Your Rights And The Differences Between The Three Types Of Plastic In Your Wallet Or Purse

While this blog has covered a variety of banking issues, one of the more important issues is that consumers need to know about the three types of "plastic" in your wallet or purse. Otherwise, you are likely to be "mugged" by your bank or card issuer.

As part of National Consumer Protection Week, the U.S. Federal Deposit Insurance Corporation (FDIC) listed the differences between credit, debit and prepaid cards. There are important differences about how interest rates, fees, and your liability apply. Your rights vary greatly with the type of "plastic" you choose to use.

What protections do consumers have with prepaid cards? How are prepaid cards different? The first thing you need to know is that there are several types of prepaid cards:

• "General purpose reloadable" (GPR) cards: these carry a brand of a card network (e.g., Visa, MasterCard) and can be used wherever that brand is accepted
• Payroll cards
• Gift cards

Prior blog posts have discussed payroll cards from Bank of America and the Walmart MoneyCard. How prepaid cards work:

"... allow consumers to spend only the money deposited onto them, can have a number of different features. For instance, some gift cards may be used only at a single merchant; most GPR cards may be used to pay for purchases and access cash at ATMs."

When using a prepaid card, your liability is different from a credit or debit card:

"Liability depends on the type of funds on the card. If the card is a payroll card, then the liability rules are the same as for debit cards. But if the card is a general purpose reloadable card or a gift card, then there are no protections to limit your liability under federal law."

What prepaid card issuers (e.g., retail store, employer, bank) must tell you in the prepaid card agreement varies:

"Disclosures depend on the type of card. For example, payroll cards must disclose any fees and the error resolution process, but a GPR card does not have any disclosure requirements. In addition, gift cards must disclose the terms of dormancy fees, whether there is an expiration date, and any other associated fees."

Similarly, your rights and access to statements are different with prepaid cards:

"Payroll cards must provide either a periodic statement or account balance by telephone as well as electronic transaction history. GPR cards and gift cards do not have periodic statement requirements under federal law."

When terms change for a prepaid card, your rights about advance notice of changes are different, too. With prepaid cards, you generally don't get as much advance notice as with credit cards (45 days):

"Payroll cards must provide 21 days notice before making changes to fees charged or the liability limits for unauthorized transactions. GPR cards and gift cards are not required to do so under federal law."

Some people like prepaid cards because they can avoid interest rates. It is wise for consumers to fully understand the types of fees that apply to prepaid cards:

"GPR cards and gift cards have certain restrictions on dormancy fees charged. There are no specific requirements related to payroll cards under federal law."

So, you are probably wondering if prepaid cards are a good deal, or not. That answer depends upon your financial situation and the type of prepaid card you expect to use.

Since I already have checking and savings accounts at a bank, prepaid payroll cards are of no value to me. I find extremely troublesome the lack of restrictions on payroll cards, which means the banks can change terms, fees, and interest rates whenever they want; and as high as they want.

If you don't have a checking account, then a payroll card may benefit you. (Given the fee schedules and lack of restrictions, payroll cards will definitely benefit the banks but not necessarily consumers.) However, closely read the card agreement and fee schedule first. You may be better off (e.g., fewer fees, lower rates) opening a checking account instead at a community bank or credit union.

I still find retailers' prepaid gift cards (e.g., Dunkin' Donuts, Stop 'n Shop, Cheesecake Factory) useful for some holiday or birthday gifts, but the lack of agreements with many prepaid gift cards is troublesome. The lack of an agreement means the card issuer can change things whenever they want and not notify you. I will likely reduce my use of prepaid gift cards to only those that have card agreements.

What's your opinion? Do you use prepaid cards? If so, which types? If not, why not?