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Does the prepaid credit card protect from fraud?

By , CardRatings contributor
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Question: Does the prepaid credit card protect from fraud?

Answer: Unfortunately prepaid card fraud is just as rampant as fraud on normal credit cards. The major difference is that prepaid cards have fewer protections. In general, the only protection you can count on is that no more can be taken from the prepaid card than the face value or remaining balance, whichever is lower.

There are exceptions to the rule. Some prepaid cards offer the same protections as credit cards, although they have higher fees and interest than you find with credit cards. To determine if there are protections, read the prepaid credit card offer.

That doesn't mean you should completely rule out prepaid cards: a big advantage to prepaid credit cards is that they are not tied to your checking account, and you usually have personal identification number (PIN) protection. In addition, improvements in regulation are helping to cut down on prepaid card fraud. Under the Credit CARD Act of 2009, more data collection and reporting from businesses was required. The new rules focus on cards that:

  1. Don't have the value clearly labeled on them.
  2. Are reloadable at places other than banks.
  3. Can have a maximum lifetime value of more than $1,000, including reloads.
  4. Can be used anywhere, especially internationally.
  5. Can have the value transferred to another card.
  6. Are purchased in large amounts.

In short, the goal of the new rules is to keep prepaid cards out of the hands of terrorists.

So, the complete answer to your question is there are limited protections with most prepaid cards, and you will pay a premium for those prepaid cards that do offer protections similar to most credit cards. However, improvements in regulations are assisting in the reduction of fraud. The final word is be careful and buyer beware.

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