Consumer Reports Rates Prepaid Cards For Value, Convenience, Safety and Disclosure of Fees
Consumer Reports | 7/30/2013, 6 a.m.
YONKERS, N.Y. — For the first time ever, Consumer Reports has ranked the best and worst prepaid cards based on value, convenience, safety, and how well fees are disclosed to consumers. The Consumer Reports investigation found that prepaid card fees have dropped and that many cards offer some of the same features that come with bank accounts. But fee information is often hard to find and prepaid cards still lack the same safeguards guaranteed by law that consumers get with traditional debit cards.
Prepaid cards represent the fastest growing segment of the payments industry and can be used to pay bills, make purchases, or withdraw cash from ATMs. During 2012, prepaid cards were used 1.6 billion times for $77 billion worth of transactions. Prepaid cards look like traditional debit cards with payment logos such as Visa, American Express, or MasterCard on the front of the card.
Last year, the Consumer Financial Protection Bureau (CFPB) announced that it was beginning to consider new rules to protect consumers who rely on prepaid cards. Consumers Union, the policy and advocacy arm of Consumer Reports, has urged the CFPB to limit unfair prepaid card practices, improve fee disclosure, and require card issuers to abide by the same mandatory legal protections that cover debit cards linked to bank accounts.
"Not all prepaid cards are created equal," said Michelle Jun, senior attorney with Consumers Union. "The good news is that prepaid card fees have come down and a number of cards offer many of the same features you get with a bank account. But consumers can still end up paying more than they bargain for because fees are often poorly disclosed and can pile up quickly."
Consumer Reports reviewed 26 different prepaid cards and evaluated them based on four different factors: value (how much they cost to use); convenience (availability of in-network ATMs, bill pay features, and how widely the card network brand is accepted); safety (whether funds are protected with FDIC deposit insurance); and how well fees are disclosed.
The best cards reviewed by Consumer Reports scored well in each of these categories. These cards have fewer fees and make it easier for consumers to avoid them; carry FDIC insurance for each cardholder; offer features comparable to traditional checking accounts; and do a better job of disclosing fees. The top five cards reviewed by Consumer Reports are the Bluebird card with direct deposit, H&R Block Emerald Card, Green Dot Bank Issued Prepaid card, Approved card with direct deposit, and the Approved Card without direct deposit.
The worst prepaid cards reviewed by Consumer Reports came up short in at least one, and usually multiple categories. All of the worst cards have high, unavoidable fees, including activation and monthly fees. Moreover, consumers are likely to have a difficult time finding and understanding those fees. Among the cards that scored the worst were the Account Now Prepaid Gold Visa (Meta Bank), The REACH Card from Tom Joyner, Redpack Mi Promesa Prepaid MasterCard, and the American Express for Target prepaid card.