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You Can Now Overdraft On Your Prepaid Debit Card

Published on in Multi - News by

You Can Now Overdraft On Your Prepaid Debit Card
How does the idea of spending more than your prepaid balance sound to you? Starting October 2017, prepaid debit card holders will be covered by the overdraft protection thanks to the new rules regarding these cards made by the United States Consumer Financial Protection Bureau (CFPB). While such adjustments to the overdraft protection law seek to equip the debit card with the features of a traditional credit card, it will still retain several key differences. For instance, the overdraft protection isn’t mandatory and will only be availed to the card holder upon application with the debit card issuer.

The prepaid debit started out as a gift card before several companies took up the idea and turned it into the current debit card. But the card still maintained its original purpose; regulating the user's expenditure. These cards, therefore, gained popularity with most Americans as it helped them avoid debts with the lack of overdraft features. According to CFPB, its uptake has been steadily growing with the amounts deposited doubling every five years. The Bureau estimates that more than $65 billion were loaded in 2012 with the figure expected to double come 2017.

What makes it different from a credit card?
Since its introduction, the debit card has been gradually most credit card features safe for the overdraft feature. Nonetheless, the fact that the debit card didn’t drag users into unprecedented debts in the name of overdrafts endeared it to the majority of Americans. In fact, a study that was recently conducted by the PEW Charitable Trusts concluded that more than 72 percent of the debit card users highlighted the lack of this feature as the primary reason they like using the prepaid card.
Most people, therefore, use the lack of overdraft as their safeguard to overspending. But the new law seeks to take this form of debt control away, at least to the willing. The fact the user has to apply for the overdraft protection means that you still get to enjoy its debt shield should you fail to apply for the feature.
Another distinguishing feature between the two is pegged in the fact that you must have used the debit card for more than a month before applying for protection, unlike the credit card that comes packed with default overdraft features. Additionally, in contrast to the checking account credit card, the prepaid debit card overdraft will be treated as a separate line of credit. According to the new CFPB rules, customers that overdraft on their debit cards will receive a statement will be issued a statement with monthly prepayment amounts.

What does this mean?
This implies that the debit overdraft amounts won’t be automatically deducted from the holding account on the next deposit. Unlike the credit card controls, the prepaid debit card new rules make it possible to have an overdrawn debit and a solid account at the same time. You will nevertheless be charged an interest rate in respect to the amount and duration of the overdraft repayment.
The new laws don’t point out a specific interest rate for the debit card overdraft. However, gauging from the current rates charged on credit card overdrafts as well as debit cards from companies offering such protections, this interest is anticipated to hit 25 percent.

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