PALM BEACH GARDENS, Fla. (MarketWatch) -- You might know "prepaid cards" as "gift cards" or "telephone calling cards."

But prepaid card uses are expanding. More employers are considering them -- often in lieu of paychecks for those who can't qualify for bank accounts. They're used by government agencies to dispense benefits. They provide a way to send cash to family members or kids at college. Prepaid cards may be cheaper than check-cashing stores and some banks, providers say, and may reduce payroll costs to employers.

FirstView LLC, Atlanta, was preparing to permit the prefunding of checks, complete with an individual's name and address, over the telephone under its prepaid card program. And Prepaid Card Holdings Inc., Las Vegas, boasts one of its prepaid cards lacks many fees often associated prepaid cards if used for recurring transactions, like payroll and government benefits.

Even Wal-Mart offers a prepaid card!

As with more familiar credit cards and debit cards, prepaid cards may let you access cash at merchant locations, ATMs, telephones or online. They may be privately issued, or issued through Visa, MasterCard, American Express or Discover.

While prepaid cards may be getting cheaper and provide less hassle than bank accounts and check-cashing services, they also can cause problems.

"We hope that there will be a day when all these cards will have the same (federal) protection (as other types of payment cards)," said Michelle Jun, staff attorney in San Francisco for Consumers Union. "As of now, they do not."

A recent FDIC Financial Institution Letter clarified that FDIC insurance might cover money put in prepaid card accounts if an issuing FDIC-insured institution fails. Nevertheless, whether FDIC conditions for federal insurance are met may not be evident to prepaid card users. So you need to ask.

Fees can frustrate you

You also should watch for less obvious fees tacked onto prepaid cards. Examine fees to the recipient for accessing funds. And if you're using a card outside the country, you'll want to compare currency exchange rates.

"Usually there's an issuing fee," Jun says. "Some allow you to pay a bill online, but there's a fee attached." There also may be interest.

Think you can't be charged overdraft fees on a card that's prepaid? Think again. Although certain issuers warn that you can be assessed overdraft charges, those fees, Jun warns, are not always disclosed.

Beware of debit blocking, which may prevent your prepaid card from accessing as much money as you think. Use your prepaid card at the gas pump, car rental agency or hotel, and funds may be frozen for, say, three to 10 days.

Prepaid phone cards let you pay in advance to buy local or long-distance calling time. The amount you buy depends on the rate-per-minute charged.

But telephone cards, says Mark E. Budnitz, professor at Georgia State University School of Law, Atlanta, have triggered complaints.

"There's a lot of misleading information about what the cost will be," Budnitz says.

Often, you can be charged a significantly higher rate if you exceed a specific threshold. Callers to customer service complain they can't get information, or can't reach customer service.

The Federal Trade Commission suggests asking a retailer who sells phone cards if he or she stands behind the card if it fails to deliver the minutes advertised.

Check the card's package for domestic and international rates.

Look for disclosures about surcharges, maintenance fees and special fees for making calls from a pay phone, or using a toll-free access number. Very low rates, particularly for international calls, may signal the card won't deliver the number of advertised minutes.

On any prepaid card, check for expiration dates and a toll-free customer service number.

Paid by prepaid

A prepaid payroll card falls under the protection of the regulation implementing the federal Electronic Fund Transfer Act, Budnitz notes. If you have an unauthorized transaction and complain, you may be entitled to the reimbursement of any missing funds within 10 business days while your complaint is investigated. There also are disclosure rules.

"The problem is there are several areas where that regulation does not apply," Budnitz says.

Some cards are structured so that only the first two or three debits will be free. So employers considering these programs must clarify how many free withdrawals are permitted per pay period.

Plus, Budnitz says, you need to know where the card may withdraw funds. "If you can use it at an ATM, must it be at an ATM owned by a particular bank that issues the cards?"

Sometimes, there can be a delay between when you think it's payday, and when money actually is in your prepaid card account and available for withdrawal.

Other services, like gift cards, may be bundled with a payroll card.

Not only can this become very confusing, Budnitz warns, but it also could cloud your legal protection in the event of a problem. Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Quick Steps to Financial Stability" (Que/Penguin). You can contact them at www.moneycouple.com .