Update: Gift card holders may be out of luck in retail bankruptcies in the LA Times explains that when companies file bankruptcy consumers lose the value of unused prepaid gift cards.

Original post: Over the last several years plastic payments, especially debit, have eclipsed cash and check transactions. Also, the Internet has provided a new portal for shopping and bill payments and has stimulated development of still more payment systems (Paypal, cell-phone payments, etc.). But the laws have not kept pace. So, the only way I will pay on the Internet is with a credit card. It's the safest way. You risk all the money in your bank account and more when you use check transfers or debit cards.

In addition, as banks added and increased fees without mercy or regulatory oversight, more and more consumers found themselves un-banked. Others found themselves on debt and fee treadmills. Meanwhile, check-cashers, payday lenders, rent-to-own stores and other high-cost lenders boomed as they were able to march through state legislatures enacting safe harbor laws that exempted their products from usury (interest rate ceilings) and other protections. Federal regulators and Congress ignored or even encouraged the trend.

The laws have not kept pace. The New York Times has some stories today on payment systems. First, the brief Social Currency by Rob Walker discusses prepaid debit cards. These cards (marketed by hip-hop stars and others) have fees, but do not always link to bank accounts. Debit cards in general are not as well protected as credit cards; debit cards not associated with bank accounts are less well-protected than bank account debit cards, and of course, do not come with the possible savings benefits of bank accounts (if you can afford the fees, you can save). Along with the Consumers Union, the Consumer Federation of America, the Center for Responsible Lending and others, we have long called for comprehensive reform of the payments system. It should be high on the agenda of the new Congress. Here are some resources.