There has been a huge move to prepaid debit cards, ever since the product was first introduced. A prepaid debit card allows you to electronically load it with a certain amount of money. Then you can use it to pay for transactions as you would a credit card, with each purchase debiting the card’s balance until it hits zero. At that point, unless you opt-in for overdraft protection, you cannot spend any more. It’s just like a credit limit.
Debit cards are often branded, just like credit cards. There’s always a bank of some kind involved, but debit cards may have some name attached to it. It might be a loyalty card or somehow have a celebrity’s name attached. Heck, you could even have your own branded card if you can find a bank to handle the transactions.
But what happens if your debit card is discontinued? What if your card has funds on it? Do those funds just vanish into the ether?
Don’t panic. The odds are very, very good that you won’t lose a thing. A lot depends on exactly why the card is being cancelled.
If it’s the brand …
Some branded debit cards simply aren’t sustainable. Yes, I said you could have your own branded debit card, but if nobody knows who you are, chances are you won’t have many users. The problem with niche brands is that they are, well, niche. The brand makes money from a variety of fees that are often charged for debit cards, which may or may not be split with the bank.
The brand itself may be of questionable value. The Kardashian Kard was criticized for charging several months of fees up front. This is not only poor business practice, as far as what consumers expect from a card, but how many people are really going to use the Kardashian Kard over the long term?
If the brand folds or somehow doesn’t meet its contractual requirements with the bank, the bank can opt to shut the card down. In that case, the bank is very likely to give you a drop-dead date by which you must use all the funds on your card. If you fail to do so, the bank would be foolish to not refund to you whatever is left on the card by sending you a check.
Failure to do so would make a lot of consumers angry, and possibly catch the attention of the FTC or CFPB.
Surprised look image via Shutterstock
If it’s the bank …
You may be in real trouble, however, if the bank involved with the card discontinues it because it has suddenly become insolvent. That is, they basically have no money. If you happen to have a bank account, it’ll be insured by the FDIC. That isn’t usually the case with prepaid debit cards, however.
This is exceedingly rare now that we’re past the financial crisis, but it’s a good reason why you should stick to debit cards that are associated with large banking names.
In the event that this occurs, spend every dime on that card as quickly as possible. It may turn out that the funds will not be available.
One of the most famous cases involved Neteller, a prepaid debit card that was primarily used for online gambling. The federal government swooped in one day and shut Neteller down, and people had to wait six months to get their money back.
That’s another reason to be aware of branded cards, by the way. You don’t want to associate yourself with a dubious name. Always do your research on your brands!
Surprised look image via Shutterstock
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