Hidden dangers of rebate cards

November 12, 2009

Pastor Pat Hartsock received a Verizon Wireless rebate card for renewing his contract and buying new phones.

It was a $50 Visa card issued by Citi.

The Pastor used the entire amount at a restaurant then left the card with the server.

"I used the $50 card and I thought it was done," Hartsock said.

But four months later, the Pastor got a notice from Citi's collections department saying his prepaid card had a negative balance of $157.22!

It turns out, after the Pastor left the card at the restaurant, someone else used it at various retailers!

"I'm mystified. I never knew that this was possible," Hartsock said.

But it is.

Charges can be placed on prepaid cards beyond their authorized amounts.

This can happen on rebate cards and Visa or MasterCard gift cards!

And, like Pastor Hartsock, you likely won't get a statement alerting you to fraudulent charges or a negative balance.

"This is just totally taking advantage of the consumer but unfortunately, there are no protections," Pamela Banks of Consumers Union said.

Legislation is pending to regulate prepaid cards like debit and credit cards.

Meantime, Verizon Wireless and Citi say negative balances on prepaid cards affect only a small fraction of customers and Visa and MasterCard tell us merchants are supposed to get authorization to ensure funds are available.

Visa and MasterCard also say they have a zero liability policy so prepaid cardholders are not responsible for fraudulent charges.

Although, that didn't help in Pastor Hartsock's case.

"And now I'm sort of backed into a corner because the company tells me they will not submit this to their fraud department because it's outside of 90 days," Hartsock said.

After Action News contacted Citi, it did finally cancel the negative balance.

However, Pastor Hartsock still has this advice for others.

"If I use my rebate card, I would say, I would like my card back, I would take it home and I would cut it up," Hartsock said.


Visa requires merchants to follow authorization procedures for all Visa cards - credit, debit and prepaid - which include obtaining an electronic authorization on all transactions when able.

In the event of fraudulent transactions or those unauthorized by the cardholder, Visa's rules further protect cardholders through our Zero Liability policy. The policy provides liability protection for all of their Visa card transactions that take place on the Visa system; cardholders are not held responsible for fraudulent charges made with their card or account information.

Financial institutions may offer a number of tools and services to help consumers manage their accounts and track spending - like online access to account balances, monthly statements, services that alert cardholders to transactions, and mobile access to account information. Consumers should ask their issuers for information about services available to help them manage their prepaid card.


Regarding MasterCard rules, merchants are required to obtain authorization from the issuing bank for the vast majority of transactions. Prepaid cards are pre-loaded with funds and do not give access to a credit line, so users can use only the funds that are stored in the prepaid account.

Regarding literature, the issuing bank would have to provide comment on the specific terms and conditions provided. It is really important to note for your viewers that MasterCard provides Zero Liability protection for registered prepaid cards, which means cardholders are not liable for unauthorized purchases if their prepaid card is lost or stolen. Here is a link for more information on MasterCard Zero Liability: http://www.mastercard.com/us/personal/en/cardholderservices/zeroliability.html


Here are a couple of the details that we send out with the card "welcome kit":

If a merchant completes a Transaction that results in a negative balance on your Citi Prepaid Card, you agree to immediately pay the amount of the negative balance plus any applicable Fees. (My understanding is that per Visa and MasterCard's merchant rules, the merchant must call to pre-authorize a purchase, so if a card doesn't have any funds left, the merchant is supposed to decline the purchase. Let me know if you need the name of a Visa or MasterCard contact who can verify that.)

If you provide your Citi Prepaid Card to another person, you are responsible for that person's use of your Citi Prepaid Card.

If a Citi Prepaid Card history that you obtain shows Transactions that you did not make, tell us at once. If you do not tell us within the lesser of 60 days after you received a written Citi Prepaid Card history or accessed an electronic Citi Prepaid Card history, or 120 days after the Transaction was first made available in your Citi Prepaid Card history, you may not get back any money you lost after that period if we can prove that we could have stopped someone from taking the money if you had told us in time. If a good reason (such as a long trip or a hospital stay) kept you from telling us, we will extend the time period.

It sounds like basically, you should treat your prepaid card as carefully as you treat your debit or credit card.

Here are some tips:

Card Protection

  • Always protect your card; never give it to anyone for any reason.
  • Destroy your card yourself upon completed use.
  • If your card is lost or stolen report it immediately to your card's issuing bank.
Account Management
  • Regularly review your card transactions for any suspicious activity.
  • Immediately report any suspicious transactions to your card's issuing bank.
  • Upon completed use of your card call your card's issuing bank to cancel your account.
Citi doesn't report usage of a prepaid Card to the credit bureaus.

Only a small fraction of a percent of Citi prepaid card customers ever experience a negative balance situation, so we do get questions about this from time to time, but it's not common.

Best to check with Visa and MasterCard re: how merchant authorization rules and prepaid cards themselves work. If you need additional contacts there, let me know.


You had a question about difference between Verizon Wireless gift cards and the rebate cards…basically the gift card can only be used in Verizon wireless stores and we can track the amounts used against the face value of the card so it can't be used beyond the amount of the gift card value. The Rebate cards can be used like any prepay debit card, wherever visa is accepted…this process is managed by Citibank for us.

It is possible for rebate cards to see a negative balance if a merchant does not preauthorize the cards to verify the transaction funds available on the card, which Verizon Wireless and Citi have no control over. Important to note that out of the scores of transactions we process through rebate cards we've only seen this in a very few instances

Important to note that since we started the rebate card program in Sept. 2008, our customers response to the convenience and flexibility of rebate cards (vs. paper check rebates) has been overwhelmingly positive. Tips:

  • always protect your card, never give it to anyone for any reason
  • DESTROY the card yourself when use is completed
  • Report lost or stolen cards immediately
  • Several ways customers can keep up on their balances as follows …Text Msg the word BAL to #VZWR (8997) or go to www.verizonwireless.com/rebates or emailing VZWrebate@citiprepaid.com/rebates
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