08.14.09
By Gerri Detweiler
Debt-laden consumers are turning away from credit cards to cash,
debit cards, or even prepaid cards – Visa or MasterCard payment cards on which the consumer loads funds in order to make purchases.
Prepaid cards are essentially debit cards, but rather than accessing the funds in a consumer’s bank or credit union account, they allow consumers to load funds onto the card. Because no credit line is extended, there is no
credit check. Prepaid cards can be used anywhere the card brand (Visa or MasterCard Debit) are accepted, including online.
The use of prepaid cards is growing among several segments of the population:
- The “unbanked,” who either don’t want to open bank accounts or are unable to open traditional banking accounts due to a history of bounced checks
- Credit-challenged consumers who cannot qualify for a credit card but need a card for travel or online purchases
- Maxed-out cardholders who do not want to add more debt to their cards
- Employees whose employers pay them via direct deposit on their prepaid card, or those who choose this option
- Gift givers who want to offer a card that is more flexible than a gift card for a specific store
- Parents of college students, who give prepaid cards to their children away at school as an alternative to cosigning a credit card
- Government agencies, which are increasingly distributing benefits (such as child support, welfare, social security benefits) on these cards in an effort to reduce costs and fraud.
As with any payment card, consumers should shop around carefully before choosing one. Fees and costs vary widely and can include application, activation, annual or account maintenance fees, as well as a fee each time the card is used for a purchase. Some cards also charge fees for customer service calls, balance inquiries at ATMs, and paper statements.
Tips for using prepaid cards:
- Register your card as soon as you receive it in order to be eligible for fraud protection if your card is lost or stolen. Keep a record of the registration information in a safe and easily accessible place.
- If your card is lost or stolen, notify the card issuer immediately. Fraudulent use of MasterCard or Visa prepaid cards are covered under the companies’ zero liability policies. Under these policies, consumers are not liable for fraudulent purchases (in most instances), but they must report the loss or theft of the card promptly.
- Watch for holds. Filling up at the gas pump, renting a car, or checking into a hotel may result in a hold on part of the available funds on the card. Make sure you have enough money to cover the hold as well as the purchase amount.
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