Expert Q&A

What happens to prepaid cards when a business is sold?

To Her Credit columnist Sally Herigstad

Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). She writes “To Her Credit,” a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I bought a prepaid card of 20 suntan sessions two years ago with my Visa card for $200. They gave me some special lotion as a bonus for signing up.

I don’t get around to going very often, and I’ve only used about five sessions. (They never give me a receipt or anything when I go in.) Now I’ve got a letter from them saying the suntan booth has been sold and they will no longer honor any prepaid sessions.

Can they do that? I thought a business had to honor the prepaid goods and services of the business it bought. The only thing that changed is the name on the door — it’s still a suntan booth. They didn’t even change the d\xe9cor, and the same teenage girls work there.

Will Visa help me when my payment was from two years ago?

Answer for the expert

Dear Heather,
Simple logic tells us that when a business changes hands, it should assume prepaid cards sold by its predecessor. This is especially true in a business that encourages or requires prepayment, such as tanning booths. Otherwise, they could sell as many prepaid cards as they can, conveniently change owners, and start all over again.

People probably wouldn’t be lining up to prepay the next time, however. The question isn’t so much can businesses do that, but why would they want to? Is there a worse way to enter the tanning salon market than to make all the current tanners in town mad?

Most business owners follow both logic and good business sense and honor prepaid cards. Sometimes, however, you run into someone who doesn’t. The first thing I would do is talk to the manager or send a letter. I had to do that once when an art school changed hands and told me my prepaid class credit was no good. I asked her if the same would be true if I had owed them money — would my debt have disappeared when the school changed hands? She said no … and she let me use my credit to take another class. Pressing the issue is sometimes all you need to do.

The law in this type of case depends on your state. Consumer law attorney and author of the California Debt Blog Jonathon G. Stein says about prepaid cards, “The business usually needs to honor them. However, this is state specific. Some states do not require a purchaser for value to honor prepaid sessions. Most do.”

If you talk to the manager and still don’t get your sessions, Stein recommends filing a complaint with the state licensing agency or calling the franchisor.

You should also dispute the bill with Visa. Even though it has been two years, according to Stein, “Visa will investigate and probably refund her the money.” Most credit card contracts give you a very short window of time, such as 60 days, to report erroneous charges on your bill. However, you have more time to complain about goods and services that are not satisfactory, or as in your case, that you never received.

To avoid this problem or at least make resolution easier next time, insist on a receipt when you use a prepaid card at any business. Try not to prepay more than you’ll use in a reasonable amount of time — not only because of the danger of the place going out of business, but because it’s too easy to pay for things we never get around to using.

You’re lucky the business was sold instead of closed down. You should be able to get your money’s worth. In my area, a large weight loss franchise recently sold package deals for thousands of dollars, right up until the day before they put padlocks on the door. Think of the people who paid $2,000 or more and came back for their first weigh-ins to find the offices all dark!

Always be skeptical of paying too far in advance, and keep good records. Remember, the size of the business or how much they advertise on TV is no guarantee of how long they will be around.

See related:9 ways to budget with a prepaid card, FDIC: Prepaid cards qualify for deposit insurance, Consumer groups ask FDIC for prepaid card protections

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