There has been a huge expansion in the availability of so-called “stored value” cards. They are more commonly known as “prepaid credit cards” because the most famous of them sport the logos of Visa and Mastercard. “Gift cards” are a variation of the same idea but these are often tied to particular services, stores or brands.
The Mastercard and Visa cards are generic. Typically they will be accepted anywhere the companies’ distinctive liveries are displayed. Although they have wider uses e.g. in the holiday market, they have a particular appeal to people who cannot get a conventional card because of a poor credit history.
- The many advantages of prepaid
The cards have obvious advantages. As their name implies, everything is paid up front. You have an exact amount of money that either you or someone else has already deposited with the issuer. There is no credit involved which means no personal enquiries.
Another obvious attraction is speed. The absence of a credit card marks you out and is an obstacle to so many things most of us take for granted. Never fear. With some cards you can go into a corner shop, a petrol station or wherever, hand over cash and walk out with the power of Visa or Mastercard in your pocket. You are connected. You are modern. You are a grown up. You and James Bond could be next door neighbours.
- No issues if their use is limited to the real world
If the operation of these cards was limited solely to the real world where the buyer was always visible to the seller I would have no comments of any kind to make about them. On the contrary, to the extent that the cards could be used to teach children about the perils of plastic, about budgeting and so on, I might happily help promote them.
However, there are two types of prepaid credit cards. They are very different.
- Reloadable cards
First we have the reloadable variety. These present the fewest problems. The issuer normally verifies the identity of the buyer before the card can be used. This is because the upper cash limits of these cards bring them within the purview of the anti-money laundering regulations. There is therefore always an element of traceability. The user can top it up as often as they want and use it many times.
- Non-reloadable cards
Then there is the non-reloadable type. Quite a different kettle of fish. In practice there may be no formalities prior to issue and no requirement to prove who you are before you are able to use the card. As in the earlier example, you hand over the money, the person behind the counter hands over the card. That’s it. You get a pin number then you’re off. When the funds on the card are exhausted the card dies.
- Age limits
With both types of cards the issuers normally say only persons aged 18 or above may buy them, but since there is no law requiring this the rule is thought to be honoured more in the breach than in the observance, certainly with regard to the non-reloadable cards.
- Or the lack of them
Notwithstanding the supposed 18 age limit when buying a card, the rubric of most of them will often say the cards can be used either by persons of any age or by persons aged 13 or above. No one is certain why 13 is mentioned as a threshold because in this context it has zero legal significance. 13 is an age limit used in the USA for compliance purposes under the child protection and privacy laws (COPPA) but there is no read across to buying and selling activities.
- Financial limits
The maximum permitted value of the non-reloadable cards is 150 Euros, but there is an EU-level proposal currently on the table to increase the overall limit to 250 Euros, or in some circumstances to 500 Euros. In practice the UK cards have topped out at £50 although once the new, higher levels are in place elsewhere this could rise.
£50 may not sound like a lot of money to some, but remember it is not difficult to buy lots of these cards. Moreover £50 is a handy sum for many purposes. In the world’s largest ever police operation against a child pornography web site, known in Britain as Operation Ore, the monthly subscription was US$30.
- Nudge nudge, wink wink
Some card suppliers do little to disguise their lack of interest in what you do with their cards once you have bought them. Equally you get a strong sense that others are very well aware that they are likely to attract, ahem, a certain type of customer.
I recall one particular issuer of a non-reloadable card. Their web site made clear that whilst you could provide them with details of who you are if you wanted to, under no circumstances would they check them out to confirm they were genuine. Hellooooo…..
The same card issuer also pointed out that if you had registered your personal details with them then found the card was blocked on sites that sold age restricted goods or services, this could be because you had “inadvertently” given your age as being sub-18. The answer to this problem? “Don’t ring us, just go back to our web site and change your age to the ‘correct’ one”. Say no more.
- Making matters worse
Anonymity definitely has its role and value in certain circumstances on the internet but it sometimes also paves the way for illegality. The Attorney General of the USA in August, 2010, specifically highlighted the potential for prepaid cards to be used to buy child abuse images online. More generally, as discussed in an earlier blog, we know the US Government is intent on reducing the scope for people to abuse anonymity online. These non-reloadable cards are therefore swimming in exactly the opposite direction.
Why would anyone want to unleash on to the internet a system which allows for anonymous forms of payment, whether large or small? And having done that why would we want to increase the level of mischief such cards could do? These cards might almost have been deliberately designed to promote bad behaviour.
- Avoiding real world age checks
Prepaid cards are also used to circumvent visual age checks which, on the High Street, are normally carried out at the till. This happens because the overwhelming majority of retailers in the UK have not installed age verification systems which link up to the inventory of age restricted products or services which they sell online.
- Stop the proposed increase
The EU should even now halt the proposed increases in the limits of the non-reloadable cards. They should not allow any rise until the industry has shown some serious intent to deal with the abuse of anonymity. Perhaps the EU should consider introducing a new law forbidding the use of these cards to pay for any age restricted product or service online unless the company selling or providing it has a robust age verification system in place.
- The evidence of misuse is there and growing
I am not saying there is a mass of evidence showing there has already been large scale abuse or illegal behaviour under either of the headings mentioned above but there is definitely some and every time anyone looks there is more.
Trading Standards Officers in several parts of the country have carried out investigations in relation to the sale online of a wide range of age restricted products and services. The Metropolitan Police funded a major study into the online sale of knives. Outside of the gambling industry, it turns out to find any online retailer complying with the age verification laws is the exception. It definitely is not the rule.
The key point is obvious: with non-reloadable prepaid cards which can be bought for cash and used anonymously the potential for abuse is as plain as day. This should have been anticipated. Steps should have been taken to reduce or eliminate it.
- Hard to imagine these points were not anticipated
In truth it is exceptionally difficult to believe these problems were not foreseen. This shows the financial institutions which stand behind or issue these cards in a very poor light.
Visa and Mastercard could legitimately say it is the vendor’s obligation to do age verification, not theirs. But the actions of the financial institutions in developing these cards and bringing them to market have certainly not made the retail industry’s job any easier.
- Sympathy for the retailers, but…..
Whilst the retailers have my sympathy, nonetheless they cannot blame it all on Visa and Mastercard. The new cards threaten to make the problem of online sales of age restricted products and services a lot worse but no one should say they created it.
The unvarnished truth is no one is compelled to sell anything online. If a company chooses to do so it should be able to satisfy itself, and others, that it can do it lawfully. Asking for a tick in a box to confirm your age falls a long way short of the mark. That is what the online gambling companies used to do until the law forbade it, or rather until the law said expressly that if you do that you must also do more to confirm it is the truth. Kids are always pushing at the edge, testing boundaries. What’s new? It’s a normal part of growing up. That’s why we have a law that puts the onus on the vendor to check.
- To become sustainable things must change
The prepaid credit card industry is currently having a think about its future. This was prompted partly by an EU led review, and partly by a realisation that it was time to reflect on how a more mature business could be sustained.
It is very clear to me that the financial institutions and the online retailers between them have a joint responsibility to resolve this. All the key players need to embrace tomorrow.