Are prepaid cards safe enough?

prepaid card safety

"Isn't it unsafe that you can get a prepaid card without identification?"

Yes, there are some broad problems with the use of prepaid cards.

These largely don't affect ordinary, law abiding prepaid card users - although, from the point of view of consumer law, there are some concerns for them too, please see our prepaid card guide for more information - but relate to the way these methods of payment can be used with anonymity to make illegal purchases.

Prepaid problems

No identification required

Under current regulation, no identification is required for prepaid cards which are loaded with up to £100.

That lack of identification can make money trails difficult, if not impossible, to discern.

However, it seems that there is a fairly simple way around this problem.

Mainstream prepaid cards which can be topped up (such as the ones listed on this site) do require identification.

Most require either two of the following - a home telephone bill, a driving licence or registration on the electoral roll - or a copy of the applicant's passport.

Easy to cross borders

The factor above, in addition to the portability of prepaid cards, has made them vulnerable to money laundering.

Being able to use a prepaid card easily outside of its country of origin, while appealing to consumers, seems somewhat open to abuse.

In fact, a 2006 United States Department of Justice report noted that prepaid cards, "provide an ideal money laundering instrument to anonymously move monies associated with all types of illicit activity."

As we'll see in the next section, it can also make them an ideal payment method for illegal goods.

Little to stop illegal purchases

In July 2010 MPs lobbied the Government to make payments businesses which issue prepaid cards responsible when their products are used for illegal purposes online.

Introducing the bill in Parliament, Labour MP Geraint Davies noted that many prepaid cards don't require any identification to apply, allowing users to pay for access to images of child abuse online with complete anonymity.

The cards are also used by those aged under eighteen to purchase alcohol and knives online, he said.

Davis noted that, during a single operation in 2002, 1,750 convictions had been secured by tracing credit card payments.

However, the Bill failed to make it through parliament before the end of the session and similar restrictions have not been suggested since.

Safer prepaid

Stronger issuer control

Since the operation noted above, Visa and Mastercard say they have tightened controls on credit cards.

According to Davis and others, however, that's of little use since "this horse has now bolted" and offenders are using prepaid cards.

"The simple fact is that we can't rely, as some people think we can, on the credit card industry itself to police itself," he said, "the credit card companies are simply not taking pre-emptive action."

Davis suggested fines for prepaid and credit card providers whose products are used illegally.

In statements, Visa and Mastercard responded to the motion emphasising their commitment to addressing these issues.

Visa said, "Visa Europe deplores the commercial exploitation of child abuse images and we do not allow Visa products of any type - debit, credit or prepaid - to be used to purchase child pornography.

"... wherever we find a site offering such material for sale via Visa payment cards, we alert our banks and the law enforcement agencies."

Mastercard agreed. "MasterCard Worldwide has always worked aggressively to identify and eliminate any illegal activity involving the use of its global payment network," a spokesperson said.

Limits on transactions

If Government really doesn't want card issuers to police themselves, however, limits on transactions have been suggested as the next step.

For example, the Financial Action Task Force (FATF) have suggested imposing value limits on prepaid cards: meaning on the amount stored on the card; how much can be spent; the number of cards allowed for every customer or some similar measure (see the 2013 FATF report here).

In the US, federal authorities now require those providing prepaid cards to keep a record of how holders use their products over five year periods.

Given the extreme in ease of obtaining and disposing of these cards, it still remains to be seen whether the measure will make prepaid cards a safer method of payment.

Given that, according to Mastercard, the UK will be Europe's largest provider of prepaid cards, with a quarter of the market, by 2017, the UK Government will have a considerable stake in any such measures applied here.

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