Posted on February - 24 - 2010

Pre-paid Cards One of Few Easy Options Left for Students

Happy birthday to the CARD Act! Today is February 22, 2010, the first day some of the major provisions of the new laws outlined in the much anticipated Credit Card Accountability Responsibility And Disclosure Act are officially in place. Among the major changes include a restriction requiring issuers extending credit to young consumers under the age of 21 to submit an application that contains the following:

  •  the signature of a parent, guardian, or other individual 21 years or older who will take responsibility for the debt; or,
  •  proof that the applicant has an independent means of repaying any credit extended.
  • also prohibits increases in the credit limit on accounts where a parent, legal guardian, spouse or other individual is jointly liable unless the individual who is jointly liable approves the increase in writing.

The bottom line is that parental consent will now be required for most young people to obtain a traditional credit card, as most students do not yet have a sufficient credit history or the proof required to show they are financially capable of repayment. For young adults who are unable to obtain this parental consent, the best option will likely be prepaid credit or debit cards. These type of cards essentially act just like a debit card but without the associated bank account. Prepaid cards are typically part of either the Visa or MasterCard network and are accepted just about anywhere, but the big draw for particularly for students is that they can also be used at ATMs or to shop online.

So what should you look for when selecting a pre-paid card? The obvious answer is one which will result in the least amount of fees to the user. As you browse the various pre-paid cards that are available, consider the following questions:

Loading money on the card. Typical methods include bank transfers, direct deposit, PayPal or credit card transfers. Can you load money onto the card the way you want to and is there an associated fee?

ATM withdrawals. If you plan to use the card frequently for withdrawing cash, be sure to find a card that offers free or low-cost ATM usage fees.

Retail purchase transactions. If you plan to use the card frequently for retail purchases, you will want to find one that offers unlimited purchase transactions.

Monthly fees. Is there a monthly charge? Some cards will waive any monthly fee if a certain amount of money is loaded on the card each month.

Additional Perks. Are there any additional incentives offered such as rewards-based programs or rebates?

But there are also downsides to using prepaid cards. Unlike credit cards, prepaid reloadable cards aren’t covered by the federal statutes that protect credit-card holders from fraud or limit their losses when cards are lost or stolen, nor are they are not covered by the CARD act protections enacted by the new legislation. Currently, paying with pre-paid cards offer no protection from VISA and Mastercard (who process transactions against the cards) against unauthorized purchase, forcing consumers to take a risk when paying bills or buying things online, although consumer advocates are pushing to change this.

There are many good prepaid cards out there for students and young people, users simply need to ensure that they select a card which fits their needs without incurring excessive usage fees. One of the more popular cards with some nice features and limited fees is the Facecard.

Readers, do you have any other recommendations for good pre-paid cards (or any that should be avoided) that you’d like to share? If so, please do so by leaving a comment!

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