Prepaid debit cards used to only exist as gift cards. But millions of Americans, many of them lower-income, use them almost like traditional checking accounts. However, they're not as safe as traditional credit cards, since they're not regulated.
That will change October 1, 2017, after newly announced rules for prepaid debit cards take effect.
Since $65 billion dollars was loaded onto prepaid cards in 2012, the last year data was available, that means this change could go far.
The new changes include:
- Prepaid debit card providers will have to issue basic account information for free (like the card's current balance)
- Protections for stolen or lost cards that traditional credit or debit cards have long had
- Stricter rules about making sure fees are clear on the card's packaging
- The ability to overdraft, a controversial change that is also the biggest for making the cards work like checking accounts
Our new rule closes loopholes and protects prepaid consumers when they swipe their card, shop online or scan their smartphone.
The rules were announced by the Consumer Financial Protection Bureau on Tuesday.
The cards are most popular among minorities, millennials and those who make less than $25,000 a year, according to the Pew Charitable Trusts.
Why overdrafts are touchy
A September 2014 study found 45 percent of millennials used prepaid cards, 10 percentage points over Generation X, the group in second place.
Meanwhile, almost two-thirds of millennials don't have traditional credit cards, according to Bankrate. The main reason for that is prepaid cards couldn't overdraft, so they couldn't contribute to debt -- which makes the new rule to allow overdraft (and thus charge overdraft fees) somewhat controversial.
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