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What Does Overcharge And Credit Protection For Prepaid Card Holders Mean

Published on 27 December 2016 in Multi - News by Raffick Marday

For the longest time, the primary distinguishing feature between a credit card and prepaid debit card has been the lack of overdraft facilities for the prepaid card. Perhaps this is what endears them to the more than 23 million users in America and numerous others across the globe. But a new piece of legislation due to take effect on 1st October 2017 in the United States seeks to tear this veil and avail credit facilities to prepaid debit card holders in the country. Such a move is bound to expose the card users to exploitation the service providers. And that is where the overcharge and credit protection for prepaid cards regulations come in. But what does this protection entail?

Credit protection

Most importantly, note that the credit facility won’t be mandatory. Present and future cardholders wishing to benefit from the prepaid card’s overdraft service will have to apply for it. The credit protection law argues that it is the responsibility of the credit card company to assess the credit repayment abilities of the card holder before advancing them the overdraft.

Should the client pass the liquidity test, they should be allowed a 21 day window period to repay the credit already advanced before the company starts imposing late charges atop the interest rate and the repayment amount. Additionally, to avoid overlapping overdrafts that often result in confusion, inability to pay, and excessive costs, the prepaid card company is advised not to advance the second overdraft to a particular client before the settlement of their first credit.

Should the prepaid card company intend to raise the interest charges for their card overdrafts, it has to inform their customers 45 days before the interest rise takes effect. This gives the client time to weigh their options and in extreme cases cancel their accounts with the card company.

According to the Consumer Financial Protection Bureau (CFPB), since the law can’t stop companies from offering incentives in the form of overdrafts to their customers, it can help control consumer exploitation. These new rules are, therefore, specifically designed to help prepaid cardholders avoid overdrafts as well as save them from sinking into unplanned debts.

What happens when your card is stolen?

Have you ever misplaced or had your credit card stolen? Credit card theft remains one of the biggest financial frauds in the USA and abroad and the overdraft facility only aggravates the situation even further. It is one thing to know that your prepaid card thief will use all of the amounts in the card while it is quite another to fathom the fact that they might end up sinking you into unprecedented debt.

Though you are solely responsible for your cards safety, you don't have to always worry about the possibility of your card being misused and falling into debt. The current legislation shields you from such an inconvenience. Should you lose your card only for it to find its way into unauthorized transactions; you will only be liable to a penalty of up to $50. Nevertheless, to enjoy this liability limit, you have to report the card is missing within two business days to the relevant card provider.

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