A recent study released by The Consumer Financial Protection Bureau (CFPB) shows that on-campus college credit card offers to students are down again for the 5th year on a row. That’s good news… until you look at what’s going on under the surface.
Back in 2009, Congress passed the CARD act. Among other important provisions, it required colleges and universities to make information about the payments they receive from financial institutions from on-campus sign-up events for college credit card offers easily accessible to the public and the government.
Never mind the fact that only about 20% of the colleges investigated by the CFPB meet the required disclosure requirements set by the CARD act, there’s an even more troubling trend under way.
Credit card sign-ups are down on campus among students – mainly because the credit card companies have shifted to alumni associations. Are they leaving students out of the picture? Unfortunately, that answer is “no”.
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Instead of offering credit cards to students, financial institutions coast to coast are signing up thousands of these kids for various types of pre-paid cards.
Why is this a problem – well, a pre-paid credit card works just a lot like a credit card, but without some very important consumer protections.
No fraud protection
If someone makes fraudulent or unauthorized purchases on a prepaid card, you are not likely to get any of that money back. Policies differ depending on the issuing company, so always read the fine print.
Lost or stolen? You may be out of luck
Many prepaid cards offer replacement if your card is lost or stolen, but there are a few key stipulations: always register your card online so there is a record of your name and address associated with the card number on the issuing company’s database, keep the toll-free customer support number and your card number (including any pin or security # on the back) written down in a very safe place separate from the card, and call the company right away if you suspect your card is missing. Any delay will give the crook extra time to spend your money.
Fees, fees, and more fees
Activation fees, monthly maintenance fees, reload fees, ATM fees, cash advance fees … the list can go on and on. On average, the annual cost of using a prepaid card can top $300! Often, the issuing company will not even disclose all the fees until AFTER you activate your card. Always read the full terms and conditions – as boring as they may be.
Prepaid cards have a set spending limit because you have to load it with cash, right? Well, not always. Some companies offer “overdraft protection”, allowing you to spend over your deposited amount to prevent your card from being declined at the point of purchase. The problem, however, is that “protection” comes with a hefty price tag in the form of overdraft fees. You can end up in debt because of a card that is supposed to keep you from going in to debt!
Prepaid cards are not all bad, especially for students. Parents can easily add funds to the card rather than sending checks or cash in the mail, they are (a little) safer than carrying around cash on campus, and are nearly universally accepted just like major credit cards. Plus, some varieties even allow young adults to begin establishing good credit habits with the FICO scoring system.
Just be sure you know all the facts before you end up having to dig yourself, or your kid, out of a very deep prepaid hole.
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This information is intended for informational and educational purposes only and not as legal advice. If you have concerns about your credit report, harassment, identity theft, illegal collections activity, garnishments, or property liens, you should consult an attorney who specializes in consumer rights and defense.