debit cards are becoming more affordable with increased
competition resulting in fewer fees, but the booming
market still lacks critical consumer protections,
according to a new study by The Pew Charitable Trusts.
consumers loaded some $64 billion onto prepaid debit
cards in 2012, more than double the amount in 2009, Pew
said. The cards are available at many checkout counters
and at a number of big banks.
new report, "Consumers Continue to Load Up on
Prepaid Cards," looked at changes since the
Washington, D.C.-based nonprofit research group released
its first study on the topic two years ago.
reloadable cards — designed mainly for consumers who
don’t have bank accounts — can be used wherever
traditional debit cards are accepted: at the register,
to make purchases online or to withdraw cash at ATMs.
Many people use them while traveling instead of carrying
cash and as a budgeting tool to limit how much they or
their children spend.
the cards have zoomed in popularity, issuers have been
criticized for blindsiding users with a bevy of fees.
Costs vary but can include activation fees and monthly
fees, plus ATM, transaction, reload, balance inquiry,
statement and dormancy fees, among others.
the industry has improved, it remains largely
unregulated. That gives consumers few protections from
faulty disclosures and leaves it up to the issuer
whether to cover losses from fraudulent transactions,
prepaid cards offer many benefits to consumers, they are
a relatively new product with little oversight,"
said Susan Weinstock, director of Pew’s safe checking
project. "A lack of protections undermines prepaid
cards as a safe and easy way to manage money."
of the chief problems, the report found, is that prepaid
cards are not covered by the federal laws that protect
holders of traditional debit cards tied to checking
accounts from loss of funds and liability for
prepaid card issuers offer some protections but the
coverage is voluntary, can include loopholes and can be
revoked without notice, Weinstock said during a
conference call with reporters Thursday.
problem is that prepaid card disclosures involving fees
and terms often are incomplete, hard to understand and
hard to find, she said.
federal Consumer Financial Protection Bureau is set to
release proposed rules for regulating the prepaid debit
card industry by May, she said.
the time of Pew’s first report in September 2012, the
prepaid market was almost exclusively the domain of
nonbank issuers such as Green Dot Corp., NetSpend,
H&R Block and AccountNow. The latest report found 10
big banks were offering prepaid cards, although they
still accounted for a small portion of the overall
Pew found that prepaid cards offered by major banks were
significantly cheaper than nonbank cards because they
were subject to fewer fees, Weinstock said. Often they
were a better deal than getting a checking account from
the same bank.
laid out a number of policy recommendations for making
prepaid cards better for consumers, including mandating
protections against liability for unauthorized
transactions; requiring that funds be federally insured
in the event of a bank failure; mandating uniform,
easy-to-understand disclosures, and prohibiting issuers
from allowing overdrafts and assessing overdraft fees.