Recently, you may have heard of a significant outage involving consumers using RushCard (provided by UniRush, and backed by Russell Simmons) whereby individuals could not access their funds. For consumers trying to pay rent and buy food, it was a significant hardship. The Consumer Financial Protection Bureau (CFPB) announced an investigation into RushCard and UniRush back in 2015. On February 1, 2017, Unirush LLC and the CFPB announced a Consent Order concerning these outages that created enormous hardship on working class Americans. The Consent Order can be found here.
For better or worse, reloadable prepaid debit cards have become a major part of today’s financial landscape. People use them as a substitute checking account, to shop online, and to pay bills with them. Green Dot, the previously discussed “RushCard” issued by UniRush LLC, Chase Bank, American Express, and other companies provide these cards to consumers who want to control their spending, dislike paying banking fees, and/or are denied access to traditional banking and credit products for various reasons and need a means of carrying out financial transactions in the digital marketplace.
While not every prepaid debit card will be involved in massive outage tying up consumer funds for indefinite periods of time, and prepaid debit cards may sound like an easy solution to these and similar challenges, there are some risks and hidden dangers associated with their use. Here are the top 6 things you need to keep in mind before you select a card.
- Hidden Fees
Being able to immediately reload your card whenever you want is an attractive convenience, but many prepaid debit card issuers take advantage by charging a fee every time you do so. They also tack on fees when you activate a new card, withdraw money, and even check your balance. Consumer advocates are pushing for more transparency regarding fees, but until that happens, do some research before going with a particular issuer.
- No Theft Protection
If someone steals or otherwise accesses your credit card or bank card and uses it without permission, the credit card company or bank limits your liability for those fraudulent purchases. While some prepaid debit cards offer similar protection, not all do. Without liability protection, you have no way of recovering your money. Similarly, if you lose your card the chances of successfully cancelling it and getting your money back are minimal.
- Expensive Overdraft Protection
Some issuers, like Brinks and Netspend, come with overdraft protection. This means that if your spend exceeds the card balance, the transaction will go through but you incur substantial fees. If you must use a prepaid debit card, confirm that it doesn’t have automatic overdraft protection or, if it does, allows you to cancel it.
- Binding Arbitration Requirement
Prepaid debit cards regularly require their users to submit to binding arbitration in the event that charges are disputed. These clauses make you give up many legal rights when it comes to deceptive and unfair practices and other legal violations.
- No Insurance Protection
Practically all bank checking counts are federally insured, so up to $250,000 of your money is protected if the bank or financial institution ever goes bankrupt. Prepaid debit cards don’t typically offer this type of security. This is because the issuers group user assets together in single accounts that could contain a lot more than the $250,000 covered by the Federal Deposit Insurance Corporation.
- Risk of Chargebacks
Some retailers don’t accept prepaid debit cards, although that fact may not be apparent at the time you buy there. Next thing you know, you’re in debt for a purchase you thought you already paid for. One customer used her Green Dot card to make several iTunes charges that went through but were later declined, creating a debt that she was forced to settle with a regular credit card.
Please be cautious when using prepaid debit cards, and be aware of the fee schedule for specific actions. It may be a good idea to comparison shop among cards to see which has the lowest fees for the kind of usage you expect out of a prepaid debit card.
If you believe you have been treated unfairly, and the business has been unable or unwilling to fix your problem, please reach out to an experienced consumer protection attorney. Many consumer protection attorneys in Missouri, Kansas, and other states offer free consultations, and, in certain cases, may be able to represent consumers without any upfront costs.