Do prepaid Visa cards serve a useful purpose?

January 7 2011 by Ellen Roseman

That’s the question I’m asking readers after writing a column about the hefty fees on these prepaid cards.

The only benefit I can see is for Internet purchases, where you worry about a retailer applying unauthorized charges to your credit card. If there’s not enough value left on a prepaid card, the transaction will be declined.

They’re expensive to buy as gifts, since there’s an up-front charge of about 10 per cent. Then, the recipient has to worry about monthly fees that kick in if the card isn’t used quickly. Some cards even charge a fee for reloading.

There’s another problem — using the card’s full value when stores won’t accept it for partial payments on higher-value purchases.

I asked Jean-Marc Handfield of Vancity about the logistics of getting every penny from the card. Here’s his response.

A solution that will allow prepaid cardholders to use all of the balance on their cards is to request that the retailer do a ‘split transaction.’

A split transaction requires that the cardholder knows the balance on the card. This information can be obtained by contacting our cardholder reporting website or customer service telephone line.

As the cardholder, you can advise the merchant what your remaining balance is – for example, $6.25 – and tell the merchant to take $6.25 from this card and you’ll pay the remainder by another method.

Please note that not all merchants can accept two forms of payment for one purchase due to their systems limitation, but this split payment is common in large retailers such as grocery and drug stores.

Handfield said the information about how to make a purchase that is larger than the value of the card is included in the Frequently Asked Questions section of the card’s packaging.

I sent his response to all the readers who suspected a plot to recover a few cents extra on every prepaid Visa card. Many were still dissatisfied.

I’m posting a few opinions below and want to hear your thoughts. Should the federal government impose rules on the card issuers, instead of just warning buyers about possible problems, as the Financial Consumer Agency does here?

23 comments

  1. Cynthia

    Jan 7 2011

    I think they reach a market of people who need credit, but can’t get it in the traditional sense.

    I personally won’t buy them for anyone. To have to pay $4.95 on a $50 card to make a purchase, that’s a 10% bonus for the issuer, and the consumer is getting the shaft.

  2. The Passive Income Earner

    Jan 7 2011

    It’s not a payment method I intend to use. Generally, for online purchases, VISA is very responsive and supportive with respect to errors. I have not had my card misused either but I have had it disabled due to potential fraud. I just review my online charges more often.

  3. Carte

    Jan 8 2011

    They are very useful for people who can’t get a normal credit card.
    I don’t use it but i can see they can be useful

  4. Rocko

    Jan 9 2011

    I can work around the $2.00 / month admin for these cards since I probably won’t wait to use it, but it’s the few dollars left on it after let’s say a $96.77 purchase that will go to waste since I can’t use the remaining $3.23 unless I buy something for exactly $3.23. What are the odds of that? The lack of partial authorization is a real scam!

  5. Shannon

    Jan 10 2011

    If you get one of these gift cards and want to spend it exactly, gas is a good thing to get, since the cashier can authorize a specific amount on the pump.

  6. Neal

    Jan 10 2011

    I have never used these “prepaid” cards and don’t ever intend to. However, I do have an opinion on them.

    Here it is, listen carefully: “COMPLETE AND UTTER RIP-OFF”

    You are giving them an interest-free loan. They should be paying you.

    It is unfortunate that in our society, people who need help the most (e.g. people with bad credit) get shafted the most.

  7. Armitage

    Jan 10 2011

    While I agree that gift cards, of any type, are generally a bad deal, I do have to say that Vancity and Citizens Bank prepaid Visa cards are a lot less offensive than most.

    Unlike most other banks, the card fee for them is a flat $2, regardless of the amount on the card. So instead of a 10% premium (which is steep on a $500 card), it’s just 2 bucks.

    For the odd times I need one, that’s a lot easier to swallow.

  8. HC

    Jan 11 2011

    People with “bad credit” are not getting shafted. They have made poor decisions in the past to be in that position and have probably “shafted” some other creditor. Otherwise known as a higher risk individual.

    Paying with cash is not always convenient and can be a challenge for people with credit issues, not to mention trying to book a hotel with cash over the telephone. At least Visa IS giving them an option with prepaid cards.

    There’s no free ride here, it costs money to provide this option and it’s being passed on to those who utilize it. Nothing wrong with that.

    Of course, a person with credit issues can always get a secured visa at any credit union but most people with bad credit know they will not qualify and are happy to have other options available until at such time they qualify for a reqular Visa card.

    Instead of being a “rip-off” I think Visa is providing a valuable service to individuals that need it.

    Just my two cents worth.

  9. cynical investor

    Jan 19 2011

    I see them used only for Internet purchases too.

  10. Dave Ings

    Jan 25 2011

    I’m afraid I’ll have to respectfully disagree and suggest that some of this is much ado about nothing.

    I’m a Bell customer who streams from iTunes and Netflix. Bell will top up your plan’s download limit by 40 GB for each $5 extra a month you spend.

    So cancel your $100 a month cable service (I did) and spend $5 or $10 of it to top up your Web download limits.

    The only part of this issue that concerns me is the unilateral changes to existing contracts. That is wrong and should not be permitted by statute nor enforced by the courts.

    Regulate? Often when the government regulates something the price only goes UP (think milk, poultry, cable bills, etc) so I don’t see that as a viable proposal.

    Dave Ings

  11. Vic Bartram

    Feb 4 2011

    They recently sent me a pre-paid card, but I have failed to load it, simply due to our new Visa debit card, which makes buying on the internet a little less scary, and leaves me feeling a lot safer.

  12. SavingMentor

    Feb 17 2011

    No one seems to be responding to any questions here, so I will take a stab at answering a few:

    @ML, @DN, and @Rocko – I agree that these cards are mostly worthless and your situations are definitely horrible to experience. However, as Ellen mentioned, you can get most retailers to split the bill between two methods of payment as long as you call the number on the back of the prepaid credit card first and check the balance.

    @DG – The reason your purchase was declined at the Keg is that many restaurants tend to preauthorize up to 20% more on your credit card than the actual bill, to account for any tip that you might sign on to the receipt. They want to make sure you have enough room on the card to actually pay your entire bill. I don’t like this practice, but it is a common one.

    If you have an MBNA card, you can see preauthorizations in their online system and you will notice that restaurants and gas stations tend to preauthorize more than your actual amount.

    I have been given these cards, but like many who have commented here, I would never purchase one for myself or to give to others.

  13. Teresa Fryday

    Apr 27 2011

    I thought prepaid Visa cards were a great idea for my 17 year old son who wants to make purchases on line. However, he sunk all his money into a $250 card at Shoppers Drug Mart and there was a problem with the activation. Visa is showing that it hasn’t been purchased. The store won’t/can’t refund the money or exchange the card. Visa wants the front and back of the card, the packaging, and the receipt faxed to them so they can issue him a new card which will take 7 to 10 days (they say). Now he has nothing for the next couple of weeks. The issue was in the transmission from the store to Visa and he’s the one suffering because of it. Why can’t they refund the money and sort out their internal problems themselves. Never again!!!!

  14. Linda Rees

    Jan 20 2012

    RE: Prepaid Visa Cards.

    An effective way to use the this type of card is for online donations. You can use the actual dollar amount on the card (but not the cents).

    Remember that you may be donating in US dollars, so this may skew the amount actually donated.

  15. Gloria Fidler

    Feb 10 2012

    I purchased 3 prepaid Vanilla Visa cards at Shoppers Drug Mart on Dec. 17 as Christmas gifts for my sons.

    My eldest son and his wife were due to leave on honeymoon Dec. 28. Luckily they tried the card the day before, only to have it declined as it was defective.

    My son called the # on the back of the card and was told he’d have to photocopy the front & back of the card, fax it with the receipt to them and wait 2-3 weeks for a replacement.

    My other son tried to use his card to purchase a surround sound system which was on sale, only to have it declined (much to his embarrassment). Not having sufficient funds to purchase the item, he had to walk away.

    I mentioned it to the cashier in Shoppers Drug Mart the next time I was in, only to be cut off mid-sentence and advised they take no responsibility once they’ve sold a Visa gift card.

    So I waited until my son returned from honeymoon, gathered all 3 cards together and called Visa myself.

    I was instructed to copy both sides of the card and the receipt and fax it (I was given a reference #). I faxed this information on Jan. 9, along with my contact details.

    It is now Feb. 10 and I’ve heard nothing back from them. I just called and was told that the faxed copies of the cards were too dark for them to read. Could I lighten them up and refax them!!!

    I am beyond angry about this. I purchased with my Visa card and have been paying interest since Dec. 17 on three gift cards that were useless. And my sons still don’t have a Christmas gift from me.

    Is there someone else I can complain to?

    Incidentally, I also contacted Shoppers Drug Mart, as the CSR at Visa said these cards weren’t activated properly.

    Shoppers also requested information, but I was able to email it to them. They have at least responded with a “we are looking into it,” although I have yet to receive an explanation or any compensation from them.

    I will never buy a prepaid Visa card again.

  16. Zaubertricks

    May 29 2012

    I think they reach a market of people who need credit, but can’t get it in the traditional sense. And a good way for youngster to start spending money.

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