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The increasing popularity of reloadable prepaid cards, particularly among the unbanked and underbanked, has begun to raise alarms among consumer advocates who view the cards as subject to capricious pricing and lacking important protections offered on bank cards. And, as larger merchant and other enterprises become active in issuing these cards, advocates are lobbying for greater oversight. "Consumers are turning to debit and debit-like products as the economy continues to tighten, so it becomes even more important to guarantee protections," Michelle Jun, staff attorney in the San Francisco office of Yonkers, N.Y.-based Consumers Union, tells Digital Transactions News.

In a report written by Jun and issued this month by CU, the consumer group calls on the Federal Reserve to reconsider amending Regulation E to extend such protections as right of recredit and chargeback rights to reloadable prepaid cards. Common to credit and signature-based debt cards, right of recredit covers cases of unauthorized use and chargebacks refer to disputed transactions. While the Fed declined in 2004 to extend Reg E to cover prepaid cards, citing the "limited" and "short-term" nature of the accounts, Jun argues times have changed. "There have been huge strides in reloadable cards as Wal-Mart has launched and a number of other issuers have launched," she notes. "In light of that, the Fed should act."

Jun's report, "Prepaid Cards: Second-Tier Bank Account Substitutes," also faults the cards for poorly disclosed, high, and widely varying fees, arguing the total monthly cost for usage should be capped. Among 18 reloadable cards examined, the report found activation fees ranging from $3 to $99.95; monthly fees from $2.95 to $10; and dormancy fees (levied by eight of the 18) from $1.95 to $9.95 per month. These and other fees, it says, should be laid out on card carriers in a standardized fashion not unlike the so-called Schumer boxes used by credit card issuers. The report further argues that charges for overdrafts should be eliminated. The report found 10 cards charging overdraft fees ranging from $24.90 to $29.

The number of reloadable cards bearing a Visa, MasterCard, American Express, or Discover logo reached 20 million last year, estimates Mercator Advisory Group Inc., Maynard, Mass. That's up from 12 million in 2007 and 6.9 million in 2006, the firm says. Many issuers specifically target unbanked and underbanked consumers. This is a key demographic for Wal-Mart, whose 2-year-old MoneyCard is in the hands of 2 million customers.

Tim Sloane, director of the prepaid advisory service at Mercator, agrees issuers need to do more to disclose their fees. The guidelines, though, should be industry-driven rather than imposed by regulators, he says. Schumer boxes, he argues, would not work on card carriers because they require too much space. As for fees being too high, he cites a staff working paper released this week by the Federal Reserve in which the authors concluded that low- and moderate-income households in Detroit spend about 1% of annual income on transactional and credit products. "...LMI households do not always choose the most expensive financial-services option," says the working paper. "Consumers tend to be pretty sharp," says Sloane.

As for overdrafts, Sloane says these often result from consumers using prepaid cards to pay for gym memberships and other such recurring charges where costs quickly outstrip the value loaded on the cards. Issuers, he says, must assess fees to recover network and paperwork costs they incur to cover these charges. Analysts at CU, says Sloane, "ought to be a program manager for a while and get a feel for the scale of the overdraft problem."

Reg E protections are available from at least some issuers, Sloane adds. "Those cards that don't offer Reg E, stay away from them," he says. But Jun argues such protection can't be left to the caprice of individual companies, or individual customer-service representatives. "We have continuously asked the Federal Reserve Board to take a look at [extending Reg E] again," she says. "Our hope is that as more consumers are using the cards, there's no time like the present."

Why is it when you purchase something with your debit card, the money comes out of your account immediately - usually before you can even make it back to the car?

And, why is it when you return something, it takes up to three days to get a credit back?

My mom recently was shopping in Birmingham and saw a sign posted in a store that said it could take 10 days to get a refund when using a debit card.

According to AARP, when purchasing with a debit card, the card reader electronically contacts your bank and subtracts the amount from your account.

If it's this easy, why can't I receive a refund just as quickly?

Checkout lines move much faster using a debit card instead of checks. I love the convenience, especially when it comes to purchasing gas or using a self-checkout.

Using debit cards also is a good way to pay for purchases without having to pay interest, as you would if using a credit card with an outstanding balance. You can even use your debit card to get cash back when you make purchases at a store.

What's the bottom line? Since a debit card payment is just like writing a check, you should always keep track of how much money you have left in your account to avoid overdrawing the account and incurring fees.

My only complaint about using a debit card is getting refunds. If this problem were fixed, I wouldn't even bother using checks at all - except for rent, of course.

AARP offers several useful tips when it comes to debit cards:

Protect your debit card

• A debit card is like a blank check, so you need to guard the card and the account number carefully against loss or misuse.

• If your card is lost or stolen, or if someone is using it fraudulently, call your bank immediately. Follow it up with a letter.

• Thieves don't even need your card. As long as they have your name and card number, they can order goods by mail or over the telephone, even when you still have the card.

• Holding on to your debit card receipts and check them against your bank statement each month.

• Memorize your PIN but don't keep it with your card. Don't choose one that a smart thief could figure out, like your phone number or birthday. Never give your PIN to anyone.

What if your debit card is lost, stolen or misused?

• Act quickly. The most you can lose is $50 if you report to the bank or credit union that your card is lost or stolen within two days of when you discover the loss. Your liability increases to $500 if you report within 60 days after you receive your bank statement.

• If you don't to notify your bank within 60 days after you receive your bank statement, your liability is unlimited. You could lose all the money in your account. Check your bank statements carefully and promptly for charges you didn't make.

Additional withdrawals cost $1.25, money that is pulled out of the unemployment funds.

"If you use it like every other debit card, there would be no extra fees," Lotter said.

COLORADO SPRINGS - You probably will use your credit or debit card today at a business you trust, but what about the employee swiping it? Colorado Springs Police detectives say credit card skimming is on the rise in southern Colorado and you could be the next victim and not know it until you get your bill.

Colorado Springs Police tell NEWSCHANNEL 13 that three people were just convicted for skimming. Mark Nielson, Cory Skinner and Amanda Stillwell were accused of taking credit card information and then using it for shopping sprees. The team of three spent thousands of dollars and their victims were left with high credit card bills.  

Detective Wayne Lambert showed NEWSCHANNEL 13 how easy it is for someone to steal the information from your credit or debit card and create a clone card. He purchased what is known as a credit card reader on-line and then attached it to his laptop. "As you can see from your Discover Card, there are two lines of information."

Lambert says the information contains your card number, expiration date and sometimes your pin number; all vital information for a merchant to charge your bank to get the money they are owed.

The problem is that criminals can also use that information to create another credit card. "It's is a simple as highlighting, copying and looking up the proper program and sliding a blank card."  All of this can take less than a minute to create a new card for a criminal to use at the store.

The reader can be purchased online and with the other equipment to make the card a criminal can be in business for less than $800.

It's not just at the store where you have to be vigilant, the ATM or vending machine that takes your card could also have a skimmer on it. "You can place this reader on any type of machine," says Lambert. "If you're not really attentive you may not realize what happened to you and you'll swipe your card and it will store the information."

Lambert says the machine will work like normal, but two skimmers, one for the machine and the other for the criminal will get your information. "Somebody whose place it there will come by later and take it off and then download the information."

He says if you are out to eat, talk with your server and try to get to know them. If you have information on them they may not feel comfortable stealing your information. When you're at an ATM, if you see someone hanging around, avoid the machine.

Email urban myth or truth in fiction? Cash back debit cards scams and stores. Is it possible to have cash back charged to your debit card, but the money goes into the cashier's pocket? Absolutely, find out how a Target cashier was caught scamming, how my friend found out about her cash back purchase and what you can do to protect yourself.  Visiting a social networking site, a discussion was being held over paper versus plastic, and I am not talking about bags, but writing checks versus using your debit card to make purchases. The person who started the discussion was upset because someone took too much time in line writing a check for their purchase, recording the check and moving on. They thought this was "rude" and that checks should be done away with while shopping. I disagree, simply because of the dangers of using a debit card - dangers that can include cash back scams.
The other day a friend of mine sends me an email, which at first I thought was just another "forwarded" message that makes the rounds and that quite often is a scam or electronic "urban myth" that I could ignore. The funny thing about this particular message was at the bottom, she said, "No joke, I checked my receipt after shopping at Wal-Mart and the amount was $20.00 over."

What was this email about? Cash back scams. Apparently she had made a purchase at Wal-Mart and at the register was told that the do it yourself card scan was broken and the register person would "run the card" for her. After getting home and looking at the receipt to record the purchase she realized that she had been charged $20.00 too much, a charge that was seen by the use of the "cash back" label on the receipt. She contacted Wal-Mart and is happy with the resolution of the problem, however, thought she should tell others exactly how easily a cash back scam could occur.

The funny thing is she had received a forwarded message warning about the same type of scam, but Target was the store in question. She ignored it, wanting to check it out on Snopes.com but there was no need; she found out that in her circumstances it was true. I would much rather have found out that it was forwarded junk mail by a well meaning friend or family member.

Maybe this email warning regarding debit and credit card cash back on purchases has some level of truth to it. In January 2009, a Target employee was arrested for working with a friend an accomplice as a result of scamming the store for over $1,000.00. The scam was two part; first ringing up items and then doubling coupons to that the price was less (and in most cases free) and secondly using a the cashiers Target debit card and requesting cash back on a purchase, and receiving greater than the amount of the requested. For example they would do a cash back request for $20.00, but the cashier would give her accomplice $40.00. Pretty stupid when you think about it, at the end of the shift the drawer is not going to total, do that enough times and you are bound to come under suspicion.

Debit cards have become the normal method of completing a purchase while shopping both online and in brick and mortar stores. Many people, like those on the discussion board, think it's rude to use anything else. Others just like the convenience of swiping their card and being on their way. Admittedly, I use my debit card on a regular basis, because I am more likely to spend if I carry cash and I hate writing checks. It is also easy, fast and you can get cash back making a trip to the bank (and those hefty ATM charges) unnecessary. But consumers need to remember that debit cards do not have the same levels of protection against theft and fraud that credit cards do. Not all "plastics" are equal. "Debit card scams are a nightmare," warns Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group (PIRG) in Washington, D.C. "You don't get the same consumer protection as with a credit card."

According to federal law, your liability for unauthorized transactions with a credit card is limited to $50.00. But that limit only applies to a debit card if you notify the within two business days after the theft occurs. If you don't you could be charged up to $500 in unauthorized card purchases. If you fail to report the bogus charges within 60 days after your bank statement is mailed, your liability is unlimited.

So, how can we continue to have the convenience and ease of use we crave and be protected from fraud and theft?
- If a cashier offers to run your debit card for you look at your receipt immediately, make sure that no unauthorized charges are listed, especially those for cash back amounts.
- Use checks whenever possible, fill it out while in line with date and store then all you need to do is add the amount and your signature.
- When your debit card purchase is done, be sure to look at that final question . . . "is this amount correct?" and make sure that no additional cash back charges have appeared.
- Lastly, be sure to come home and check your debit card purchases online within 48 hours. Make sure the amount is as it should be and that no unauthorized charges have occurred.

Urban myth or true crime, either way, I can take a minute to look at my receipt at the end of the purchase, can you?