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Connecting Prepaid Cards and Retail Loans: Innovative Practical Solution or Confusing Legal Combination? Implications of the EU Financial Services Law from an Estonian Perspective

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For more content, see Review of Socialist Law.

A prepaid card is a fairly new financial product that is part of the global innovations in financial services of the last 10 years. Some non-bank financing companies (e.g., SMS loan providers) have further advanced this product by linking prepaid cards to retail loans, which entails more developed transaction schemes and technical solutions. This combination is seen as a practical solution that broadens the customer base of loan providers and improves consumer convenience. However, from a legal point of view, practicality often entails complexity.

This article seeks to address some of the major legal features and positions with regard to the prepaid card and its combination with a retail loan. In doing so, it will review the position of a prepaid card and the status of the issuer within the existing legal framework in Estonia. It also seeks to explain how the idea of linking prepaid cards with retail loans is being carried in practical terms through a complex network of agreements. We shall also discuss treating a prepaid card as an instrument of electronic money or some other form of payment, and examine the functions and licensing of an issuer. In anticipating potential discussion of the above topics from the perspective of a member state, this article compares the principles of EU law and the legal framework of Estonia. While we shall briefly deal with certain aspects of consumer protection, the focus of the article is on examining the relevant financial services legislation.


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