10 Things You Should Know About Debit, Credit or Prepaid Cards

Courtesy of FDIC

Debit, credit and prepaid cards are widely used to pay for a variety of goods and services, and consumers often use them interchangeably. However, there are significant differences between these cards in how they work and the consumer protections provided for each card. That’s why the Federal Deposit Insurance Corporation has created a list of things you should know before using your credit, debit, or prepaid card.

1. When deciding which card to use, keep in mind how they work. A credit card is essentially a loan—you must pay the money back in addition to any interest that is charged. On the other hand, debit cards are issued by your bank and when you use them, the money spent is taken directly from your bank account. Prepaid cards can seem very similar to debit cards in the way that they work. They generally allow consumers to spend only the money deposited onto them, and include products such as reloadable cards, gift cards, and payroll cards. The major federal protections that would cover you if you used a debit card do not apply to most prepaid cards.

2. Be aware of debit card overdraft fees. Overdraft fees can occur if you don’t have enough funds in your account when you swipe your debit card but the transaction is still processed. However, you must provide your bank with written permission in order for it to be able to charge you a fee for allowing you to continue to use your debit card when you do not have enough funds in your account. If you have overdrawn your account in the past, try to avoid these costly fees in the future by keeping track of your debit card purchases and other transactions and knowing your account balance.

3. A credit card issuer cannot charge you a fee for going over your credit limit unless you agree to allow for over-the-limit transactions. A card issuer cannot permit you to go over your credit limit and then charge a penalty fee for having done so unless you explicitly opt in.

4. Your liability for an unauthorized credit card transaction is generally limited to $50. Federal law limits your losses to a maximum of $50 if your credit card is lost or stolen, although industry practices may further limit your losses.

5. Your liability for an unauthorized debit card transaction may vary. The maximum legal liability is $50 if you notify the bank within two business days after learning of the loss or theft of your debit card. You must also notify your bank within 60 days of your bank’s transmittal of your periodic statement on which an unauthorized transfer appears in order to avoid liability for subsequent unauthorized transfers.

6. Certain prepaid cards are covered by consumer protection laws and regulations but others are not. For example, payroll cards must disclose any fees associated with the card as well as the error resolution process, limit liability in a manner akin to that for debit cards, and provide 21 days’ notice before making changes to the terms of use of the card. On the other hand, general purpose reloadable cards do not have any of these requirements.

7. The funds linked to a prepaid card may or may not be FDIC-insured. If an employer, government agency or other organization places money with an insured institution to hold for use in connection with consumers’ prepaid cards, and the bank holding the money fails, the funds may be considered deposits of the cardholders when the account is set up so that the organization is documented as acting as the custodian of the funds rather than as the owner of the funds.

8. Make sure you know about all fees associated with your prepaid card. Possible fees include those to activate the card, add money onto the card, make purchases, withdraw cash, inquire about your balance at an ATM, receive a statement in the mail or speak with a customer service representative. As a result, many prepaid cards end up costing more than the advertised monthly fee.

9. A “hold” may be placed on funds in your bank account for debit card transactions. At the time of purchase, merchants immediately place a temporary hold on funds for the transaction as protection against fraud, errors or other losses. The hold will be removed when the final transaction is processed, nearly immediately or perhaps a day or two later, but until then, you won’t have access to that amount in your account.

10. Credit card issuers must give cardholders 45 days’ notice of changes. Under the Credit Card Accountability Responsibility and Disclosure Act of 2009 the card issuer must generally provide a 45-day advance notice of any interest rate increase, fee increase, or any other significant changes in account terms. Debit cards and prepaid cards vary in the amount of notice required for changes to the terms of use of the card.

If you have questions about the cards you use through Bank of American Fork, call us at 800-815-BANK.

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