On the surface, prepaid debit cards seem like a viable alternative to bank accounts and credit cards. Millions of Americans have turned to prepaid debit cards as a cash-free alternative.The caveat? Be prepared for hidden fees.
Many cards carry dozens of hidden fees. The additional costs can nickel and dime consumers with larger-than-usual ATM withdrawal and customer service fees as well as penalties for exceeding the prepaid balance.
“The fact is you have some programs out there charging fees that are too high,” says Green Dot founder Steve Streit. His prepaid card company decided to drop their card price from $9.95 to $4.95, monthly fees were also extinguished if the consumer used the card at least 30 times in a month, or deposited at least $1,000.
Green Dot's prepaid slogan? "No Credit Check. Safer Than Cash. No Bank Account Needed."
Prepaid cards have yet to go through regulatory and congressional scrutiny that debit and credit cards have already faced, because prepaid cards are a relatively new industry. This leads to problems of hidden fees, until the problem is resolved.
Visa, Mastercard and Discover receive 5 to 20 cents each time a prepaid card is swiped. Among the millions of prepaid card users, the potential revenue is off the charts.
Ten years ago, these cards were not the norm. In fact, they didn't exist.
However, as internet shopping increased, an untapped market was seen. Over the years many companies added prepaid cards, such as H&R Block, MetaBank, Comdata, Wells Fargo, Citi and Comerica to name a few. Celebrities ranging from Usher to Carmen Electra have endorsed prepaid cards as well.
The cards have become the norm for those who want to shop but have bad credit or don't trust banks. Director of national priorities for Consumer Action says, "To me, it's a terrible thing to give people their pay on a card that has fees on it."
Luckily for prepaid card users, fees are declining. Walmart has recently whittled down the fees on the MoneyCard, and NetSpend, Walmart, and Greendot are all cheaper than a checking account according to a study by Bretton Woods, a bank advisory firm.
Just be sure to read the fine print before signing up for a prepaid card.
