BEWARE SO-CALLED "PREPAID DEBIT" CARDS, AND THEIR DODGY RESELLERS

Consumer complaints, centered around what issuers refer to, albeit incorrectly, as prepaid debit cards, are giving the card industry a bad name. You don't know that term ? You are not alone, as the name itself is a contradiction in terms. Let's discuss:

(1) A debit card allows users to make purchases, by deducting funds directly from their checking accounts.

(2) A prepaid card, which is not tied to the user's bank account, has funds directly loaded, or reloaded onto it, and funds are deducted at point of purchase.

(3) A so-called"prepaid debit" card is neither; it requires the user to deposit money, not into either his designated bank account, or onto the card itself, as a credit, but into a "pre-funding account."

The user accesses his money through a PIN; he may also unwittingly give the PIN to an online merchant, who may then deduct the amount of the purchase, or more, or take funds illegally, and not deliver the merchandise, which is the principal consumer complaint. Apparently, unscrupulous merchants are asking their customers to purchase a prepaid debit card, knowing of its vulnerabilities, and then reneging on delivery of the goods or services.

Typical charges

The other problem is the unethical, immoral, but strictly legal,  repeated deduction of various and sundry clearly excessive fees by certain resellers, who give instructions to the issuers to make the deductions from the pre-funding account, which are obeyed. These extreme charges may be buried in ten pages of legal disclosures that consumers sign, but rarely actually read, or even taken from the account without any written disclosure whatsoever, many issuers are honest, but the industry is being pulled down by greedy clients, or resellers, of the issuing banks.

Listen, if you want protection from a bank, obtain a debit card; if you want to absolutely limit your exposure to a sum certain, purchase a prepaid card, but do not run for this hybrid, the prepaid debit card, which confers no protection, is susceptible to fraud and abuse by both resellers and vendors, and which offers you no avenue for relief, should there be a problem. One merely needs to go to the complaints appearing on the Internet to confirm this.

The money is reportedly kept in  a"pre-funding account"and co-mingled with that of other clients. Since these entities are corporations, there is no civil liability of the operators, should the company become insolvent, or file for bankruptcy. This is not an FDIC-insured bank account, nor is the money actually loaded or charged up on your physical card.

If you search the Internet, you will find horror stories, first-person accounts of individuals who woke up to find excess admin charges, and other nonsense, deducted from their cards. Please avoid this dangerous financial instrument, lest you also get burned.