One of the biggest cons of being a prepaid cardholder is that we cannot fight unauthorized transactions like bank debit cards & credit cards. With a debit card connected to a bank account if the cardholder see a charge they don't recognize, they can simply call their bank and request a charge back. Banks will, 90% of the time, refund the cardholder back that money. Prepaid cardholders & mobile payments may have the same amount of protection as credit cards & debit cards but to dispute is a much more involved process.
How Do Banks Investigate Disputes on Debit Cards?
There is surprisingly very little investigating that happens when a user open up a dispute with their debit card provider. Nine times out of ten when a debit cardholder disputes a transaction whether it's an unauthorized transaction or complaint of goods not received/services not rendered, the bank usually favors the cardholders request for a refund. This process is called a "chargeback". Debit & credit cardholders have more protection than prepaid cardholders, and requesting a chargeback is all that's needed.
Remember, a debit card is connected to a bank, which means you have to have an active bank account. A prepaid debit card is provided by a bank, but there is no bank account connected to it. Prepaid card providers handle disputes very differently.
Unauthorized Transactions on Prepaid Cards
💡Dispute Prevention Tip
Because filing a dispute complaint is so troublesome and time consuming, and many users have reported their card being closed by companies such as Green Dot after a complaint has been filed, here is a golden tip to prevent authorized transactions from ever happening. Many cards allow you to move the funds from your balance into a backup account. These backup accounts go by several names depending on the company you are a cardholder with. Some companies call it a "Savings Account", Green Dot calls it "Vault" and Serve calls it a "Reserve Account". Whatever its called the primary function is the same, move money from your available balance into the backup account.
We Never Keep More Than $5 in Our Available Balance
The bulk of our money always goes into our reserve account. Have you ever subscribed to a service, maybe a free trial that you no longer needed and forget to cancel it later on? Guess what, you will be charged...if there is available cash in your balance. If there is little to no money in your balance the company will receive a "card declined" error message. We never keep more than $5 in our available balance specifically for this purpose and it has proved to be a very great method.
Storytime: Airbnb Attempted To Charge Us $683 Months Later
Airbnb recently attempted to charge one of our cards $683 for an early cancellation that happened 3 months prior, even though we discussed the issue with their support and was told not to worry about it. We had $1,400 on the card but it was in our reserve account and $0 in our available balance. That surprised charge of $683 would have left us on a very strict budget, but because it was in our reserve account we prevented that from happening. Moral of the story: Keep the bulk of your cash in your backup account and not in your balance.