More Hurdles and Breakage in Rebate Prepaid Debit Card

When I switched my prepaid wireless phone service, I was offered a free phone after rebate by prepaid debit card. That got me curious. What’s wrong with plain ol’ check? Isn’t printing a paper check easier and cheaper than producing a prepaid debit card? There must be something in it for the company to issue a prepaid debit card instead of a check. What’s good for the company issuing the card is likely bad for the consumers receiving the card. What’s the catch?

I started my research with Googling vendors that offer prepaid debit card services to companies who issue rebates. Their pitches reveal what’s behind this new phenomenon. From what I gathered, here are the benefits to the companies and potential pitfalls for consumers.

1. Consumer Spending Tracking. The company which issued the prepaid debit card gets to see what the consumer purchased with the card. I’m not sure whether they track it on an aggregate or individual level, but because they know which card is issued to which consumer, they *can* track it by individual if they want to. Data on consumer spending pattern can be used for marketing purposes.

2. Brand Marketing. A prepaid debit card is customized with the company’s logo. You see it whenever you open your wallet. While a check can also be printed with the company’s logo, the prepaid debit card stays with the consumer longer than a check. A check gets deposited within a few days. A prepaid debit card stays in the consumer’s wallet until it’s spent. A small benefit to the company’s marketing, but not the holy grail.

3. Breakage by Expiration Date. The fact that a prepaid debit card stays with the consumer longer than a paper check leads to breakage. When you receive a check, you usually deposit it right away. When you receive a prepaid debit card, you have to wait until you buy something. If you forget to use it before the expiration date, the card is dead and you lose the rebate. Although companies typically print “void after X days” on rebate checks, as Stingy Student discovered, it’s not necessarily enforceable. Even if you deposit the check after that date, most of the time it will go through just fine. The electronic card network enforces the expiration date much more easily.

4. Breakage by Residual Amount. Many retailers cannot process a purchase on two different payment methods. If you have a $40 debit card and you try to buy $51.67 worth of stuff, your purchase will not go through. The cashier can’t just charge you $40 on the debit card and the remaining $11.67 by cash or another card. If you try to buy less than what you have on the prepaid debit card, you will have a residual amount on the card that becomes more difficult to spend. What do you do with $1.57 on a prepaid debit card? Many people just throw it away. The company then pockets that $1.57.

5. Merchant Fee. Although the prepaid debit card is a debit card, it doesn’t come with a PIN. You must select credit when you use it. The retailer pays a fee when they process a credit card transaction. That fee flows to the company which issued the card. 2% on a $40 prepaid debit card is 80 cents. Although it doesn’t sound like much, when a company issues a large number of rebates, the small amounts add up to some serious money. When you use the prepaid debit card, you don’t earn a reward from the credit card you would otherwise use. That’s an opportunity cost. You lose 1-1.5% on the rebate amount or as much as 5-6% if you use the prepaid debit card at a grocery store or gas station.

So what should you do when you receive a rebate debit card?

1. Find a place that accepts more than one method of payment for a purchase or a business that accepts partial payments for their bills. Gas stations usually allow you to purchase exact $X worth of gas, but if you have a credit card that gives you 5% rebate on gas purchase, you will lose 5% in opportunity cost. Utility companies usually accepts partial payments. So call them up or go online and make a one-time payment. You still lose 1-1.5% because you don’t get to use your reward credit card, but that’s the best you can do.

2. Use up the prepaid debit card as soon as you receive it. Before you receive the prepaid debit card, do your research and locate a place where you can use the entire amount in one shot. As soon as you receive the card, use it up. The longer you wait, the more likely you will lose the rebate to breakage.

The companies which issue rebates are known to place various hurdles around rebates. See this great post by Golbguru. Now they have a new tool for more breakage. Don’t get caught by it.

Refinance Your Mortgage

Mortgage rates hit new lows. I saw rates as low as 3.25% for 30-year fixed, 2.625% for 15-year fixed, with no points and low closing cost. Let banks compete for your loan. Get up to 5 offers at

FREE E-mail Newsletter

Join over 3,000 readers and get new articles by e-mail:

No spam. Unsubscribe any time.


  1. Ted Valentine says

    I got about $200 of these rebate debit cards in $25, $50, and $75 denominations from Bellsouth last year when I moved and signed up for their bundle. It was kind of a hassle to use them. I spent them at a major chain grocery store on groceries. Because I used several cards for one purchase, I had to go to customer service to get the transaction processed. It took a few minutes for the cashier to figure it out, but it worked out in the end.

    As they say, ain’t nothing free, but I did enjoy the very inexpensive groceries!

  2. Harry Sit says

    The idea of hurdles is not making it flat out not work for people. That would be fraud or false advertisement. It’s just that they make you jump through hoops. If you read Golbguru’s post, the picture says it all. There will be people who couldn’t or wouldn’t jump over the hurdles and leave money on the table, reverting back to the rebate issuer.

  3. GetDebit says

    Lots of these problems that you list should be fixed this year thanks to the Gift Card rules passed by the Federal Reserve Board of Governors. For example, all rebate cards (and gift cards) will now need to have clear expiration dates listed. The rules caused many issuers (notably American Express), to eliminate card expiration dates (others quickly followed AMEX). Apparently, it was more difficult to change the packaging and expiration dates than to give up on the breakage (or at least the expiration).

  4. John says

    McAfee Preloaded Debit Card Rebate

    Stores selling McAfee software offer enticing deals to capture customers. These deals often involve preloaded Visa debit cards. Customers are told they will receive a specific sum on a debit card in exchange for their purchase of the McAfee software. But when the debit card is eventually used to make a purchase, the customer discovers the amount on the card is not the same as was promised.

    What the customer does not know when purchasing the McAfee product is that a $3 fee will be deducted monthly from the debit card after a short grace period. The bank will continue to remove $3 a month from the debit card until the card is drained.

    If that happened to you after you purchased McAfee software, we’d like to hear from you. Please visit

  5. Rod says

    I also avoid these “options” but when I get them I buy gift cards on Amazon, since you can go down to the cent. Amazon gift cards never expire, and the changes I will use them to buy thing for me or to someone as a gift are extremely high.

Leave a Reply

Your email address will not be published. Required fields are marked *