Consumer Comeback Blog

Prepaid Credit Cards May Leave Consumers Exposed to Fraud, Hidden Fees

Prepaid credit cards are popular option among consumers who want the convenience of paying with plastic without the risk of overspending or accruing debt.

But prepaid credit card users may not be as protected as they think, says the Federal Trade Commission. These cards, also known as general purpose reloadable (GPR) cards carry hidden risks of which many consumers are unaware.

The FTC offered advice on GPR cards when the Consumer Financial Protection Bureau issued a notice for public comment on the issue. The FTC’s comment focused on GPR problems regarding the cards liability limits for fraud, disclosure of fees and expiration dates, error resolution and recurrent payments.

As GPR cards gain favor especially among students and those of limited financial means, the FTC has seen an increase in consumer complaints. GPR cards do not have the same protection features that traditional debit and credit cards feature including:

  • GPR users are often left vulnerable to fraudulent or unauthorized use of their cards, so if their identity or card is stolen, they may not recoup expenses from illegal purchases.
  • GPR cards often carry hidden fees and exceptions including monthly charges, cash advance charges, expiration dates after which the value and balance of the card could be lost.
  • GPR card frequently lack error/dispute-resolution provisions, so if a merchant overcharges or runs the card more than once, resolving those problems becomes more difficult.
  • GPR cards have no legal protection against unauthorized recurring charges.