The prepaid debit card is one of the fastest-growing financial services in the country. However, with this new convenience come new ways for thieves to steal their value. Consequently, prepaid debit card fraud is on the rise, and you should be aware of the pitfalls of using them.
Debit card primer
In case you aren’t familiar with prepaid debit cards, the process works as follows: You purchase a card at any number of stores, then go online to move money from your financial institution onto the card. Now the debit card has value that you have endowed it with, which instantly makes it a target for fraud.
It’s not that fraudsters can grab the card from you and empty its contents—you need a PIN number and other data, like your Social Security number, to actually activate the card and withdraw the money.
The current scam
Instead, the scam involves getting you to do all the work for the thief.
The scam works like this. You are contacted by a person or entity claiming you have won a prize of considerable value, such as a car, or some other claim that is too good to be true. You’re told that there is a processing fee of several hundred dollars, so if you can remit that, you’ll get that juice new car. Targets figure that spending a few hundred bucks to get a new car is worth it, so they agree.
The fraudster then patiently walks you through the process of obtaining a debit card, loading it with funds, and activating it with federally required personal information, including your Social Security number. That is the information required to activate the card, so you have now willingly handed over that information to the fraudster.
Now, not only can he engage in prepaid debit card fraud by withdrawing all the money you put on it, but you’ve given him your Social Security number. With that, it’s a thousand times easier for him to steal your identity.
How to protect yourself
The obvious solution here is to never give out personal information to anyone, and be extremely skeptical of being told you have won something or are eligible to win something.
There’s another thing to be cautious of when using prepaid debit cards. Any person or company can sell these cards and brand them with a Visa or MasterCard logo. They can also brand them with their own company logo.
The problem is that some of these are startup companies that may not have the sophisticated fraud protection that well-known debit card providers have. So you are potentially providing personal information to a company that isn’t on the forefront of security technology.
Other things to watch for
You should also be careful of prepaid debit cards that are not being sold in an established merchant’s store. Be wary of free-standing kiosks at malls or festivals selling the cards. These could be fraudsters who have set up literal fly-by-night entities in which you transfer money into what you think is a prepaid debit account, but is really their own bank account.
Debit card image via Shutterstock.