After Bank of America and Chase announced changes to their overdraft policies, PBS news hosted a discussion on some of the pitfalls associated with these account linked cards. The risks for the consumer, unfortunately, can be costly: overdraft fees upwards of $30 can be charged for each transaction that exceeds the available funds in the account. While these changes were a longtime coming in the account linked debt world, they are irrelevant for those with prepaid debit cards who have long enjoyed freedom from overdraft fees. Rob Lieber outlined the essence of the problem associated with these traditional debit cards: banks were signing customer’s up for “overdraft protection” which meant that their cards would not be declined if they didn’t have sufficient funds in the account. In many cases, this “protection” also applied to checks and ATM withdrawals. If a customer took money out, the bank would provide those funds if the funds weren’t available in the customer’s account. While this seems great on the surface- after all, they call it “protection”- the reality was that the bank was charging a hefty fee for the privilege of being allowed to overdraft the account.
Prepaid debit cards offer true protection from overdrafts, by simply not allowing them to occur. When a prepaid debit customer tries to use funds they don’t have, they aren’t penalized with hefty overdraft fees or offered expensive “protection.”
Instead, the card is simply declined. Much simpler, and less costly for the customer.