Seems as though there are new offers for prepaid cards being unveiled on a daily basis. Make no mistake, these financial products are here to stay and fortunately, the costs associated with using these financial products are dropping, too. Consumer Reports just released new data on 26 of the biggest names in prepaid debit cards. There were a few surprises, but we weren’t surprised to learn BlueBird, the American Express and Wal Mart co-branded card, ranked number one. Here’s more of what the study uncovered.
The Consumer Reports rating methodology was based on four specific categories. Those include fees, clarity in the terms and conditions of the offers, convenience and overall value.
Also, keep in mind a few of the other truths: the number of prepaid debit cards that Americans now carry and use has tripled in just four years and it’s believed that by 2015, prepaid debit card usage will grow by an impressive 120 percent. And if you’re thinking these are products used by the unbanked, you might want to rethink that. The fact is, these aren’t just for lower income families as evidenced by the growth of middle incomers who are opting for the ease and convenience offered by these products.
One of the more interesting revelations included evidence that bank prepaid cards are not necessarily cheaper than other prepaid cards. Many times, the more common functions such as auto bill pay are either more complicated or non-existent. Plus, today’s prepaid debit cards offer message alerts, powerful credit management tools and even mobile banking. This is all great news for those who carry prepaid cards; however, Consumer Reports found that some prepaid cards had vaguely defined terms and conditions. Most provide consumer protections, but trying to understand the guidelines can be a bit difficult. Not only that, but those perks and conditions are opt for changes without warning. Remember, prepaid cards aren’t held to the same degree of compliance as their traditional counterparts such as banks and credit card companies.
Consumer Reports also discovered that uncovering the fee information was sometimes challenging. Further, the same fees would often show up in the details with several different fee names. It certainly increased the consumer frustration factor for those that lacked clarity. It also made it difficult to compare the different offers.
Consumer protections for prepaid cards are not yet on par with debit cards linked to bank accounts,
Consumer Reports says.
Without them, consumers, who rely on prepaid cards to purchase everyday necessities for important individual and household uses, are left vulnerable to losing these valuable funds.
Note: we have and always will strongly encourage our readers to carefully review the terms and conditions before agreeing to any kind of financial contract.
Earlier this year, the Consumer Financial Protection Bureau, which oversees the prepaid market, announced it would begin putting into placed new rules for how the prepaid cards are marketed to consumers. It also reports that one half of Gen Y consumers are carrying at least one prepaid debit card, is the fastest growing area within the American financial industry and reveals much about the mindset of today’s consumers.
A few more findings in the Consumer Reports include:
- There is a growing number of Americans who actually prefer prepaid cards over traditional bank accounts, especially now that the fees are coming down.
- Consumer use of credit cards has fallen, while use of debit and prepaid cards has increased.
- Prepaid debit cards are quickly outpacing other “non-cash payment options”
- The Federal Reserve Bank of Boston estimates that one in three American households used some form of prepaid card in 2009.
- Americans used prepaid cards to the tune of $77 billion in 2012 over 1.3 billion transactions.
- By the end of 2014, a projected $167 billion will be loaded into countless prepaid accounts.
- When the federal government required those receiving social security or supplemental security to have an account that would allow direct deposits, the number of new prepaid cards mushroomed, as many opted for this over their bank accounts.
The Peculiar Trends in Prepaid Cards
There was another finding Consumer Reports explored. After analyzing data from Meta Payment Systems, it was discovered that many consumers opened the accounts, used their prepaid cards for less than 50 purchases and then closed or allowed the accounts to go dormant after about six months. This was especially true during tax season. Because there are no requirements that a prepaid account must be officially closed, it’s an easy way to incorporate the cards (or numerous cards) when a consumer’s needs change.
Best Prepaid Cards
The five highest ranked prepaid debit cards, according to Consumer Reports, are:
- American Express and Wal Mart co-branded Bluebird with direct deposit came in first, with 80 out of 100 points.
- H&R Block Emerald Prepaid MasterCard came in second and earned 78 out of 100 points.
- Green Dot Card came in third with 75 out of 100 points.
Rounding out the top five were the Suze Orman Approved Prepaid MasterCard, both with and without direct deposit.
Meanwhile, the bottom five debit cards were AccountNow Gold Visa Prepaid Card, Reach Visa Prepaid Card, U.S. Bank Convenient Cash Card, Redpack Mi Promesa Prepaid MasterCard and American Express for Target.
For those who might have avoided prepaid cards, the numbers show that there are a few ways to avoid those fees. The report made it a point to stress all fee avoidance is accomplished by careful planning by consumers, but that the ways to meet that objective are growing. It used AccountNow debit cards as an example. Two of those fees specifically mentioned were the retail reload fees and the out of network ATM fees. More than two thirds of the cards compared in the report allow for free ATM fees, avoiding surcharge fees and waivers for minimum balances.
Unfortunately, there remain many prepaid cards that have high fees, including activation fees (one had a $20 activation fee) and cash withdrawals at ATMs. It should also be noted that most of the prepaid cards come with FDIC insurance coverage, even those with high fees. Another truth about debit cards is that there are no requirements for fraud protection, though a few did offer limited protections.
Moving forward, the goals to increase the value of these offers should include some method of limiting fees while also requiring for clear terms and conditions before the consumer goes through the process of signing up. Perhaps those could be placed on a prepaid card’s home page. All of the cards in the report have websites. Consumer Reports and CFPB have stated that inactivity fees should be eliminated in their entirety. Overdraft fees, while most don’t have overdraft fees, those that do should consider eliminating them.
Once the Consumer Financial Protection Bureau puts the new compliance rules into place, consumers should begin to see even better options when it comes to choosing these cards. It will also level the playing field for banks and issuers, though consumers have the power to avoid those with exorbitant fees and opt for those with lower fee structures.
Do you use a prepaid debit card, either alone or along with your traditional bank account? Share your thoughts with us.