Prepaid cards: 10 things to consider

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Prepaid cards and other prepaid products have become popular as an alternative way to pay for purchases, to give as gifts or to use online or when travelling. Whether physical or electronic, these products are—or can be—loaded with funds that can be used by the cardholder to make withdrawals or purchase goods or services. While prepaid products offer several benefits, they have costs and conditions that you should be aware of.

What types of prepaid products are there?

Prepaid cards and products require you to pay up front to “load” money on to a card for later use. They are sometimes referred to as “gift cards.”  Some are for single use, while others are reloadable, meaning you can add more funds to them.

 

  • Prepaid cards for specific retailers can only be used at a single store or group of stores, such as a chain. 
  • Prepaid cards branded with a payment card network operator’s logo, such as American Express, MasterCard or Visa, can be used at most merchants that display that network’s logo.
  • Prepaid promotional products are purchased by an organization and distributed as part of a promotional, loyalty or award program. The funds on the card are often available for a limited time and may be subject to maintenance fees.

10 questions to ask to make sure that you are well informed

1 What kind of regulations apply to the prepaid card?

Answer:

The Prepaid Payment Products Regulations cover prepaid cards and other prepaid payment products issued by federally regulated financial institutions, including banks. These products are preloaded with funds that can be used to make purchases or cash withdrawals via a payment network such as American Express, MasterCard or Visa. Under the federal Prepaid Payment Products Regulations, consumers must be provided with key information related to the card or product.

The Regulations do not apply to retailer-issued gift cards or to prepaid cards and products issued by provincially regulated institutions. Every province and territory has one or more bodies to regulate financial institutions under provincial responsibility. These institutions include credit unions and caisses populaires, as well as other financial institutions that are registered or incorporated at the provincial level. A list of provincial and territorial regulators is available on FCAC's website.

You can also check with the consumer protection office in your province or territory to find out whether your province or territory has gift card legislation, and how it applies to retailer-issued prepaid cards.

2 Does the prepaid card have an activation fee?

Answer:

Some prepaid cards charge an activation fee or purchase fee before you can use them. The activation fee is charged only once and is not refundable. Activation fees vary; they can be a preset flat fee or they can depend on the card’s value.

For example, if a $50 prepaid card has an activation fee of $4.95, you are paying almost 10 percent of the card’s value just to use it.

3 Are the fees, terms and conditions acceptable to you?

Answer:

If the card or product is issued by a federally regulated financial institution, key information, including fees, must be available to you where prepaid cards are sold, on the prepaid card packaging and on the card issuer’s website. The Regulations do not apply to prepaid cards and products issued by provincially regulated institutions.

Before you commit to buying the card, read the information in the prepaid card agreement carefully.

If you are buying the prepaid card as a gift, be sure to provide this information and the proof of purchase to the recipient along with the card.

4 Does the prepaid card have an expiry date?

Answer:

Federally regulated financial institutions that issue prepaid cards or products are not allowed to set an expiry date on the funds loaded onto them (except for promotional cards and products distributed by a company as part of a promotional, loyalty or award program).

Is there an expiry date on the card itself? Ask whether a new card can be issued upon expiry of the original card. Check whether there is a fee to issue a replacement card.

5 What kinds of fees apply to prepaid cards?

Answer:

Depending on the features of your prepaid card, you can be charged fees to:

  • check your balance
  • withdraw money from automated banking machines (ABMs)
  • replace the card
  • customize it
  • load more money onto it
  • make purchases
  • cover overdraft
  • cover monthly maintenance or dormancy if the card is not used for a certain period of time.

It is important to review the card’s terms and conditions to see whether and when any of these fees apply.

If your prepaid card or product was issued by a federally regulated financial institution:

  • the institution cannot charge maintenance fees for at least one year after activation, unless the card is:
    • a promotional product
    • reloadable and you have given your express consent to be charged maintenance fees
  • the institution cannot charge overdraft fees or interest unless you give your express consent.

Fees can quickly reduce the original value of the card, decreasing your buying power.

6 What happens if the prepaid card is lost or stolen?

Answer:

When you report a card lost or stolen, the card issuer may be able to transfer any money left on the card to a new card; check whether a fee would apply. In other cases, you could be out of pocket just as though you had lost cash. Check your prepaid card agreement for details.

 

Beware of prepaid card fraud:

Be cautious about buying prepaid cards that are easily accessible where they are sold, as fraudsters sometimes copy card numbers and PINs or security codes, and use them once the prepaid card is activated.

If you buy a prepaid card that is offered for resale, make sure you buy it from a trusted source to limit the risk that it is counterfeit or compromised.
 

7 How do you find your prepaid card balance?

Answer:

Most prepaid cards offer several ways to find your balance, including online, telephone, mobile phone and in-store inquiries. Check whether there are any fees to make a card balance inquiry.

Tip:
Keep your receipts to help you track your card balance and in case you ever want to a dispute a charge.

8 Can you cancel the prepaid card?

Answer:

Find out what happens if you or the gift card recipient decides to cancel the card.

Some card issuers will allow you to cancel the card for a fee, which they deduct from the remaining balance before you receive any money back.

Check the prepaid card’s terms and conditions for more details.

 
 

9 Where can you use your prepaid card?

Answer:

Before buying, find out whether the places where you are likely to shop will accept the card. If you plan to use the card for online purchases or outside of Canada, confirm with the prepaid card issuer whether you will be able to do so.

If you plan to use the card when travelling, you should know that hotels, car rental agencies or pay-at-the-pump gas stations may put temporary holds on the funds on your prepaid card. Restaurants or other businesses may cover tips by adding an extra charge to the funds taken from the prepaid card.

10 Would another form of payment be better?

Answer:

Use the payment option that gives you the benefits you want at a cost you can accept. Compare fees and benefits for using cash, prepaid cards, debit cards and credit cards, and decide which option works best for your own use or as a gift.

Other FCAC information of interest