Prepaid Cards, dangerous plastic?

Posted by: Jessica Silver-Greenberg on July 02

Congress took bold steps to reign in unfair credit card practices, passing the Credit Card Act of 2009. Thousands of consumers who saw their interest rates jacked up, their credit lines scaled back and their fees skyrocket, watched as President Barack Obama signed the bill into law. Crowds cheered, lawmakers looked pleased, and a new law hit the books. But card holders shouldn’t become complacent just yet, or think that abusive practices are gone from the financial landscape.

There is one kind of card, say consumer advocates, that managed to escape any regulation: prepaid cards. You know which ones I am talking about. These cards seem harmless enough. They are often prepaid, and tied to a major retailer. They might even come with a pleasing logo on the front and the promise of savings.
But these cards don’t fall under those cards covered by the new law. Only cards that are tied directly to banks boast real consumer protections.

These prepaid cards have grown in popularity in recent years, and as more consumers swipe, more advocates are worried that the protections are far to flimsy. Some prepaid cards do come with protections against fraud, or theft, but those aren’t mandated by law. Also, sometimes cards come with high activation fees, and very little disclosure about billing details.

Consumer advocates have been calling for protections to be added. Given the trickiness and complexity of billing practices, those protections are crucial.

Reader Comments

Rocky

July 2, 2009 05:53 PM

I don't know why anyone would give these instead of money. Money never goes out of style. Sharper Image is already history. Do your gift recipients a favor and don't restrict them to one merchant.

tom

July 3, 2009 01:13 AM

just paid daughters prepaid card off. it was $300. one missed payment and the bill was $631. they sent the mob to jail for charging less.

Interconnect

July 3, 2009 09:54 AM

Congress bold steps to reign unfair card practices, passage of Credit Card Act of 2009. With President Obama signing the bill into law makes another endorsement for world card members. Developing countries, emerging markets where consumers are ripped with ignorance, as consumer is naive. The craze for the youth, students for the plastic money is the highest in developing world for the consumer buying spree, inflation and brand race.
The regulators, consumer groups are expected to look closely the US moves for their policy directions.

Brenda Gilpatrick

July 7, 2009 10:11 AM

There must be some misunderstanding. Review the Act again as prepaid and gift cards did not escape the further scrutiny of Congress.

http://banking.senate.gov/public/_files/051909_CreditCardSummaryFinalPassage.pdf

That said, these products do provide value and benefit to hundreds of thousands of Americans who need a convenient way to shop, budget, pay bills or transfer funds to family members. Think the unbanked, unemployed and teens away at school.

BCR

July 14, 2009 12:37 PM

So you take cash from your pocket, GIVE it to these crooks to hold until you spend it... And THEY don't pay you interest? They sit on YOUR cash? Well slap me silly and call me stupid...

airzimzerker

July 14, 2009 02:10 PM

The government protections law of 2009 is more government intruding where it does not belong. Here is what it did for me. Since most of the law does not apply to variable rate credit cards, Bank of America as well as others are changing most cards to variable rate cards that start at the same rate as the old fixed rate. Since the prime rate is artificially being held at historic lows, when everything goes back to normal my interest rate will end up higher. I would like to thank Obama for taking away my fixed rate card and for giving me an interest rate hike.

More importantly, most of the rate hikes and fees for late payments hit the lower income population. These people probably already have a marginal credit rating and a variable rate credit card. Who is this law going to help? It will help politicians look good for doing basically nothing. Why does the press not pick up on the facts and call these politicians out on the garbage bill they passed?

airzimzerker

July 14, 2009 02:11 PM

The government protections law of 2009 is more government intruding where it does not belong. Here is what it did for me. Since most of the law does not apply to variable rate credit cards, Bank of America as well as others are changing most cards to variable rate cards that start at the same rate as the old fixed rate. Since the prime rate is artificially being held at historic lows, when everything goes back to normal my interest rate will end up higher. I would like to thank Obama for taking away my fixed rate card and for giving me an interest rate hike.

More importantly, most of the rate hikes and fees for late payments hit the lower income population. These people probably already have a marginal credit rating and a variable rate credit card. Who is this law going to help? It will help politicians look good for doing basically nothing. Why does the press not pick up on the facts and call these politicians out on the garbage bill they passed?

Thank you for your interest. This blog is no longer active.

 

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BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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