The Ins and Outs of Prepaid Credit Cards

By Catherine Powell

Image courtesy flickr

If you’re like me, you have way too many friends, relatives and business associates to buy each and everyone of them a hand-picked Christmas present.  There just aren’t enough hours in the day, right?  That means you’re left with the unenviable choices of either buying the same gift for many of them or crossing some off your list.  Before you break out the red pencil, let me give you one other option that not only kills two birds with one stone, but allows everybody on you’re a-list to wind up with the gift they most want.  What I’m talking about are prepaid credit cards. 

The Gift that Keeps on Giving – The best thing about prepaid credit cards is you can hand them out like cookies during the holiday without having to take the time to bake a batch.  That’s because they can be purchased with a variety of denominations and can even be sent out with your Christmas, birthday, anniversary or thank you card.  Companies like SendOutCards.com allow you to choose the perfect greeting card for the occasion, then add a prepaid card.  Or, you can take a favorite photo and create a custom card that’s sure to get a rise out of your recipients.  Whether you use prepaid cards for business or personal use, they’re easy to use and are guaranteed not to be re-gifted.  What’s even better is you can choose to send Visa/MasterCard type prepaid cards that can be used virtually anywhere, or you can buy cards that can only be used at specified vendors.  I often send out restaurant cards to clients during the holidays and I have been known to use them as an incentives for my employees as well. 

Image courtesy Picpedia

Not All Prepaid Cards are Created Equal – Now that I’ve talked about the upside to prepaid cards, let’s talk about the downside. The biggest potential problem is that some prepaid cards come with multiple fees.  These can include activation fees, penalties for those who fail to use them promptly, expiration dates and specific terms of use.  Even worse is that depending on where you purchase prepaid gift cards, you run the risk of being targeted by the company that issued and/or sold you the card for ongoing marketing. That’s the bad news.  The good news is that as of April 1, 2019, consumers have more protection when they opt for prepaid credit and debit cards, but only if they register their cards on the card issuer’s website. 

What kind of cards do the new rules cover? – The best news is that the new rules don’t just protect prepaid gift cards bought in retail establishments. The protection is extended to everything from Social Security benefit cards to payroll cards and even person-to-person mobile payment services like Venmo.   Some of the other advantages provided by the new rules include:

      1.      Full disclosure of all fees on the packaging of all prepaid cards.  This way you don’t have to hunt for the rules and regs and your recipients won’t be in for a rude awakening when they try to use your gift card.

      2.      If a card is lost or stolen, the cardholder won’t be liable for more than $50 of the card’s face value, provided they report the loss within two days.  If they wait, they could lose up to $500 of the face value.

      3.      Since some cards are now treated like bank accounts, the issuers are also required to show whether the card is insured by the FDIC.  It will also let you know if the card must be registered in order for FDIC protection to kick in.

      4.      If a card allows a consumer to spend more than the amount listed on the card, the packaging must stipulate what kind of overdraft coverage and any applicable fees that will kick in should this occur.  (Personally, I advise you to avoid cards that permit cardholders to spend more than you have allocated, since any overdraft fees may apply to you instead of the cardholder.)

Image courtesy Picpedia

What’s the difference between a prepaid credit card and a prepaid debit card? – When it comes to prepaid credit and debit cards, there isn’t all that much difference.  They both work by providing the cardholder with a fixed amount of money to spend.  The difference is only where the money comes from.  With a prepaid credit card, the money comes from the card issuer.  With a prepaid debit card, the money comes from the bank account of the person or business that provides the cardholder with the card.  The difference to the entity that gave the prepaid debit card away is that no money changes hands until the cardholder makes a purchase.  Whereas with a prepaid credit card, the payment is made in advance regardless of when or if the recipient spends a dime. 

Some businesses also use prepaid debit cards in lieu of issuing payroll checks to employees.  All they have to do is load a card with a specified amount of money or authorize a direct deposit.  This provides business owners with two benefits:  They avoid the hassle of printing and issuing checks.  It’s even more beneficial to companies who work with far flung agents and distributors, since they no longer have to mail checks once they switch to using prepaid cards.

Benefits to employees include being able to withdraw cash from ATM’s.  For your employee’s sake, make sure you read the fine print to choose a provider that charges minimal fees for cash withdrawals.  Other fees to be wary of are reload fees and transaction fees. 

Some of the other benefits to recipients include ease of use, since many prepaid credit cards use the Visa or MasterCard network to process transactions, which makes them accepted at most retailers.  The credit worthiness of a cardholder is beside the point with prepaid cards.  Bad credit or no credit is no stumbling block to acquiring and using a prepaid card.  They’re especially handy in situations where a credit card is the only way to access service, such as with car rentals.  If you any of your children is a college student, it’s much less risky for you to give them a prepaid card as opposed to a regular credit card in order to limit their expenditures.  The same goes for companies that provide expense accounts to their employees.  Better to give a rep a card with a preset monthly expense limit than provide them with a credit card that’s like a blank check.

Now that there are protections in place for those giving out and those using prepaid cards, I expect to see many more individuals and companies using them, especially during the upcoming holiday season.  After all, this is the gift that makes giving a whole lot easier for everyone concerned. 

Catherine Powell is the owner of A Plus All Florida, Insurance in Orange Park, Florida.  To find out more about saving money on all your insurance needs, check out her website at http://aplusallfloridainsuranceinc.com/