Prepaid Cards

Prepaid Cards in the United States

A prepaid card is a card that the holder uses to access money that is loaded onto the card in advance. There are different types of prepaid cards. With most cards, the holder of the card can spend the money on the card for daily expenses or withdraw cash from an ATM. The card holder can also choose to have your income directly deposited on most cards.

Prepaid Card Fee Disclosures

On Nov. 13, 2014, the Consumer Financial Protection Bureau released for notice and comment a proposal to amend Electronic Fund Transfer Act (Regulations E) and and the Truth In Lending Act (Regulation Z) regarding prepaid accounts. Among other things, the proposal addressed pre-acquisition disclosure requirements for prepaid accounts.

Right of the Card Holder

To choose how the holder is paid

The employer may offer to pay the holder on a prepaid card they choose, called a payroll card. The employer can’t require holders of the card to receive their wages on a payroll card. The employer must also offer the holders at least one other way to get paid – for example, a paper check or direct deposit to an account of the employee choice, such as a bank account or the employee own prepaid card. Some states allow the employer to require that employees be paid electronically, but the employees always have the right to choose the account where the money is sent.

To choose how the holder receives some government benefits

Depending on the kind of benefit the holders receive, they may have a choice of how they receive their government benefits. For example, for some types of government benefits, holders of the cards may have a choice between receiving the benefits on a government-arranged prepaid card or directly deposited into their bank account or their own prepaid card. Other types of government benefits are only provided using a government-arranged card.

To fraud and error protection with payroll cards and certain government benefit cards

The holders have protections in case of an error or unauthorized transactions if they are paid through a payroll card arranged by their employer, receive certain types of government benefits through a government-arranged card, or receive any payments from the federal government onto their own prepaid card. For example, card holders generally can’t be held responsible for unauthorized charges or other errors on these cards, if they report them immediately. In addition, the card provider may be required by federal law to credit the disputed amount to the card holders account while investigating the problem if the investigation will take longer than 10 business days. Card holders should call their card provider as soon as they notice their card is missing, or notice charges they don’t recognize.

Protection and Insurace

Depending on their cards, card holders may have:

Protections for loss, theft, or errors: Depending on the type of card they get, they may have protections in case of an error or unauthorized transaction. For example, cards with a Visa, MasterCard, American Express, or Discover logo typically have some protections. In the cardholder agreement there are specific card’s terms and conditions. Effective October 1, 2017, the CFPB’s new rule will extend new legal protections to most prepaid cards.

Insurance if the bank issuing the card goes out of business: For bank accounts, if the card holder bank goes out of business, the government guarantees that the card holders will get all of the money in their individual bank account back, up to $250,000, through FDIC (Federal Deposit Insurance Corporation) insurance. Credit union accounts have similar insurance through the National Credit Union Administration (NCUA). The prepaid card may also have FDIC or NCUA insurance.


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