are prepaid debit cards?
consumers are familiar with gift cards, which are actually prepaid debit cards.
A merchant loads money onto the gift card, and the gift card recipient uses the
card to make purchases from that merchant until the card’s balance reaches
zero. A new, general purpose, reloadable
prepaid card (called a GPR prepaid card) has some characteristics of a gift
card and some characteristics of a debit card that might be issued by a bank
and tied to a bank account. As with a gift card, a definite amount of money is
loaded on to the GPR card, but GPR cards are intended for long term use, unlike
gift cards. Consumers can reuse the GPR card and reload money as needed. Many
GPR prepaid cards are branded with major credit and debit card networks and can
be used at any location that accepts regular debit or credit cards.
Q: What are the advantages of using prepaid
prepaid cards provide an alternative to traditional banking. These cards provide
the same flexibility as traditional bank cards without being tied to a bank
account. For people with tarnished credit who may not be able to qualify for a
traditional credit card, for those with limited access to banking, or for those
who simply prefer not to do business with banks or credit unions, these cards
can be a good tool for managing money. Unless the card you choose offers overdraft
protection or short term emergency loans, you cannot spend more money than has
been loaded on the card.
Q: What are the disadvantages of using prepaid
prepaid cards are not subject to the regulations that apply to traditional
credit or debit cards, so fees and card features vary widely. Because card
issuers do not earn interest on the cards’ account balances, they make money
through fees for use and services. Consumers would be wise to shop and compare
features and fee structures before choosing a card. This information may not be
easy to find because disclosures are not uniform. Customer service on GPRs also
varies, so consumers should read all card disclosures before deciding which
card best fits their needs and budget.
Using a GPR
prepaid card will not help you build or improve your credit score because
credit bureaus do not track prepaid card activities. Also, because these cards
are intended for long-term use, you will be sharing personal identifying
information with the card issuer. If you load money onto a GPR from your bank
account, you will be sharing account and routing numbers, and if your employer
deposits your paycheck directly onto your card, you will also be sharing
Q: What happens if my prepaid card is lost or
stolen, or the card issuer goes out of business?
GPR prepaid cards are not subject to the same federal regulations as credit
cards, theft protection varies from card to card. You must read the card terms
to find out your rights, and chose a card with theft protection. Many, but not
all, prepaid debit cards are covered by FDIC deposit insurance, so make sure
the card you choose is covered by FDIC deposit insurance.
Q: Aren’t some government benefits issued on
prepaid debit cards? How are these cards different?
income Ohioans receive “Direction” cards for SNAP (Supplemental Nutrition
Assistance Program) benefits, “Eppicards” for OWF (Ohio Works First) benefits,
and “ReliaCards” for unemployment compensation. All of these are reloadable
prepaid cards. Unlike GPR prepaid cards, only the issuing state agency can
deposit money onto these “benefit” cards.
Those found eligible for these programs get information about the
features and uses of these cards when they begin receiving benefits.
By March 1, 2013, federal
government benefit recipients were required to switch to electronic receipt of
their benefits, because the U.S. Treasury has completely phased out paper check
payments. All recipients of federal benefits must now get their money
electronically. If recipients do not have a bank account for direct deposit,
then the U.S. Treasury will issue benefits on a Direct Express prepaid card. Only
the U.S. Treasury will be able to deposit money onto the Direct Express
card. The Treasury website, http://godirect.org/, has information
explaining the features of Direct Express cards.
“Law You Can Use” column was provided by the Ohio State Bar Association (OSBA). It
was prepared by Linda Cook, senior staff attorney for the Ohio Poverty Law
Center in Columbus. Articles
appearing in this column are intended to provide broad, general information
about the law. For information about a variety of legal topics, visit the OSBA
website at www.ohiobar.org.
Before applying this information to a specific legal problem, readers are urged
to seek advice from an attorney.
Labels: credit cards, debit cards