June 22nd, 2012

Prepaid Debit Cards, Fees and Impending Regulations

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prepaid card

Credit cards give consumers enough to think about when it comes to what pieces of plastic they should carry. Now prepaid debit cards have entered the mix as financial institutions try to maintain a revenue stream from debit card fees that got squeezed by the Dodd-Frank Act.

So it shouldn’t be a surprise that prepaid debit cards come with fees. But a majority of U.S. adults don’t know about these fees. According to a CouponCabin survey, 58 percent of U.S. adults are not aware of prepaid debit card fees. Here’s a look at what these cards and their fees could mean to you.

Prepaid versus checking

It’s disconcerting how little consumers know about the fees for prepaid debit cards. What’s worse is how difficult it is to avoid these fees, according to a NerdWallet analysis. Overall, NerdWallet found 42 types of fees for prepaid cards and 23 are for commonly used services, such as withdrawing money and putting money on the card.

Checking accounts seldom hit consumers with fees for basic services. It’s things like cashier’s checks and wiring money that costs checking account holders extra. Therefore if you’re eligible for a checking account, a prepaid card is probably not a necessity.

The upside

Consumers who are unable to get a standard checking account see the appeal of prepaid cards. CouponCabin’s survey shed light on what consumers with a positive opinion of prepaid cards liked about them. In addition to their accessibility—meaning you don’t need to meet any requirements to open an account—consumers noted that prepaid cards are:

  • Safer than cash
  • Budgeting tools since consumers decide how much to load on the card
  • A debt-free alternative to credit cards

Not every consumer has a positive outlook on these cards though.

The downside

Respondents to CouponCabin’s survey that had a negative view of prepaid debit cards disliked:

  • The inability to contribute to credit history
  • Excessive fees
  • Security compared to bank-issued debit card

That second concern, excessive fees, is getting the attention of certain politicians.

Regulations in the works

The Consumer Financial Protection Bureau held a hearing in May in North Carolina. The bureau doesn’t even plan to draft regulations until early 2013, but it wanted to hear from consumer advocates and representatives of the prepaid card industry.

On a smaller scale, a New Jersey Assembly committee released a bill that would limit fees on prepaid debit cards and require financial institutions to disclose information to customers about prepaid debit accounts.

What is your opinion of prepaid debit cards? How could one be beneficial or harmful to your finances?

Christian Losciale is a staff writer for Smart Military Money, a personal finance site dedicated to educating veterans, service members and their spouses. Follow Christian and his work on Google+.

3 Comments

  1. I have Netspend and I love it. They have low fees plus they give you a ten dollar cushion if you upgrade to Premier along with a savings account. Right now they are giving people $20 bonus for signing up….yournetspend.com

    delb at 6:53 pm on June 24, 2012
  2. I was actually just reading that post from NerdWallet. Great stuff. It’s amazing how financial companies try to rip consumers off.

    Clint Lenard at 2:07 pm on August 21, 2012
  3. I was given a Rapid! paycard as a gift card. Rapid! was taking fees for all types of transactions. I had plan on purchasing a gift card at a Beauty salon but was charged a 20% surcharge right out the gate.

    Gail at 4:34 pm on September 13, 2012

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