Q: What are prepaid debit cards?
A: Most 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 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 debit cards?
A: GPR 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 debit cards?
A: GPR 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 employment information.
Q: What happens if my prepaid card is lost or stolen, or the card issuer goes out of business?
A: Because 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?
A: Low 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.
This “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.