One might say prepaid debit cards come in all shapes and sizes, considering the various costs to obtain them and the fees to use them.
It creates a confusing dynamic for low-income, unbanked or underbanked consumers who rely on prepaid cards, causing a need for new guidelines or some way to “comparison shop” for a card to fit an individual’s needs, according to a consumer advocate group study.
Until all prepaid debit cards are safe, affordable and fully functional, they will not replace a regular checking account for low-income consumers, Adam Rust, director of research at Reinvestment Partners, tells PaymentsSource.
Some prepaid cards carry high fees, meaning consumers could pay more than $200 a year to use a card they rely on to conduct everyday banking, says Rust, who wrote the study report for the Durham, N.C.- based consumer advocate group for low-wealth communities.
“I’m a fan of the prepaid card because it can be a good alternative,” Rust says. However, consumers need an entity, whether it is the Consumer Financial Protection Bureau or another federal agency, to disseminate information regarding prepaid card fees and present them in a way that allows users to more easily judge which card works best for them, he suggests.
Prepaid card providers engage in “if then” pricing with the numerous variables on costs and fees based on transaction volume, number of up-loads, ATM use, or accepting direct deposits from employers, Rust says.
“The big problem is that it is hard to compare cards because there is no general disclosure form,” Rust contends. If a consumer buys a dishwasher, he can compare prices and features on 20 different models, but if he obtains a prepaid card he has to do extensive research to compare products, he adds.
Unfortunately, the prepaid card industry carries a “buyer be aware” tag for the time being, meaning the consumer has the responsibility to research the products, Edward Lawrence, analyst and director at Auriemma Consulting Group, tells PaymentsSource.
“With a lot of hunting and pecking, the consumer can probably find the disclosure information and the different rates for each card,” Lawrence says. But it would be beneficial to prepaid card users to have a tool to help them “window shop” a little easier, he adds.
As part of the Reinvestment Partners report, Rust crafted just such a tool–a prepaid card pricing comparison chart called “cardSTAR.” The report proposes a uniformed standard for prepaid cards in which the card packaging would include a QR code for smartphone access to the pricing chart.
“Many consumers in the unbanked market have smartphones, so I don’t think that technology would be a deterrent,” Rust says.
More importantly, a consumer-protection agency would need to oversee prepaid card guidelines for any coding system or comparison charts to be effective, Rust contends.
Lawrence doesn’t foresee major prepaid card companies making it easier for consumers to compare fees.
“You can’t expect GreenDot to let the consumer know what UniRush or NetSpend is offering compared to their product,” Lawrence says.
Another prepaid debit card survey echoed the general concerns of the Reinvestment Partners study, with some slightly different twists.
Pew Health Group issued an April report on prepaid cards in which focus group participants indicated less concern about the dollar amount of card fees but expressed displeasure with the “number of fees associated with every aspect of the cards.”
Participants said they prefer the prepaid card fees to the alternative of paying $35 as an overdraft charge on a checking account.
In addition, the Pew focus groups called for prepaid cards to include features such as a savings account option, direct deposit from employers, or a method to establish a credit history or repair damaged credit.
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