Prepaid debit cards can be a convenient way for people who have no credit history or poor credit to buy merchandise and pay for services. Consumers can apply for a prepaid card without having to go through a credit check and without having to open a bank account. Once the card is issued, the cardholder can deposit their paycheck, government benefits and tax refunds to their account, and then use the card the same way a credit card can be used. In fact, many prepaid debit cards operate on the Visa and MasterCard networks.

Prepaid debit cards can offer a number of advantages to consumers are “unbanked” or who have financial problems or poor credit. But there can also be disadvantages – like high fees and lack of access to deposited funds.

A 2016 FTC case illustrates how  one company that offers prepaid debit cards deceptively advertised and marketed its cards to consumers.

According to the FTC , NetSpend marketed its prepaid debit cards to consumers who had financial problems and, as a result, could not open bank accounts or qualify for credit through banks and traditional lenders. Unfortunately for its customers, NetSpend made several misrepresentations in its advertising and marketing materials. It falsely told consumers that their approval was guaranteed; that they could use their cards immediately; and that they would be eligible for provisional credit when there was a dispute over the use of their card.

But according to the FTC’s complaint , approval was not guaranteed and could be contingent upon ” consumers meeting unexpected requirements.” And despite NetSpend’s claims, many consumers could not “use their cards immediately or access funds on their cards” for “prolonged periods of time—sometimes as much as weeks, or at all.” In other words, consumers were denied access to their own money. The FTC’s complaint alleges that these misrepresentations constitute deceptive acts or practices that violate the FTC Act.

In March 2017, NetSpend agreed to a consent order and permanent injunction that required the company to stop using certain deceptive marketing materials. The company also agreed to notify and provide refunds to eligible customers and to remit certain fees to the FTC. The FTC announced today that it’s mailing 430,000 checks totaling more than $10 million to eligible NetSpend customers.

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