Dangers of New Pre-Paid Debit Cards

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Today, the availability of pre-paid credit cards is at an all-time high. Getting a prepaid credit card is as easy as walking into a department store and sifting through all of the cards and picking an amount that varies from $25.00 to even $500.00. The same is true for pre-paid gift cards and phone cards. This has now put consumers at great financial risk.

Lenders are now promoting these cards as “safer than cash,’ ‘no credit check,’ and ‘no bank account required.’ All consumers have to do is pay for the card and they are ready to be used. This makes them very appealing to consumers who do not have a good credit rating which makes these cards a fast-growing industry. However, with this great ease of getting a card comes a great deal of financial risk to the consumer.

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New Pre-Paid Debit Cards include a lot of very fine print with details that should make consumers vary wary of using them. The fee structures are very poor and there are hidden fees listed in the fine print. For instance, there can be such fees as: $4 for monthly maintenance, 50 cents for each purchase, $1.75 for each ATM withdrawal, $2 for inactivity after 60 days, $1 for each ATM balance inquiry, $1 for a call to customer service, as well as reloading fees which can be $3.00 to $4.00 each time. These fees can really add up.

Pre-paid debit cards are now being used by around 80 million people who have no access to bank accounts so these cards are being used like a bank account for such things as paying bills and buying day-to-day items. They are basically using these cards to manage household finances. It is an extremely expensive way to bank as the fees can accumulate very quickly.

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Because it is a relatively new industry, prepaid cards come with poor standards and protections. Prepaid cards are not regulated by the Fair Credit Billing Act, which covers credit card use, or Electronic Funds Transfer Act, which covers debit card transactions. This means they are not protected from fraudulent use of the cards. As well, people who use pre-paid cards do not have the assurance that they would recover their money in the event of a bank failure.

The prepaid debit card situation is murky because people do not put money into a personal bank account. They deposit the money into a pooled account owned by the card company. Paying attention to the fine print is the only way to know whether to expect usage charges and the amount of the charges. It makes better sense to acquire a low fee bank account. If parents need to give their kids something for emergencies, a secure credit card or other options should be safer. There is a price tag that comes with using a pre-paid debit card so it is important to be informed about the details of these cards so you can make a more financially prudent choice.

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