Prepaid debit cards can be garnished. I don’t know how to say it any clearer. I previously wrote two articles on the subject here and here II, but still receive inquires on the issue. I am writing this third article to try and put the issue to rest. Unlike many of the articles out there on this subject, I actually researched my conclusion. I went so far as to speak to a Vice President at one of the major operators who issue prepaid debit cards. We spoke at length about garnishment and how prepaid debit cards work. Without a doubt, pre-paid debit cards can be garnished.
Why Some People Think Prepaid Debit Cards Can’t be Garnished?
I suspect the confusion lies in distinguishing the different types of debit/cash/gift card options. There are four categories of cards and the distinguishing characteristics are whether the card has a cash value and whether it can be reloaded.
- Reloadable with cash value;
- Non-reloadable with cash value;
- Reloadable without cash value; and
- Non-reloadable without cash value.
Reloadable with cash value: This category is your pre-paid debit cards. The owner can redeem the value on these cards for any product or service and reload the cards at will. Many of these cards now allow the owner to direct deposit their paycheck. Sometimes the owner can withdraw cash from ATM’s. Examples of such cards are Green Dot, Prepaid American Express, Visa Buxx and NetSpend. Prepaid debit cards can be garnished. I will explain how and why below.
Non-reloadable with cash value: This is the category, in my opinion, that causes the confusion. This category is your true, cash card. You purchase a card with a fixed amount, once the card is spent, you can’t use it anymore and you cannot add more cash to it. These cards can be redeemed for any product or service. Most of your Visa gift cards belong to this category. I put these cards in the cannot be garnished category, but there is actually a way to garnish these cards.
Reloadable without cash value: The Starbucks Card is the best example. These cards are the digital equivalent of gift certificates or store credit. The owner can reload the card at will, but can only redeem the value by purchasing the goods or services of the card provider. The card, in essence, is the record of your pre-purchase of good or services. These cards cannot be garnished.
Non-reloadable without cash value: This category is your store gift card. The card has a fixed value and can be redeemed only at a particular store. Once the card is used, it cannot be used again. These cards cannot be garnished.
Why and How Prepaid Debit Cards Can be Garnished?
Prepaid debit cards are traceable to an individual. A bank account exists behind the scenes of a pre-paid debit card. These accounts are typically FDIC insured. To have FDIC insurance, the card issuer must gather personally identifying information. Even without FDIC insurance, to prevent fraud and to comply with Visa and MasterCard transaction rules, the card number must be linked to a person for verification (this is why many online services like PayPal, and online retailers don’t accept gift cards or true cash cards). As such, since the account is traceable to an individual, a creditor (with a judgment) could issue a garnishment for the balance on the card. The issuer is required to comply with the garnishment order.
Assuming the creditor knows or suspects the debtor to have a pre-paid debit card, knows from which company, and that company has a registered agent in the state, the creditor could send a garnishment order. Although it is possible to garnish pre-paid debit cards, and garnishments have occurred, the risk of garnishment is relatively low. Short of the debtor telling the creditor about the account, it is difficult for a creditor to identify these accounts with enough certainty to justify the cost of issuing a garnishment order.
Conclusion: Prepaid Debit Cards Can be Garnished!
Side Note: I mentioned that non-reloadable cards with cash value (e.g. Visa gift cards) could be garnished. However, the process is manual. The debtor would have to give the card to creditor. For example, if a creditor called the debtor to a judgment debtor’s exam, and asked if the debtor had any Visa/Master Card/American Express gift card, the creditor could have the judge order the debtor to turn over those cards. The creditor would simply run the cards like a credit card to redeem whatever value remained on the card.
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