3/24/11
Question:
Can pre-paid debit cards with Visa or MasterCard logos be garnished by a judgment creditor?
Answer:
Actually, YES. I had done some Google’ing on this topic and most articles were rather vague with the answer and seemed more like guesses. So, I decided to go to the source. I called one of the major players in the Pre-Paid Visa/MasterCard Debit Card industry and spoke to a high ranking individual (that sounds too Woodward and Bernstein to say it like that, but oh well).
Can pre-paid debit cards be garnished, yes; have pre-paid debit cards been garnished, yes. Is a garnishment common, no. The average daily balance on these cards is around $100; so from a practical standpoint, pre-paid debit cards are not an attractive target and there are other obstacles which will discuss below.
How can these cards be garnished? In reality, these pre paid cards have an underlying account that is underwritten by a bank and that account is FDIC insured. As such, the account is linked to a specific individual. So, if the card issuer received a garnishment order, then the pre-paid card can have the funds withdrawn and paid over to the judgment creditor.
Pre-paid debit cards are different than gift cards. Gift cards, even the Visa or MasterCard gift cards, do not require personally identifying information. So, gift cards cannot be garnished by sending a garnishment order to the issuer. However, if you have a $100 Visa gift card in your wallet and show up to a post-judgment debtor’s exam, the creditor attorney can require you to turn it over and many collection attorneys will have a mobile phone application to accept credit card transactions on the spot.
However, there are two other hurdles to a judgment creditor garnishing a pre paid debit card. (1) There is no easy way for the judgment creditor to find out you have such a card, and even if the judgment creditor could find it, given the usual low balance on these types of cards, it is generally not worth the cost to issue the garnishment order. (2) The issuing institution may not have a registered agent within the state to accept service of a garnishment order. In general, a company does not need a registered agent in a state to offer a product (like a pre-paid debt card). However, given the nature of this industry, many issuers do have registered agents because a license is required to be able to transfer funds. The company I spoke to has registered agents in about 40 states.
Why does this issue even matter? For me, it was one of those questions that made me go, hmmmmm! However, some people really let their debt get seriously out of control before taking action and sometimes need to take steps to buy time, have money to live, and one tactic available is to stop using bank accounts. But some people are not entirely comfortable with going to all cash (for whatever reason) or may not be able to go all cash. So, one option is to use pre-paid cards to pay for necessary day to day expenses. So, the idea with this investigation was to assess the true risk of using pre-paid debit cards. The answer: is there a garnishment risk, yes; has it happened in the past, yes; is it likely, probably not.
http://www.**********.com/blog/2011/...-be-garnished/
Question:
Can pre-paid debit cards with Visa or MasterCard logos be garnished by a judgment creditor?
Answer:
Actually, YES. I had done some Google’ing on this topic and most articles were rather vague with the answer and seemed more like guesses. So, I decided to go to the source. I called one of the major players in the Pre-Paid Visa/MasterCard Debit Card industry and spoke to a high ranking individual (that sounds too Woodward and Bernstein to say it like that, but oh well).
Can pre-paid debit cards be garnished, yes; have pre-paid debit cards been garnished, yes. Is a garnishment common, no. The average daily balance on these cards is around $100; so from a practical standpoint, pre-paid debit cards are not an attractive target and there are other obstacles which will discuss below.
How can these cards be garnished? In reality, these pre paid cards have an underlying account that is underwritten by a bank and that account is FDIC insured. As such, the account is linked to a specific individual. So, if the card issuer received a garnishment order, then the pre-paid card can have the funds withdrawn and paid over to the judgment creditor.
Pre-paid debit cards are different than gift cards. Gift cards, even the Visa or MasterCard gift cards, do not require personally identifying information. So, gift cards cannot be garnished by sending a garnishment order to the issuer. However, if you have a $100 Visa gift card in your wallet and show up to a post-judgment debtor’s exam, the creditor attorney can require you to turn it over and many collection attorneys will have a mobile phone application to accept credit card transactions on the spot.
However, there are two other hurdles to a judgment creditor garnishing a pre paid debit card. (1) There is no easy way for the judgment creditor to find out you have such a card, and even if the judgment creditor could find it, given the usual low balance on these types of cards, it is generally not worth the cost to issue the garnishment order. (2) The issuing institution may not have a registered agent within the state to accept service of a garnishment order. In general, a company does not need a registered agent in a state to offer a product (like a pre-paid debt card). However, given the nature of this industry, many issuers do have registered agents because a license is required to be able to transfer funds. The company I spoke to has registered agents in about 40 states.
Why does this issue even matter? For me, it was one of those questions that made me go, hmmmmm! However, some people really let their debt get seriously out of control before taking action and sometimes need to take steps to buy time, have money to live, and one tactic available is to stop using bank accounts. But some people are not entirely comfortable with going to all cash (for whatever reason) or may not be able to go all cash. So, one option is to use pre-paid cards to pay for necessary day to day expenses. So, the idea with this investigation was to assess the true risk of using pre-paid debit cards. The answer: is there a garnishment risk, yes; has it happened in the past, yes; is it likely, probably not.
http://www.**********.com/blog/2011/...-be-garnished/
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