Pre-paid card compensation warning

card Pre-paid card users could be left high and dry if their card providers go bust, the Financial Services Compensation Scheme (FSCS) warned today.

The scheme, which offers protection for savers in the event of their banks or building societies hitting problems, is concerned that many consumers do not realise that money put on pre-paid cards is not protected in the same way.
The warning comes after budget airline Ryanair announced plans to launch a new pre-paid card, which will be the only payment mechanism by which customers can avoid a payment administration fee.

It is the latest of a number of non-financial services firms to offer cards of this kind, which is why the FSCS wants to ensure that consumers are aware of the risks - especially as companies such as airlines are more likely than banks to go under in troubled times.

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

"Those people who already have card, or are considering getting one, should be aware that they are not covered by the FSCS. This means that if the provider goes bust then cardholders will lose all of the money on their card and will not be eligible for protection."

Just what are pre-paid cards anyway?
Pre-paid cards work in the same way as pay-as-you-go mobile phones in that they allow consumers to load them with cash so that they can make purchases or withdraw money from a hole in the wall.

You cannot make any further withdrawals or purchases once the balance of the card is at £0, which is why the firms providing them take on very little risk and can therefore offer them to people who would not otherwise qualify for a credit or debit card.

While they are mostly used by travellers and teenagers in need of some financial independence from their parents, they are also popular with individuals with poor credit ratings as a result.
Read Full Story