Trap Doors Being Exploited In Cards 'Designed To Be a Safety Net' For Consumers

On Monday, we noted some encouraging stories indicating that Americans were cutting back on borrowing, credit card debt was declining and the Consumer Financial Protection Bureau (CFPB) was putting more institutions on notice about deceptively marketed products. However, a Wall Street Journal story published on September 5, 2012, called attention to another type of plastic that is starting to become a growing problem: prepaid cards.

Noting that these "cards were designed to help the less-affluent have better control their finances by allowing them to spend only the preloaded amount," the Journal reported that some consumers are now accumulating debt because of overdraft and other credit-like features have been added to the cards in recent years. Furthermore, the Journal also stated that prepaid cards are "among the fastest-growing types of plastic," as American consumers loaded $83.3 billion onto prepaid cards in 2011. Payment-industry researcher Mercator Advisory Group said this was a 34 percent increase over the prior year, according to the Journal.

The National Consumer Law Center, the Center for Responsible Lending and the Consumer Federation of America are now lobbying the CFPB to prohibit prepaid cards from offering any type of credit. The Journal reported the agency is "evaluating the consumer advocates’ proposal as part of a broader effort to more-closely regulate prepaid cards."

The Journal story began by citing an Ohio man who borrowed $400 and loaded it onto a prepaid card, beginning a cycle of debt that would ultimately result in $1,344 of total fees from the card provider by the time the man stopped borrowing a year later. "Prepaid cards were designed to be a safety net," Steve Streit, chief executive of prepaid card issuer Green Dot Corp., told the Journal. "Once you start adding overdraft and other types of credit, it becomes a form of debt."

Does this situation sound similar to your own? You should know that you may be able to wipe out your credit card debt by filing Chapter 7 or pay back a portion of the debt through a Chapter 13 bankruptcy plan. Our Chicago bankruptcy lawyers can help determine which plan you are eligible for when you fill out the form on this page or contact our firm at (866) 930-7482.

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