6 Things to Do Before You Add Someone to Your Credit Card

add-authorized-user-credit-card

Are you considering adding someone to your credit card as an authorized user? Doing so is easy, but it’s not a decision to be taken lightly. An authorized cardholder is free to make charges to your credit card account, but only the primary cardholder is obligated to pay off the debt. Before adding someone to your account as an authorized cardholder, here are six things to consider.

1. Ask If You Are Making the Right Decision

Because you will be required to pay for any charges made by your authorized cardholders, you should carefully consider if it is a good idea. For example, you shouldn’t make your friends or roommates authorized cardholders just so that they could make occasional charges to your account. And while it can make sense to add a spouse or an immediate family member, it’s generally a bad idea to add a more distant relative who you may not know as well.

2. Look Into Alternatives

Before giving someone the authorization to make virtually unlimited charges to your account, you should consider some alternatives. For example, you could use your credit card to purchase prepaid debit cards, also called gift cards, from Visa, MasterCard or American Express. These products offer much of the security and convenience of credit cards while allowing you to limit the amount in advance. Prepaid reloadable debit cards are another option that can offer you the flexibility to track purchases and reload funds. However, these cards will offer few, if any purchase protection policies and may have higher fees.

3. Have a Conversation With the Authorized User

Before ordering a card for the authorized user, the two of you should sit down and lay out some ground rules. For example, you should decide what the purpose of the card is and what types of purchases you expect them to make and not make. If you are adding employees as authorized users to your small business account, you may want to have them agree to a policy in writing.

4. Set Limits

Part of your conversation with the authorized user should include limits on the amount you expect the card to be used for. For example, you could tell the cardholder that you don’t want him or her to make any purchases over $50 without your permission, or to agree not to make more than $100 per month in charges. At the same time, you should always be aware that any agreements between your and your authorized cardholders do not affect your obligations to the card issuer. The primary cardholder is solely obligated to repay all purchases, not the authorized cardholders.

5. Tell Them to Inform You If the Card Is Lost or Stolen

Authorized cardholders only have the ability to make purchases, they cannot manage the account in any way. If one of your authorized cardholder’s cards becomes lost or stolen, then the primary cardholder must report it and request a replacement. Therefore, it’s important to inform your authorized cardholders that they need to contact you immediately if they have a problem.

6. Make Them Aware of Any Fees 

Authorized cardholders may not be familiar with the terms and conditions of your account. And with young adults who are receiving their first credit card, they might not know much at all about how credit cards work. As a result, you should discuss any fees your card may have, such as cash advance fees and foreign transaction fees. In fact, you may wish to set their card’s cash advance limit to zero if you would prefer not to allow your authorized users to use their card to make costly cash withdrawals.

The Bottom Line 

The ability to add someone to your credit card account is a powerful feature, but it’s also one with potential for abuse. By taking a few prudent steps before adding an authorized cardholder, you can be sure that you’ve done everything possible to make this arrangement work.

Remember, before you add an authorized user, it’s a smart idea to see where your credit stands first so you know if anything needs improvement — and whether you can afford to take the risk of adding someone else to your credit. You can view two of your credit scores, updated every two weeks, for free on Credit.com.

Image: AntonioGuillem

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5 Ways the CFPB is Changing the Rules on Prepaid Debit Cards

happy girl at ATMThe Consumer Financial Protection Bureau on Wednesday finalized long-awaited regulations that will add federal protections for millions of Americans who use prepaid debit accounts. The agency’s new rule has been more than four years in the making and will equip prepaid card accounts with federal protections similar to those of credit card accounts. The rule officially goes into effect in October 2017.

Consumer advocate groups largely supported the agency’s rules. “The CFPB’s rule on prepaid cards is a big win for consumers,” said Nick Bourke, director of consumer finance for the Pew Charitable Trusts. “First and foremost, it keeps the cards free from overdraft penalties — which aligns with consumers’ preferences. Research shows many consumers turn to prepaid cards to control spending and to avoid overdraft fees.”

However, the Network Branded Prepaid Card Association criticized the final rule, saying it will create onerous restrictions on prepaid debit card issuers and ultimately lead to fewer options for consumers.

“Instead of fostering financial innovation and inclusion, the CFPB’s rule will ultimately limit access to an essential mainstream consumer product that helps millions of Americans participate in the digital economy, affordably manage funds, and safely hold money,” Brad Fauss, NBPCA president and CEO said in a statement.

According to a report from Pew Charitable Trusts, use of general purpose reloadable prepaid accounts among U.S. adults jumped more than 50% between 2012 and 2014. The accounts are widely used as budgeting tool or an alternative to traditional bank accounts for people who have poor banking histories. But they can also be used to issue federal benefits like Social Security, student loan refunds, tax refunds, and even paychecks.

5 ways the New Rule Will Affect Prepaid Account Customers:

Easy Access to Information

The final rule grants prepaid accounts similar protections to credit card accounts. It requires financial institutions to make account information such as account balances, transaction history, and charged fees, easily accessible and free to consumers. Consumers also will have access to the information over the phone, online, and in writing upon request, unless the institution issues periodic statements.

A Standardized Dispute Process

The new rule also means that financial institutions will have to cooperate with customers to fix errors such unauthorized or fraudulent charges in a timely manner. If you’ve registered your card and the financial institution can’t complete the investigation within 10 business days, it will have to credit the disputed amount to your account while it completes the investigation. Investigations are usually required to be completed within 45 days.

Limited Liability

Under the new rule, a customer’s losses are limited in the event that funds are stolen, similarly to debit accounts. So as long as you report the loss within two business days of finding out about it, your losses are limited to $50. If the institution is notified after two business days, then the loss is limited to $500. The rule limits liability for unauthorized charges and creates a way for consumers to get their money back as long as they notify the financial institution in a certain amount of time.

Know Before You Owe”

There’s a disclosure included in the new rule, coined “Know Before You Owe.” It requires institutions to give customers more information about the prepaid accounts available upfront, before someone elects to sign up to make comparison shopping easier.

The information has to be presented to you in two forms before you sign up: long and short. The short form would be a more concise overview of the account’s terms and fees that can fit on store packaging, while the long form would have more detailed list of fees and information. Card agreements also have to be publicly available, and posted on card issuers’ websites.  Institutions must also submit all of their agreements to the CFPB, which will post them in the future on a public site maintained by the bureau in the future.

Credit Protections

Some prepaid accounts can be paired with credit lines that provide funds for purchases if a customer doesn’t have sufficient funds in their prepaid account. The accounts are laden with hidden fees and considered a potential debt trap by some critics.

Prepaid companies now have to wait at least 30 days and make sure the consumer has the ability to pay back the debt before they offer a line of credit to a prepaid debit card user. The rule also requires prepaid companies to give consumers regular statements and at least 21 days after the statement is issued to make a payment before charging a late fee. Late fees have to be “reasonable and proportional” to the corresponding violation and can’t total more than 20% of the consumer’s credit limit during the first year the credit account is open.

The rule also puts a wall between the cardholder’s prepaid funds and their credit debt so that companies can no longer take funds from the prepaid account to repay the credit bill without the consumer’s consent.

Which Accounts Are Impacted by the New Rule?

The rule applies to general purpose reloadable cards as well as a growing number of electronic prepaid accounts. That includes mobile wallets such as Apple Pay or Google Wallet, person-to-person payment products like PayPal or Venmo, and other electronic prepaid accounts that can store funds. Other prepaid accounts like payroll cards, student financial aid disbursement cards, tax refund cards, and certain federal, state, and local government benefit cards such as those used to distribute unemployment insurance and child support are included under the rule.

Until the rule goes into effect next fall, consumers should make sure they are informed of the financial institution’s policies regarding fees, errors, and possible fraud because how they will be handled will depend on the card, company, and circumstances.

The post 5 Ways the CFPB is Changing the Rules on Prepaid Debit Cards appeared first on MagnifyMoney.

Your Prepaid Card Is About to Get Better

prepaid-account-disclosures

Clear, straightforward information on fees and more protections on prepaid credit accounts? That’s the goal of the new federal consumer protections finalized by the Consumer Financial Protection Bureau (CFPB) on Tuesday.

According to a release from the CFPB, the new rule will require significant oversight by financial institutions. That means limiting “consumers’ losses when funds are stolen or cards are lost,” the CFPB said, investigating and resolving errors, and offering consumers “free and easy access to account information.” Notably, the CFPB also finalized new “Know Before You Owe” disclosures for prepaid accounts.

“Many of these important protections stem from the Electronic Fund Transfer Act, and they are intended to be similar to those for checking account consumers,” CFPB director Richard Cordray said in a separate prepared statement. “For instance, error resolution rights will now be similar for both types of accounts.”

Prepaid Account Protections 

Among the fastest growing consumer financial products in the U.S., the CFPB said, prepaid accounts are typically bought at retail outlets and online. (These include mobile wallets like PayPal or Google Wallet, peer-to-peer payment products and other electronic prepaid accounts that hold funds.) In 2012, said the CFPB, consumers put nearly $65 billion on these “general purpose reloadable cards,” an amount that’s expected to nearly double to $112 billion by 2018.

Here’s a look at the protections the CFPB brought prepaid account consumers under the Electronic Fund Transfer Act.

Free and easy access to account info: “Financial institutions must make certain account information available for free by telephone, online, and in writing upon request, unless they provide periodic statements,” the CFPB said.

Protections for lost cards and unauthorized transactions: Consumers are now protected against withdrawals, purchases and other unauthorized transactions — that is if their prepaid cards are lost or stolen. With the rule, consumers now have a way to get back their money so long as they notify the financial institution within a reasonable timeframe.

Error resolution rights: “Financial institutions must cooperate with consumers who find unauthorized or fraudulent charges, or other errors, on their accounts,” the CFPB said. If funds need repayment, these institutions will be held responsible, and if they cannot repay within a certain period of time, they’ll be required to “provisionally credit the amount to the consumer while it finishes its investigation,” said the CFPB.

Know Before You Owe Disclosures 

“Standard, easy-to-understand, upfront information” — that’s how the CFPB described its new Know Before You Owe prepaid disclosures, which may help consumers have an easier time comparison-shopping and make smarter decisions when it comes to their wallets. Here’s what that entails.

Clear information: Two forms with simply written disclosures will now be required, the CFPB said. One, which is shorter, outlines prepaid account information, including key fees for ATM withdrawals and balance inquiries. A longer disclosure form will have a full list of fees. You can view samples of the disclosure forms on the CFPB’s website.

Publicly available agreements: The CFPB now requires prepaid account issuers to post their agreements to the general public. They will also be accessible on a “Bureau-maintained website,” as the CFPB called it, down the line.

“These important new protections fill gaps in the law for consumers,” Cordray said in closing. “The rapidly growing ranks of prepaid users deserve a safe place to store their money and a practical way to carry out their financial transactions.”

Play It Safe 

While the CFPB has introduced these disclosure requirements and other protections for consumers using prepaid cards and credit products tied to prepaid accounts, which let you spend more money than they’ve deposited to the account, there are things you can do as a consumer to make sure you’re being smart with your money. For starters, it’s helpful to read the terms and conditions of any financial tool you’re considering very carefully. If something gives you pause, speak up, and don’t be afraid to ask questions.

Remember, prepaid cards don’t generally help you build credit. But, no matter what type of card you’re using, it’s important to keep tabs on your credit to ensure you’re not the victim of fraud or other unscrupulous activities. You can view a free snapshot of your credit report by signing up for an account on Credit.com.

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