Consumers Guide to Reloadable Prepaid Cards Leaders Guide Lori Scharmer, M.S., A.F.C. Interim Extension Family Economic Specialist Program Description Reloadable prepaid cards are gaining in popularity and can be another money tool for consumers to use in managing their money. In some situations, reloadable prepaid cards are a very useful choice, but they also can come with added expense and some risk. This program is designed to assist the consumer in making wise choices when shopping for a reloadable prepaid card. Target Group This program is for consumers of all ages and incomes, especially consumers who may be unbanked or underbanked, who travel or who are away from home for work or school. Time Needed Thirty to 45 minutes, depending on activities and discussion. This lesson easily could be offered in a shortened 20-minute session. Preparation and Supplies Participant handout List of fees Laminated card examples Evaluation Flip chart and markers Other Resources/Links Consumer Finance Protection Bureau - www.consumerfinance.gov Consumer Action - www.consumer-action.org FDIC - www.fdic.gov Before the Program Obtain copies of the handouts and evaluation form. Consumers Guide to Reloadable Prepaid Cards, FE1679 Program Objectives Participants will: Know the differences among debit, retail, gift, reloadable and credit cards Understand the advantages and disadvantages of repaid cards Understand the expense associated with prepaid cards Identify uses for prepaid cards North Dakota State University, Fargo, North Dakota July 2013
Leaders Notes Slide 1 - Introduction (Introduce yourself and welcome the participants. Have the participants introduce themselves and share their experiences with prepaid cards.) Prepaid cards are becoming more popular with consumers and are just one more money tool available to assist in managing money. In some situations, they can be a very useful tool. But they come with added expense and some risk. This program will assist the consumer in making wise choices when shopping for a reloadable prepaid card. Slide 2 - What is a prepaid card? It looks like a credit card and spends like a debit card, but it is in a class by itself. To use a prepaid card, you first deposit money on the card, then use it for purchases until the money runs out. So it s a gift card, then? Yes and no. A gift card is a prepaid card but not all prepaid cards are gift cards. The gift card category of prepaid cards has funds loaded on the card. When the funds are used up, the card is discarded. This category includes gift cards, return credit and rebate cards, and generally are limited to a specific retail business. Another type of prepaid card is reloadable and meant for long-term use. Funds initially are deposited on the card, and the card can be reloaded with more money at any time. It is the reload feature that distinguishes prepaid cards from gift cards. Consumers even can choose to have a paycheck direct deposited to a prepaid card. We will be covering the reloadable prepaid cards in this program. Typically, the reloadable prepaid cards will be associated with one of the major credit card companies (Visa, American Express, MasterCard, Discover) and allow the user to make purchases anywhere the credit card is accepted. Generally, the individual can spend only the amount that he or she prepaid on the card. Reloadable prepaid cards are one way for people who do not have credit cards or bank accounts to have the convenience of paying with plastic. 2
Slide 3 Uses for Prepaid Cards How could a prepaid card be useful? Advantages and Disadvantages Let s explore uses for the reloadable prepaid cards. (Have the participants list times they think the prepaid cards may be useful. Record their suggestions on a flip chart or large piece of paper. We will refer to this list later in the lesson.) Here are a few suggested uses if the group has a hard time getting started: A consumer without a bank could use a prepaid card much like a checking account: deposit pay checks in the card, use the ATM to get cash and pay bills in person or online. A card could be used by someone who does not qualify for a credit card but still wants the convenience of paying with plastic. Someone going on vacation may use a prepaid card instead of carrying cash. Parents may find a prepaid card a good tool for sending money with their college student away at school. They even could load money on the card at regular intervals. Consumers may find a prepaid card a useful way to shop online. Prepaid cards may assist in controlling spending; when the money is gone, the card no longer may be used. A taxpayer may choose to have his or her tax refund placed on a prepaid card provided by the government as an alternative to direct deposit. Prepaid cards have pros and cons; being aware of both can help consumers decide if a prepaid card will work for them and their situation. Slide 4 - Advantages The prepaid cards can be safer than cash. If the card is registered with an issuer and it s lost, you can recover your full balance. Prepaid cards are convenient. They work much like a bank debit card in that you generally can use them anywhere credit/debit cards are accepted. Credit checks are not required to get a prepaid card. Plus using a prepaid card does not impact your credit history. Prepaid cards are widely available in stores and online. Cards can be used for online shopping. 3
Most prepaid cards do not allow you to spend more money than what you prepaid, making overdrafts less of a worry; however, checking the terms on your card is important because some do have overdraft capability and associated fees. Prepaid cards can be used to receive government benefits (for example, the Direct Express debit card used for Social Security payments) or an income tax refund from the IRS. Wages may be placed on a prepaid card in place of a paycheck with some employers. Prepaid cards can be used internationally. Slide 5 - Disadvantages While prepaid cards do have some potential advantages, they have several big disadvantages: Prepaid cards are loaded with fees that need to be taken into account when choosing a card. Prepaid cards cannot help you establish or build a good credit history. Prepaid cards are a fairly new financial tool and government regulations and protections for consumers still are being developed. Slide 6 Prepaid cards will have fees! Reloadable prepaid cards tend to have a lot of fees that subtract from the amount of money loaded on the card. These fees can add up quickly and need to be factored in when deciding if a prepaid card will work for you and your situation. While most cards will not have all of these fees, each card will have fees, so shopping around to get the best card with the lowest fees is important for a consumer. The fee schedule is not always displayed well, so dig into the fine print to find the fee structure before purchasing. (If you handed out the small pieces of paper with the fees and their definitions, have the participants read them now. Any order is fine. This activity will highlight the many possible fees consumers need to be aware of when purchasing a prepaid card.) Below are the most common charges associated with prepaid cards. Some fees may be waived if the holder sets up a direct deposit. Remember, most cards will not have all of these fees, but being aware of all the possibilities is important for a consumer. Purchase fee: a one-time charge for buying the card, generally in a retail location such as a grocery store Activation fee: a one-time charge for activating the card initially; this fee can range from free to $30 4
ATM or cash withdrawal fee: charged for using the card to get cash at an ATM; some ATM machines also charge a fee on top of the card fee. Some cards do have free withdrawals at participating ATM locations. Monthly maintenance fees: a common fee that can vary depending on the card. This fee can be upwards of $10 a month just for having an activated card. Transaction fee: a fee that may be charged on some cards each time the card is used to purchase an item or service Customer service fee: charged by some card issuers when you contact a live customer service representative Bill payment fee: a small fee some cards will charge when the card is used to pay a bill such as a utility bill Reloading fee: a fee when adding more funds to the card; may be based on the type of funds used (for example, a paycheck, cash or transfer) Balance inquiry fee: a charge for checking to see how much you have left on the card at an ATM Inactive account fee: may be assessed if you don t use the card in a certain time period (typically 60 to 90 days) Foreign currency conversion fee: charged if you use the card outside the U.S.; credit and debit cards also charge this fee Close account fee: a fee for closing the card when a balance is left on the card Paper statement fee: charged for requesting a paper statement rather than viewing it online Overdraft or shortage fees: charged by the relatively few cards that will allow you to spend more than you have loaded on the card, usually only on cards that have a direct deposit; typically $10 to $25 Denied transaction fee: some cards charge a fee if your purchases are denied because you do not have enough money on the card Funds transfer fee: a fee may be charged for transferring funds from one card to another Card replacement fee: a charge for replacing a lost or stolen card 5
Slide 7 - Shopping for a Prepaid Card Prepaid cards can be purchased online, at a local business, through a credit card company, and through a bank or credit union, to name a few options. Some prepaid cards, such as payroll cards or government benefit cards, are provided to you by your employer or government agency. While you can buy a prepaid card at many grocery stores and other retailers, you likely won t get the very best deal that way. Ideally, you should research your options online before deciding on a card. A number of card comparison websites make the process quicker and easier. For any card you re considering, visit the card s website and read the disclosures carefully. You have many prepaid cards to choose from, each with its own benefits and costs. Some cards are more consumer-friendly than others, with fewer and lower fees while still offering many useful features. To narrow your options, think about how you expect to use the card because the fees you ll incur depend in large part on how you use the card. Here are a few examples. Do you travel outside the U.S. frequently? Then choose a card with a low (or no) foreign currency conversion fee. Do you plan to take ATM cash withdrawals frequently? Look for a card that offers access to a network of free or low-cost ATMs. Do you plan to use the card only occasionally? If so, watch out for inactivity and dormancy fees. Avoiding the cards with the highest frequency and types of fees should be your top priority. Other considerations include: Will the card be accepted in the places you plan to use it? Merchants don t always accept all cards or use all payment networks. Does the card have a minimum balance or minimum reload requirement? Avoid cards that have a minimum balance or reload requirement that will be difficult for you to meet. Is reloading easy and convenient? For example, if you plan to reload with cash, you may need to visit a store or branch that accepts cash reloads. Make sure such locations are near you. Does the card have a balance or load limit? Some cards will allow balances as high as $10,000, while others limit them to $1,000. The number and amount of reloads you can make also varies from card to card. 6
Does the card have a daily spending or cash withdrawal limit? Like credit and debit cards, prepaid cards typically limit the amount of cash that can be withdrawn from an ATM in a single day (typically a few hundred dollars). The card also may have a limit on how much you can spend in a day, but that is likely to be $1,000 or more. Are network ATMs conveniently located? Some cards allow one or more free ATM withdrawals per month at machines within the network. If that is a feature of a card you re considering, make sure a network ATM is nearby. Does the card have an online or telephone bill payment system? Does it charge a fee for this service? If you want to pay bills from your prepaid card, choose a card that offers that feature, and make sure no (or low) fees are charged for the service. Do you have to pay a fee for replacing a lost or stolen card? Will the funds that were on the card when it was lost or stolen be replaced? Know if the funds will be restored and how much, if anything, a card replacement would cost you. When you get a card, be sure to register or activate it with the issuer, which may be required to get reimbursement. What protections are provided against fraud, billing disputes and other problems? The law that gives credit card customers the right to dispute unauthorized transactions and billing errors does not apply to prepaid cards. However, some prepaid card issuers do extend zero liability protection to their cardholders, meaning you would not be liable for unauthorized charges on your account. Avoid increased liability for unauthorized transactions by knowing where your card is at all times and reporting a missing or stolen card immediately. What happens if you don t use the card for an extended period? Find out if an inactivity or dormancy fee kicks in after a certain number of months. Also find out if you could forfeit, or lose, your remaining funds on the card after a period of inactivity. What kind of budgeting and monitoring tools are available? Ideally, you would be able to get live customer service 24/7, receive email and text alerts, access realtime transaction history online and see a summary of your spending, all for free. Can you earn rewards for purchases or reloads? While cash back, airline miles and points can be attractive, keep in mind that you may pay for them in higher fees. 7
Does the card entitle you to other benefits? Things such as free roadside assistance and extended purchase protection (warranty) can be attractive, but only factor them into your decision if they ll save you money or you are reasonably sure you ll use them. Did the card s design catch your eye? Don t be swayed by celebrity endorsements or a sleek design. Choose a card based on more important factors such as cost, features, benefits and convenience. If you are buying a card for another person, here are some things to consider. Many people purchase prepaid cards for use by a teen, college student or an elderly parent but want to be able to load funds easily and perhaps even monitor the account. You may want to look for a card that allows you to set up transaction or low-funds alerts, enable and disable ATM access, suspend and reactivate the card or authorize and reject certain types of online purchases. If you plan to make regular reloads (an allowance, for example), confirm that the card allows automatic reloads. Slide 8 - Consumer Protection for Reloadable Prepaid Cards Prepaid cards are a fairly new financial tool, and government regulations and protections for consumers still are being developed. Check the level of fraud protections offered with the prepaid card. In other words, what will happen if it is lost or stolen? For example, payroll cards are subject to certain federal requirements and protection against fraud, but not all cards are subject to these federal protections. Some cards may offer protections through the card company, but you have to complete certain steps to receive those protections. For instance, you may have to register your card in the protection plan and/or report the fraud within a certain amount of time to be reimbursed for fraudulent charges. Some may have a limit on the amount that can be reimbursed. Treat your prepaid card like cash; protect yourself from fraud or theft. Also, be very careful about accepting offers to purchase a prepaid card for less than the face value (or how much it is worth). This could be an indication that the card is stolen. Checking your card when you first get it is important to make sure that none of the protective stickers have been tampered with or removed. In addition, review your monthly statement right away to make sure everything is correct and that you have not been a victim of fraud. 8
Be Aware of Personal Data Collection Inquiries Consumers also should be aware that some gift or prepaid card providers are attempting to collect personal data, including checking and savings account information. These companies say they need the information to collect certain application and processing fees from consumers bank accounts. If your prepaid card is not attached to a checking or savings account, you should not provide checking or savings account information when you are purchasing a prepaid card. Protect yourself! Slide 9 - Managing a Reloadable Prepaid Card Like any money account you have, reloadable cards require that you monitor your account. This will prevent being charged for unnecessary services. Some prepaid cards allow online monitoring if you are registered with their system. Some companies provide an app to place on your smartphone or tablet, making managing your card easier. Monitoring your account regularly is the most effective way to keep costs down and avoid surprises. If you check your balance and transaction history at least weekly, you can: address any spending issues (your own or, for example, your teen s) or adjust your budget avoid declined transactions and denied transaction fees (because you will know your card balance) catch unauthorized use sooner rather than later change your habits to reduce card costs Slide 10 In Summary (Refer back to the list of uses the participants created at the beginning of the lesson. Would they remove any now that they know more about the cards? Would they change any? Would they add any?) 9
Slide 11 Conclusion Thank the group for coming and provide the prepaid card publication for take home. For More Information If you would like more information, check out these websites: Consumer Finance Protection Bureau - www.consumerfinance.gov Consumer Action - www.consumer-action.org FDIC - www.fdic.gov Have participants fill out and turn in surveys. Note to presenter: We greatly appreciate your help in collecting and returning participants surveys. Please return them to: Attn: Lori Scharmer NDSU Extension Service HDFS 1400 Centennial Blvd. North Dakota State University Extension Service Human Development and Family Science EML 383 NDSU Dept. 7260, P.O. Box 6050 Fargo, ND 58108-6050 Sources Garrison, S. (2012). Prepaid Cards: Advantages, Disadvantages and How to Choose. University of Florida IFAS Extension http://edis.ifas.ufl.edu/pdffiles/fy/fy125100.pdf Gorimani, E. (2013) Prepaid or Reloadable Credit Cards. Living Well in the Panhandle, University of Florida IFAS Extension http://franklin.ifas.ufl.edu/newsletters/2013/03/05/prepaid-or-reloadable-cards/ FDIC. (2009). Prepaid cards: Another way to pay, but understand the downsides. FDIC Consumer News. Retrieved April 29, 2013, from www.fdic. gov/consumers/consumer/news/cnfall09/prepaid.html Consumer Action, Prepaid Cards. Nonprofit educational purposes. We work closely with nonprofit and community organizations to ensure that our information has a broad reach. Nonprofit and community-based organizations may freely display, distribute and reproduce Consumer Action publications for noncommercial purposes only if they provide proper attribution to Consumer Action. Attribution must state: Source: Consumer Action, www.consumeraction.org. All rights reserved. www.consumer-action.org/modules/module_prepaid_cards The NDSU Extension Service does not endorse commercial products or companies even though reference may be made to tradenames, trademarks or service names. NDSU encourages you to use and share this content, but please do so under the conditions of our Creative Commons license. You may copy, distribute, transmit and adapt this work as long as you give full attribution, don t use the work for commercial purposes and share your resulting work similarly. For more information, visit www.ag.ndsu.edu/agcomm/creative-commons. For more information on this and other topics, see www.ag.ndsu.edu County commissions, North Dakota State University and U.S. Department of Agriculture cooperating. North Dakota State University does not discriminate on the basis of age, color, disability, gender expression/identity, genetic information, marital status, national origin, public assistance status, race, religion, sex, sexual orientation, or status as a U.S. veteran. Direct inquiries to the Vice President for Equity, Diversity and Global Outreach, 205 Old Main, (701) 231-7708. This publication will be made available in alternative formats for people with disabilities upon request, (701) 231-7881.