St. Louis Fed compares GPR card consumer protections

An ever increasing number of mainstream consumers are turning to prepaid cards to avoid the fees charged on traditional bank accounts, according to The Federal Reserve Bank of St. Louis. In Cards, Cards and More Cards: The Evolution to Prepaid Cards, an article that appears in the Fall 2011 edition of its semiannual newsletter, Inside the Vault, the St. Louis Fed said the cards are not just for the estimated 60 million unbanked consumers in the United States because of additional advantages of the cards.

Prepaid cards require "no approval process, no credit check, no bank account and no interest payments," said the St. Louis Fed. "Those with no bank account or bad or non-existent credit histories, thus unable to acquire a credit card, can purchase prepaid cards."

However, the reserve bank reported that prepaid cards may lack consumer protections found on credit and debit cards. Issuers of network-branded, general purpose reloadable (GPR) cards are not always required to provide the same consumer protections that are required of debit card issuers. But competition and market dynamics have resulted in GPR card issuers offering greater consumer protections than what are provided for closed-loop gift cards, for example, the article said.

The St. Louis Fed listed the consumer liability protection policies of the card brands in relation to GPR cards:

• American Express Co.: Consumers are not liable for fraudulent transactions as long as the transactions are reported within 60 days of their discovery
• Discover Financial Services: Consumers are protected with a zero fraud liability guarantee
• Visa Inc.: As long as cardholders have not been negligent or fraudulent in the handling of the cards, they are not be liable for fraudulent transactions
• MasterCard Worldwide: Consumers are protected with zero liability only in the following circumstance:
  1. Only on prepaid card transactions that require signatures and 2. The cards are in good standing and 3. If consumers have taken reasonable care to protect the cards and 4. Consumers have reported no more than two incidents of unauthorized uses in the previous year

The reserve bank added that some banks issuing GPR cards offer the same protections provided with debit cards, including a $50 maximum liability if the cardholder notifies the bank within two days of discovering the unauthorized use of the card and a $500 maximum liability if the cardholder notifies the bank within 60 days.

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