities Transfers
- Checks
1Source: Wall Street Journal.
The WSJ article mentions that between 2003 and 2007, prepaid transactions jumped from less than $5 billion a year to somewhere between $39 billion and $113 billion (isn’t that a big margin of error?). Paying for things with a credit card is a necessity for many Americans. Industry experts agree that prepaid card usage will rapidly increase in the future as they are the only refuge of people who want to use plastic but have poor credit.
Have you been a victim of fraud or identity theft while using of a prepaid card? Tell us about your experience by leaving a comment!
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Nice blog. How could they not cover pre-paid cards. A shame. Now I am sure my terms on those will change. What do you think of using use zero % interest cards, to consolidate debts. Some websites say it can be done, but my credit is not the best, so what do I do?
Thank you