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Prepaid Cards Create Confusion in the Checkout Lane

Prepaid Card Gift Card Confusion

The rise of prepaid cards has been well-documented.  The fastest growing form of electronic payment from 2006 to 2009, according to the Federal Reserve, prepaid cards truly burst into the mainstream after the Durbin Amendment to the Wall Street Reform and Consumer Protection Act decreased debit card interchange fees and thereby reduced the profitability of traditional checking accounts.  And while prepaid cards have proven apt to serve a number of important functions – from financial literacy teaching tool to replacement checking account – the combination of their newfound popularity and the manner in which they’re marketed has also created a great deal of confusion.

Not only are prepaid cards often erroneously referred to as “prepaid credit cards,” giving consumers the mistaken belief that they provide a line of credit or credit building capabilities, but they’re also increasingly being stocked right next to gift cards in grocery and convenience stores. While they may look similar, prepaid cards are not gift cards, nor should they be viewed as last-minute pick-ups to be grabbed as you make your way to the register with your groceries.  Here’s why.

Unlike gift cards, prepaid cards are not intended to be given to third parties.  Yes, you can buy anonymous prepaid cards at the store, but they are intended to be registered by the purchaser and used in place of a bank account for direct deposit, ATM withdrawals, purchases and other similar transactions.  As such, prepaid cards are designed to be reloaded over time – a feature which gift cards do not possess.  Also unlike gift cards, prepaid cards often come rife with fees.  Confusing the two could therefore result in an unassuming consumer receiving an unexpected bill.  Prepaid cards aren’t commoditized like gift cards either.  While a consumer could easily assume that one prepaid card on a display rack is as good as any other, picking the wrong one can end up costing you more than $300 over the course of a year, according to CardHub’s Prepaid Card Report.

The point is a prepaid card is not a pack of gum, a candy bar, or even a gift card.  It’s not the kind of thing you should buy on impulse at the check-out counter.  It is a financial product that should be chosen with care and with a specific intended use in mind.  Consumers should keep that in mind as more and more prepaid cards make their way into stores around the country.

What to Do With a Prepaid Card Turned Gift

Having said all of this, the practical question still remains:  What should you do if you have been given a prepaid card instead of a gift card by an unsuspecting friend or relative?  You don’t want to let the money to go to waste, that’s for sure.  Your first step should therefore be to attempt to check your prepaid card’s balance to see how much you’re working with.  Some prepaid card issuers will allow you to check the balance of a temporary (i.e. unregistered) prepaid card, while others will not. If you can’t check your balance, then it’s a good idea to explain your situation to the person who gave you the card and ask them how much money is available.  Don’t worry about offending them because they thought they were giving you a gift card to begin with!

Once you know how much money is at your disposal, create a plan for spending it.  Keep in mind that you will have to make purchases in person since an anonymous prepaid card can’t be used online.  Similarly, such a card cannot be used at an ATM, so using your card to withdraw cash is not an option either.  As you draw down your balance, keep a record of the purchases you make in order to track your progress and ensure that you can bring your balance as close to zero as possible.  Once you’ve spent all the money on the card, just throw it out.
Image: Minerva Studio/Shutterstock

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