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Saturday, September 24, 2011

Pre-paid card users 'unprotected' -- and risk losing everything

Pre-paid cards have grown in popularity in recent years but many consumers are unaware of what would happen to their money if the card provider went bust.

Ryanair has recently announced its intention to launch a new prepaid card, which will be the only payment mechanism by which customers can avoid a payment administration fee. This is the latest in a number of similar initiatives. However many consumers do not realise the money they have on these cards is not protected by the Financial Services Compensation Scheme (FSCS).

A prepaid card looks just like a normal credit or debit card, and enables you to buy products and services where ever these cards are accepted.

The main difference is that you can only spend the balance that has been preloaded onto it. This means there is no risk of running into debt as it has no credit or overdraft facility and crucially, the card has none of your personal bank details attached to it. According to consumer group, Which?, these cards are most typically used for holidays, school trips and managing household finance.

However, consumers should be aware that the FSCS does not cover prepaid cards or e-payment cards and should the provider become insolvent, any funds loaded onto the card would not be protected.

Mark Neale, chief executive of the FSCS, said: "In recent years, prepaid cards have become increasingly common, especially for those people who are unable to get standard bank accounts with debit or credit cards. more