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5 downsides to prepaid debit cards

Fewer consumer protections
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Unlike traditional debit cards, prepaid debit cards have less government oversight.

For example, if prepaid cards are lost or stolen, they're not protected by the same regulations and safeguards that traditional debit cards are, according to a Consumers Union report.

"There are only voluntary contracts, subject to change at any time," Martindale says. "If your card is stolen, you may lose your money."

Prepaid cards are usually cobranded with Visa or MasterCard insignias. But their zero-liability protection on traditional cards, in which the holder isn't liable for fraudulent charges, is more limited with prepaid debit cards. "There are loopholes," Martindale says. "You can only challenge two a year."

Traditional debit card owners fare better. If a traditional card is stolen or lost and you report it within two days, your liability is limited to $50.


 

 

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