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Compensation warning over pre-paid cards

Compensation warning over pre-paid cards

Category: Money

Updated: 22/09/2011
First Published: 22/09/2011

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Consumers have been warned they can not expect to receive compensation should the provider of their pre-paid card go bust.

The Financial Services Compensation Scheme (FSCS) decided to issue the warning after Ryanair recently announced its intention to launch a new pre-paid card, which will be the only payment mechanism by which customers can avoid a payment administration fee.

Under the airline's scheme, anyone using the 'Ryanair Cash Passport' will not have to pay the £6 administration fee that is usually charged.

Pre-paid cards work like pay-as-you-go mobile phones, allowing consumers to load the card with cash which they then use to withdraw it or make purchases.

Once the balance reaches zero then the card cannot be used to withdraw any more money or pay for any more goods.

The FSCS said Ryanair's plan to introduce a card is the latest in a number of similar initiatives, but added that many consumers do not realise the money they have on the cards is not protected under its regime.

"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," said Mark Neale, chief executive of the FSCS.

"Those people who already have a 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."

Mr Neale has urged consumers to visit the FSCS website or ask providers about FSCS protection before taking out any products.

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