Consumer Reports Rates Prepaid Cards For Value, Convenience, Safety and Disclosure of Fees
Consumer Reports | 7/30/2013, 6 a.m.
Other findings of the Consumer Reports investigation include:
Prepaid cards offered by some of the big banks are not necessarily cheaper than other prepaid cards and may be less attractive to consumers because they don’t provide the option of making both electronic payments and payment by paper check.
A number of prepaid card issuers offer convenient features such as the ability to make payments electronically or by paper check, manage accounts with tools like text message alerts, and mobile remote deposit capture, which enables consumers to load money onto their card by taking a photo of a check. However, some prepaid cards fail to provide clear explanations of how to use these features and the fees that may be charged for them.
While all 26 prepaid cards reviewed claim to offer some form of protection for consumers whose funds may be lost due to fraud or merchant mistakes, these policies are often vaguely defined. Card issuers provide these protections voluntarily and can revoke them at any time. By contrast, traditional debit cards linked to checking accounts are covered by mandatory legal protections that limit the funds that consumers may lose in these cases.
Fee information is often hard to find and difficult to understand. This problem is compounded by the lack of consistency with fee names and descriptions from card to card, which makes it hard for consumers to compare fees and costs.
"It’s time for consumer protections to catch up with this fast growing new way to pay," said Christina Tetreault, staff attorney for Consumers Union. "The CFPB should rein in abusive prepaid card practices and require clear disclosure of all fees. Prepaid cards should come with guaranteed federal safeguards that protect consumers from losing their money because of fraud or merchant mistakes."
If you are considering a prepaid card, Consumer Reports recommends that you do your best to figure out what fees will be charged and to think about how you plan on using the card. Make sure the card has all of the features you need and is offered at a cost that fits your budget. Avoid using prepaid cards to buy gas at the pump or to pay for hotels or rental cards because these kinds of transactions can trigger extra holds on your prepaid card funds. Finally, consider using a regular checking account if you can since it will come with a traditional debit card and stronger legal safeguards to protect you from losing your money from fraud or merchant mistakes. For more detailed advice, see Consumer Tips For using Prepaid Cards.