Prepaid Cards Come With High Fees and Little Protection, Report

Prepaid Cards Come With High Fees and Little Protection, Report

Prepaid Cards Come With High Fees and Little Protection, Report

Consumers Union, the nonprofit organization responsible for publishing Consumer Reports, has released a new report warning of the dangers associated with the use of prepaid cards.  The report found that hidden fees and weak consumer protection were two of the main downsides to using the prepaid cards over traditional debit or credit cards.

The reloadable prepaid cards can be used in many of the same ways that traditional cards are, however the report found that they have become a sort of banking system for many low-income people.  Consumers Union stated that using the cards as an everyday banking system may cost users an enormous amount in fees, as well as leaving them at high-risk of losing all the money on the card should the card be lost or stolen.

The cards, which usually carry a Visa or MasterCard logo, were estimated to have been used in 312 million transactions in 2006 totaling $13.3 billion in transactions.  The report said the numbers are likely much higher now as the industry has pursued millions of customers who do not use banks. 

Consumers Union looked at the terms and conditions of 19 different prepaid cards.  What they found was that many of the cards featured various hidden fees, as well as terms that put consumers at risk.  The study found that over half of the cards required an activation fee ranging from anywhere between $3 up to $39.95.  Monthly fees were another hidden gem the group found, with all but three of the cards charging monthly fees of anywhere from $2.95 to $9.95 per month.  In addition to those fees, consumers also faced an ATM withdrawal fee from each of the cards reviewed.  Fees for withdrawals ranged from $.99 to $2.50 plus any fee the ATM machine charges.  Fees continued to be found for items such as balance inquiries, receiving a paper statement, customer service fees, a fee if the card has not been used in 90 days, and overdraft fees.

In addition to the high number of fees, the review also found that in many instances if the consumer’s card is lost or stolen, they are out the money left on the card.

Consumers Union concluded that unless it is absolutely necessary to have a prepaid card, a traditional debit or credit card provides consumers with much better protection and saves them a significant amount of money in fees.

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