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At-a-Glance Card 'Rulebook'

Prepaid CardsKey things you need to know

There are a variety of prepaid cards, including general-purpose reloadable prepaid cards, government benefits cards, payroll cards and gift cards. Some pre-funded digital accounts also…

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There are a variety of prepaid cards, including general-purpose reloadable prepaid cards, government benefits cards, payroll cards and gift cards. Some pre-funded digital accounts also occupy this category.

In April 2019, the Consumer Financial Protection Bureau's (CFPB) prepaid card rule took effect. The rule amended Regulation E and Regulation Z to extend those protections, along with some new ones, to general use prepaid cards, payroll cards, some government benefits cards, some other stored value cards (but not gift cards), and mobile stored-value accounts (digital wallets and peer-to-peer payment platforms with money deposited into the account, not just linked to a credit card or bank account).

The rule requires prepaid card issuers to provide:

  • Greater transparency and disclosure about card fees, as well as if the account is FDIC-insured (which means you'd get your account balance back if the card issuer went bankrupt)
  • Free and easy ways to access account information (but periodic statements are not required)
  • The right to dispute errors and fraudulent charges (only applies to card accounts registered with the card issuer)
  • Protections against loss and theft (also only on registered cards; your loss due to fraud or theft is limited to $50 if you report the issue to the card issuer within two days—potential losses increase after that)

On prepaid cards that offer overdraft protection, cash advances or any other credit feature, the issuer:

  • Must wait 30 days before offering such an option
  • Cannot activate such a feature without the cardholder's explicit opt-in
  • Must provide monthly statements
  • Give you at least 21 days to repay the debt before charging a late fee
  • Limit total fees for credit-related features to no more than 25% of the credit limit during the first year

General-purpose reloadable prepaid cards

General-purpose reloadable prepaid cards offer the same conveniences as paying with credit or debit, and they now offer many of the same legal protections for error resolution and fraud liability that consumers expect when they pay with plastic.

The sale of general-purpose reloadable cards is subject to the Federal Trade Commission (FTC) Act prohibiting unfair, deceptive or abusive practices. State UDAP (unfair deceptive acts and practices) statutes also apply.

Zero liability. General-purpose reloadable prepaid cards can be used two ways: by signing (signature) or by using a personal identification number (PIN). “Zero liability” usually does not apply on PIN-based transactions. At checkout, consumers are asked to choose between “credit” (signature) and “debit” (PIN). Choosing “credit” (signature) will preserve your “zero liability” protections (a policy of most banks and card issuers to not hold the cardholder responsible for any amount of fraudulent charges).

“Zero liability” extends just so far—it can be revoked if you report more than one or two incidents of unauthorized use in recent months. Also, it typically doesn't apply unless you have registered your card with the issuer. Read the terms on your card carefully to limit your liability for unauthorized use.

Keep a close eye on your card and statement. Time is of the essence in reporting lost or stolen cards or unauthorized use. Most card issuers state that if you report the loss or theft within two business days, your liability is limited to $50, or even zero. After two business days, consumers can be held liable for up to $500 in losses. Waiting longer than 60 days after the unauthorized use is posted on the account statement could, in some cases, cause you to lose everything.

Government benefits cards

Federal, state and local government agencies favor electronic benefits payments because of their potential to reduce payment administration costs, deliver benefits faster than checks, and reduce fraud and theft issues. Since 2013, all Social Security, SSI and other federal benefits recipients have been required to receive their payments electronically.

These cards have Regulation E protections for lost or stolen cards, unauthorized use and error resolution. They are not allowed to charge monthly fees, but other fees are allowed, including fees for ATM and teller withdrawals, denied transactions, overdraft (spending more than you have on the card), balance inquiries, customer service, transfers, PIN-based purchases, bill payment and inactivity. (Many of these fees also are allowed on payroll cards.)

Payroll cards

An increasing number of employers are offering payroll cards instead of paper checks for employees that do not have a bank account to receive direct deposit. The cards can be a better option for unbanked consumers, as they can avoid check-cashing fees, have quicker access to their money, shop online, and be able to make purchases where MasterCard and Visa are accepted. Even if these consumers have been locked out of the banking system because of past mismanagement of a bank account, they still qualify for a payroll card.

The cards come with FDIC insurance for up to $250,000 per employee account as well Regulation E consumer protections for fraud and addressing errors.

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At-a-Glance Series