For consumers without a checking account, a prepaid, reloadable debit card can be a handy thing. But be careful. New research found seven out of 10 of these products fail to fully disclose fees to consumers.
The report, by CreditCards.com, reviewed the disclosures on the packaging of 10 popular prepaid cards found at major retailers, as well as payday lenders.
The study found American Express Bluebird, American Express Serve, and Green Dot Visa Gold were the only three to properly disclose fees, under guidelines established by the Consumer Financial Protection Bureau (CFPB).
At the opposite end of the scale, the study authors say payday lenders, the ACE Elite card, and Speedy Cash left consumers in the dark the most by not disclosing fees. The study says these cards came with no fee disclosures unless the consumer asked about them.
"What's concerning is that many consumers are turning to reloadable prepaid debit cards to avoid overdraft fees related to checking accounts," said Matt Schulz, senior industry analyst at CreditCards.com. "However, due to lack of disclosure, consumers are being charged with excessive fees for infractions they didn't even know existed."
Prepaid cards have become even more popular since the financial crisis. They work much like bank accounts – consumers can withdraw money from ATMs, make purchases, pay bills online, and reload the cards with direct deposits.
But just like bank accounts, these cards carry fees. In some cases, the fees might be reasonable – in others they might seem excessive. A consumer can benefit if the highest fees are for things he or she doesn't use. But unless a consumer is aware of what the fees are, that decision is hard to make.
The CreditCards.com study looked at some hypothetical examples. If someone with a Green Dot Visa Gold made 20 purchases a month, four ATM withdrawals, and four cash reloads, the fees could be as much as $35.75.
But if you knew how the fees are structured, that total could be slashed to $5.95, the amount of the monthly service fee. If you were to direct deposit a paycheck, for example, even that monthly service charge could be eliminated.
According to the CFPB, there should be 13 fees disclosed on the packaging of prepaid debit cards. They include monthly service charge, ATM non-network fee, cash reload fee, ATM balance inquiry, inactivity fee, additional card or lost card fee, foreign transaction fee, international ATM fee, paper statement fee, liquidation check fee, declined transaction fee, stop payment fee, and bill payment fee.