Factors that determine whether funds on a consumer’s prepaid card are federally insured are detailed in a newsletter issued Tuesday by the Federal Deposit Insurance Corp. (FDIC).
The September issue of the newsletter, FDIC Consumer News, explains the federal rules governing the insurability of prepaid cards and the steps consumers should take to ensure they are protected.
Noting that prepaid cards often are not linked to any checking or savings account, the article notes that for funds on a prepaid card to be insurable: the card must be eligible for FDIC deposit insurance coverage (for cards linked to an FDIC-insured bank, Consumer Financial Protection Bureau rules require a bank to disclose whether the card is insurable); the consumer must properly register the card; and specific deposit insurance requirements must be met.
According to the article, the bank’s records for FDIC insurable prepaid cards must meet the following requirements:
- The account must be appropriately titled (names the owner or owners of the account) in the bank’s records and indicate that the prepaid account provider is going to be acting as the cardholder’s agent, which could include duties such as transferring funds on the cardholder’s behalf when that person makes a purchase and keeping track of the balance on the prepaid card as the cardholder adds or withdraws funds.
- If the bank fails, the card issuer as the cardholder’s agent will need to provide the FDIC a list identifying each cardholder and the balance on each card at the time the bank fails.
- The contractual agreement among the financial institution, the prepaid card issuer and the cardholders must indicate that the individual cardholders are the owners of the funds.
“Assuming you properly register your prepaid card, if the FDIC-insured bank that issued the card was to fail, you as the consumer would be insurable for up to $250,000, subject to aggregation with other similarly owned deposits you may have in the failed bank,” it notes.
The article also notes that this information does not apply to gift cards.
FDIC Consumer News: Is the Money on My Prepaid Card FDIC-Insured? (September 2019)
Other FDIC links: