Prepaid Debit Card Reviews, Complaints, Etc

Author: Chris Warren

Senate Bill Aims To Ensure Prepaid Card Fee Disclosure

U.S. Senator Mark Warner chose the end of the holiday shopping season to introduce a bill that would mandate prepaid card fee disclosure. Warner, a Democrat from Virginia, unveiled the Prepaid Card Disclosure Act of 2014 on January 9, and cited the recently completed holiday gift buying season and the industry’s rapid growth as the reasons motivating his bill.

“At nearly $700 billion in sales each year, prepaid cards are one of the fastest growing parts of the financial industry,” he says. “However, these cards aren’t subject to the same kinds of consumer protections as other types of credit cards and gift cards. It’s important that young people and people without credit history or access to traditional banking tools have access to prepaid cards, but we can’t let the technology outpace smart consumer protections.”

Specifically, Warner’s bill would task the Consumer Financial Protection Bureau (CFPB) with formulating and issuing rules that would require banks and other providers of prepaid cards to disclose their fees in a standardized manner. Among other things, the Prepaid Card Disclosure Act would require card issuers to reveal all of the fees associated with their products in an easily understood and conspicuous table that would be available to consumers before any purchase. In addition, the bill would insist banks allow consumers to use their smartphones to obtain real-time fee updates via a QR code or barcode. The proposed legislation would also require card issuers include both a toll-free telephone number and a website on each physical card where consumers could get detailed information about fees.

In announcing the legislation Warner cited a range of fees that, while commonly associated with prepaid cards, may not be well known among the general public. Among the fees Warner, a member of the Senate Banking Committee, mentioned were fees to activate an account, monthly maintenance fees, and for checking account balances. Consumer advocates warmly received the bill. “Pew commends Senator Warner for taking action to require clear disclosures for prepaid cards. Pew’s research shows that inconsistent disclosures make it very difficult for consumers to understand the terms and fees associated with each card,” says Susan Weinstock, director of safe checking research at The Pew Charitable Trusts. “The growing number of consumers turning to prepaid cards as a way to manage their money underscores the need for reform.”

January 14, 2014
Pot Purchases with Plastic? The Credit and Debit Cards Question

One of the first major news stories of 2014 is all about marijuana. Starting January 1, pot has been available for commercial purchase by non-medical customers in Colorado. In other words, Colorado residents are now able to purchase marijuana for recreational use by walking into a store, making a selection and paying for it at the counter – just as if they were purchasing a gallon of milk or an iPad.

But one question that has accompanied the rollout of legal pot sales in the Rocky Mountain State is whether customers would only be able to make purchases with cash. It’s an issue because marijuana sales, while legal in both Colorado and Washington State, are still prohibited by the federal government. So, out of this arises this: pot purchases with plastic? It opens up the credit and debit cards question on pot purchases.

In the past both Visa and MasterCard said that they would not allow illegal transactions to flow through their payment systems. But a recent article in the Denver Post indicates that credit and debit cards are being used to buy marijuana in Colorado. In part, this is due to the fact that Visa and MasterCard are leaving the decision about whether credit and debit cards bearing their logos can be used up to individual merchant banks.

“In this instance, the federal government considers the sale of marijuana legal but has announced that it will not challenge state laws that legalize and regulate marijuana sales,” Visa said, in a statement to Denver Post reporter, David Migoya. “Given the federal government’s position and recognizing this is an evolving legal matter with different standards applicable in different states, our local merchant acquirers (banks) are best suited to make any determination about potential illegality.”

While experts quoted in the Denver Post story maintain that Colorado pot retailers still face a risk in choosing to offer credit and debit card payment options, the motivation to do so is clear. In his story, Migoya quotes a customer who decided to make a bigger purchase when he found out that the store accepted plastic. “I showed up with some cash on hand because I had read prior that these places would be cash only,” said the customer, who would give only his first name, Kevin. “Once I found out that they were taking cards, I decided to buy more than the $25 in cash I had with me.”

January 10, 2014
U.S. Credit Card Security Outdated

Target has begun 2014 with a very bad hangover. As has been widely reported, as many as 40 million of the large retailer’s customers had financial and personal information stolen during the height of the holiday shopping season. The repercussions for Target have already been severe and seem only to get worse by the day. Besides seeing its all-important holiday shopping traffic decline, several states’ attorneys general are investigating Target and a number of class-action lawsuits have been filed against the company.

A recent story in The Los Angeles Times points out that backward technology long ago abandoned by much of the rest of the world may be more to blame for the data breach than anything Target did or didn’t do. The story by reporter Chris O’Brien says that while it’s still the norm for U.S. credit card holders to have plastic with a magnetic strip that holds their account information, most other countries have opted for so-called smart cards.

These smart cards earn that name, O’Brien writes, because they utilize embedded microchips to hold customer information rather than the magnetic strips that are found on 99 percent of all of the credit cards issued in the US. “The additional encryption on so-called smart cards has made the kind of brazen data thefts suffered by Target almost impossible to pull off in most other countries,” writes O’Brien.

Because around 80 countries have already embraced smart card technology, the more vulnerable U.S. has become the favorite target of identity thieves. Given that smart cards provide such superior security, the question is why the U.S. hasn’t embraced their use. According to O’Brien’s story, there has been no political pressure to force businesses and financial institutions to make the switch. Importantly, an upgrade to smart cards would be expensive.

Nevertheless, it does appear that the U.S. will soon become home to a lot more smart cards. According to O’Brien’s article, many credit card issuers have launched efforts to make the switch by October of 2015. To do that, credit card companies will change the rules about who is responsible whenever there are fraudulent purchases as a result of security breaches. “Under the new rules, the entity in the payment chain – merchant, credit card, banks – deemed to have the weakest security will be liable,” writes O’Brien. “Credit card companies can’t make anyone adopt the technology, but they’re giving them a hard nudge.”

January 8, 2014
Cybercriminals Hit Target

The holidays just got a little more stressful for millions of Target customers. In a statement on Dec. 19, the large retailer acknowledged that as many as 40 million customers who used their debit or credit cards at Target’s U.S. stores between Nov. 27 and Dec. 15 might have had personal information stolen. Online shoppers at Target.com were not impacted.

Target says that it discovered the problem on Dec. 15 and was able to take steps to resolve future problems. Target also said that the information stolen included customer names, credit or debit card numbers, card expiration dates and three-digit security codes.

According to a report in The New York Times, criminals focused their attention on point-of-sale transactions taking place inside Target stores. “By breaching point-of-sale systems, they can steal the so-called track data on credit and debit cards, which can be sold, in bulk, on the black market and used to create counterfeit cards,” says the story by Times reporters Nicole Perlroth and Elizabeth Harris.

This high-profile theft comes at a very bad time for both Target and its customers. The first day criminals accessed customer credit and debit card information was Nov. 27, the day before Thanksgiving and just prior to Black Friday, the traditional start of the holiday shopping season.

In its statement alerting customers about what happened, Target said it had partnered with a third-party forensics company to investigate the security breach and had alerted financial institutions and law enforcement officials. The New York Times report said that the Secret Service, which is responsible for investigating financial fraud, had launched an investigation.

Target also urged customers who may have been impacted by the theft to take a number of steps to protect themselves. Specifically, the company urged people to keep a close eye on credit and debit accounts in order to spot any fraudulent transactions. Target also suggested customers monitor free credit reports available from Equifax, Experian and TransUnion, the nation’s three major credit bureaus. “If you discover any suspicious or unusual activity on your accounts or suspect fraud, be sure to report it immediately to your financial institutions,” says the statement from Target.

In the case that a customer does find irregular charges, Target suggests contacting law enforcement or the Federal Trade Commission (FTC) to report the incident.

December 20, 2013
Google Launches Prepaid Card

Google Inc. decided that the run-up to the holiday shopping season was the right time to announce its entrance into the prepaid debit card industry. On November 20 the search engine company declared – via blog post, of course, and with typical irreverence – the availability of its Google Wallet Card.

“Your roommate finally paid you back for dinner through Google Wallet, and you want to use that money right away to pay for groceries this week. Now, you can use the new Google Wallet Card to spend the money instantly, either by purchasing in stores or by withdrawing cash at ATMs,” reads the blog. As the company’s announcement indicates, the new prepaid debit card offering from Google is both similar and somewhat different from other cards already on the market, which are now available from financial heavyweights like American Express and Chase as well as groups like the Occupy Wall Street Movement.

Like so many other prepaid debit cards, the Google Wallet Card allows users to make purchases anywhere MasterCard is accepted. In addition, the card also makes it possible for cardholders to withdraw cash from ATMs. But there are also significant differences with the Google Wallet Card. As its name indicates, the Google prepaid debit card is linked to Google Wallet accounts. Google Wallet is a smartphone app linked to a consumer’s credit card or bank account that allows users to pay for items using their phone (if a retailer accepts Google Wallet, that is).

The new Google Wallet Card, which is available for use only in the U.S., can be loaded with money either from a Google Wallet account or from bank and credit card accounts. There are other differences that make the Google prepaid debit card stand out. Importantly, there is a notable lack of fees. Google does not charge anything to people for obtaining the card initially nor does it levy fees annually or monthly. The Google card also provides instant notifications delivered straight to a cardholder’s phone whenever a purchase is made.

Perhaps more controversially, information about purchases made using the Google Wallet Card will be tracked. According to an article in Reuters, the company will collect information on goods purchased with the card, the amount paid and the name and address of the seller. That information will then be included in profiles Google creates for advertisers interested in better targeting their pitches.

December 9, 2013
Prepaid Card Fraud Controllable

A recent report by Mercator Advisory Group examines the vulnerability of prepaid debit cards to criminals.

by Chris Warren

Prepaid debit cards make it into the news a lot these days. A lot of the time stories are focused on the maneuvering of large financial services companies like Chase and American Express and the various strategies they’re implementing to grab a larger chunk of this ever-growing market.

But there has also been a steady stream of news recently about fraud involving prepaid debit cards. For instance, in mid-November six Yonkers, New York residents were arrested and charged with hacking into bank financial systems and swiping prepaid debit card information that enabled them to steal $45 million. There have also been frequent reports of criminals posing as utility workers, who threaten victims with shutting off their power unless they put money on a prepaid debit card.

While the use of prepaid debit cards by criminals is gaining notoriety, the scope of the overall problem may not be so dire. Indeed, according to a recent report by Mercator Advisory Group, a consulting company, fraud involving prepaid debit cards is much smaller than what takes place with debit cards. The report, “Prepaid Card Fraud and Risk Controls in the United States,” notes that criminals target credit, debit and prepaid cards alike simply because they all have some level of weakness that can be exploited.

In addition, Ben Jackson, the report’s co-author and a senior analyst at Mercator’s Prepaid Advisory Service, insists that further regulation of the industry isn’t necessary. “Prepaid fraud is a serious, but manageable problem, as long as the members of the prepaid value chain work together. There is nothing inherent to prepaid that makes it more or less risky than other financial products,” he says.

Furthermore, Jackson outlines a variety of best practices that can be implemented to thwart criminals. For instance, the report says that card issuers and retailers should not be hesitant to say “no” to customers who raise red flags. In addition, the report encourages companies and banks to ask for additional documentation in situations when they feel it’s warranted and also to create a list of problematic names, addresses and phone numbers.

December 5, 2013