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Sometimes credit cards are used kind of like collateral... when you stay at a hotel, for example... you give the hotel a credit card for 'incidentals', and it is basically being used as a guarantee that you will pay for things you are going to use. Car rentals are the same.

In a sense, it is your credit card limit is basically your credit card company saying "yeah, this person is good for x amount of money". That isn't much for a prepaid card.

Because then they could no longer collect money from people that forget that they're being automatically charged every month.

Credit cards are sometimes used as a proxy for identity (via billing address) or age verification (most under-13s don't have ready access to one).

Maybe the cards are being loaded with illicitly acquired funds

That's a valid risk, but then why single out prepaid cards for this given the rampancy of credit card fraud and theft?

Edit:

An interesting answer elsewhere in the thread: https://news.ycombinator.com/item?id=20465459