Prepaid Debit Card Fees Are Wildly Inconsistent, Not Always Disclosed Up Front

The Federal Reserve says that prepaid debit cards are the fastest-growing non-cash way to pay. All that competition to get customers has led to an overall decrease in the fees associated with these cards, but a new study finds the price points for these fees are all over the place, and that companies are not always up front about disclosing them.

Our pals at Consumer Reports looked at 16 different prepaid cards and found a wide variety of fees, including:

Activation Fees: 9 of the 16 cards charged a fee to activate the card. Activation fees ranged from a low of $3 for the Walmart Money Card, nFinanSe card, and the Approved Card to $14.95 for some select RushCards. Some prepaid card issuers like NetSpend and Western Union are no longer charging activation fees.

Monthly Fees: 13 of the 16 cards charged monthly fees, ranging from $2.95 for the nFinanSe card to $9.95 for the Vision Premier card and the Univision card. Some prepaid cards, like the Bank Freedom card, will waive the monthly fee if the user makes a minimum deposit each month. Some cards, like the RushCard, give you the option of choosing the monthly fee plan or a per transaction fee plan.

Fee to Get Cash: 14 cards charged a fee to withdraw cash from a domestic ATM, ranging from $2 to $2.50. This does not include the additional charge imposed by ATM operators. Consumers using Green Dot and Univision prepaid cards can get free access to Allpoint network ATMs, located in numerous retail locations. Otherwise they pay a fee to use a non-network ATM

Fees to Find Out Your Balance: 12 cards imposed a fee for checking balances at ATMs, ranging from $.45 to $1 per inquiry. Again, the ATM operator may charge an additional fee. Many prepaid card issuers provide alternative methods to check balances for free, such as by email, text message, or phone.

Fees to Get a Paper Statement: 7 cards charged customers a fee to get a monthly paper statement detailing their transactions. Paper statement fees ranged from $1 for the Rush Card to $5.95 for the NetSpend Visa card. Many of the prepaid cards provide free access to monthly statements online or through email or text alerts.

Fees For Customer Service: Some cards enable all consumers to speak to a customer service representative for free. Other prepaid cards provide free customer service if the customer sets up direct deposit or only makes a limited number of calls per month. A few prepaid cards charge customers each time they make a call to customer service, ranging from $.50 per call for the NetSpend Visa card to $2.99 per call for the UPSide card.

Fees for Inactivity: 5 cards charged fees when cards are not used after a certain period of time. These dormancy fees range from $2.50 per month for the H&R Block Emerald Card (after three months of inactivity) and the Western Union MoneyWise card (after 13 months) to $5.95 per month for the NetSpend Visa card (after 90 days of inactivity).

Making it even more difficult to know what fees you’re going to face when you get one of these cards, CR says that only a few of the fees charged by card issuers are openly available to consumers before they purchase a card at a store. Some prepaid card issuers provide direct links to fee schedules on their web sites, but others make finding this information more difficult.

And if you think that your prepaid debit card offers the same protection as a standard debit card, you’d be mistaken.

For example, if someone with a standard debit card contacts a bank about a lost or stolen card within two business days, liability is limited up to $50 (or up to $500 if the consumer makes the report after two business days). Prepaid card users are not guaranteed these protections since the contract terms could be revised or rescinded at any time.

In addition, prepaid card users may not have the same FDIC guarantee as bank account holders that they’ll be able to recover all of their money in the event of a bank failure. Even if the prepaid card web site displays the familiar FDIC logo, it’s not always clear whether the cardholder will be able to recover the full amount on the card or a portion shared with other prepaid cardholders.

“Now that so many households are relying on prepaid cards to manage their finances, it’s time for the Consumer Financial Protection Bureau to take action to protect consumers,” said Michelle Jun, senior attorney for Consumers Union. “We need new rules that require fees to be disclosed in a simple format so consumers know the costs before they purchase a card. Prepaid cards should get the same strong protections as debit cards so consumers have the peace of mind that their money is safe if their card is lost or stolen.”

You can check out a PDF of the entire report here.

Comments

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  1. Important Business Man (Formerly Will Print T-shirts For Food) says:

    I make my own fees at home. I charge myself $20 every time I spend frivolously. I deposit it in my savings account.

    • AlteredBeast (blaming the OP one article at a time.) says:

      I like this idea. Every time I buy something stupid (which is often), I charge myself a premium for doing so.

      This is better than any Consumierst tip I’ve seen in awhile.

    • xl22k says:

      That is the best advice that’s been on Consumerist in a long time……I think I may start doing this.

    • Lyn Torden says:

      Is there a bank that still offers plain old savings accounts? Oh wait! I bet you make your own savings accounts at home, too. :-)

      • Important Business Man (Formerly Will Print T-shirts For Food) says:

        Nope… American Express Personal Savings…. they seem to have a good enough interest rate to keep my business. Not that I’m satisfied with the rate though….

        • Important Business Man (Formerly Will Print T-shirts For Food) says:

          In combination with my Perkstreet checking account, I’d say I’m #winning in the banking industry for poor people.

        • Lyn Torden says:

          Hmm. Thanks for the tip.

  2. Lyn Torden says:

    Overdraft fees on a debit card? WTF! This is why I would have wanted to use a prepaid debit card, so my liability is strictly limited to the cash I put in (e.g. if a charge is greater than the card has money to pay for, it will be declined).

    I consider this to be fraud and deceptive marketing. They should not be allowed to call it a prepaid debit card.

    I guess I will now have to hire homeless people off the streets to buy and activate prepaid debit cards for me. Oh wait, they already do that.

  3. corridor7f says:

    I find these hilarious – they look all serious and official, but have as much clout as a gift certificates.

  4. Lyn Torden says:

    In the PDF on page 24 there is a section of proposed additions to EFTA section 908 that supposedly would provide new consumer protections. But why does it limit this to transactions made within 100 miles of the provided home address? How does this work out for internet transactions? I think there should be no such limitation. A card bought in the USA by anyone (even foreign visitors) should be usable anywhere in the USA, and even online from any USA based retailer, and have all the protections.

    Also, there is needed a clause that the card holder is never liable for more than the amount placed on the card. if they choose to pay a merchant when the card does not have sufficient funds, then the issuing bank pays the difference without being allowed to bill it, or report it anywhere as a debt, or sell any such debt. Better to just decline charges in those cases.

  5. AllanG54 says:

    Why anybody who has a credit card would ever use a debit card is beyond me. You have a float, sometimes nearly 45 days, to use someone else’s money. Why use your own immediately. Even if you didn’t have a credit card just pay cash and why bother with the fees.

    • Kevolito says:

      The answer to that is people are stupid and they’re afraid of credit… Seriously, there are tons of people that are so scared and unaware of how credit works that it’s sad. They think that if they make a large purchase on a credit card then they might not be able to pay it off (even though they usually pay via debit card with the full amount in their bank account) or that it will magically charge them some sort of crazy fee. On top of that, these people are shocked when they’re told that their credit isn’t good enough for something… their response is “but I’ve had a credit card for two years!” as though just having it builds your credit.

  6. VicMatson says:

    American Express! For the prepay credit card bomb!

    • djdanska says:

      I have one but constantly run into the “Don’t accept amex” problem a lot when shopping locally.

  7. djdanska says:

    I’ve used netspend since 2003. Flat $7.95 fee and unlimited transactions, plus upto $200 cash back free at the grocery store. Best prepaid card. i’ve had far less issues with this card than my original debit card and since cancelled my debit card and get my work direct deposit on this.

    • gridlocked says:

      $2.50 plus the ATM surcharge to use an ATM? That doesn’t sound like the $7.95 includes everything to me.

  8. gridlocked says:

    There are several prepaid cards either with no fees or fees that can easily be avoided and without surprises.

    Of course rather than put those out there so more people know about them the media insists on just focusing on the negatives. There are plenty of bad prepaid cards on the market you’d think the media would

    Consumer Reports chooses to look at the worst cards and with those where fees can easily be avoided they treat charges like a foreign ATM surcharge as if most banks don’t do the same thing.

    I would gladly list the better cards but the Consumerist won’t post it which makes it appear they support the banks.

  9. JenniferNBPCA says:

    We are pleased to see Consumers Reports recognize costs associated with prepaid cards continue to drop due to competition within the marketplace. Consumer satisfaction with the value these products provide is the reason behind their strong growth.

    NBPCA is supportive of tools to help consumers comparison shop and better understand how their prepaid cards work so they can find the card which best fits their personal needs.

    We disagree with the charge that prepaid cards have weak consumer protections. Payroll cards and most government benefits cards come with Regulation E like coverage without paper statements. Reloadable prepaid card issuers voluntarily offer equivalent protections, and banks who issue reloadable prepaid cards offer FDIC insurance on a pass through basis to cardholders. The card brands, Discover, Visa, MC and American Express offer zero liability protections to holders of consumer reloadable cards which may be lost or stolen, as well as chargeback rights, to the same extent these rights apply to credit cards or debit cards bearing the network’s brand.
    Prepaid cards are another way for Americans to avoid debt and interest charged, manage their finances, and open the door to our card-based financial system for large segments of our population who may not have access to or qualify for a checking account.

    Jennifer Tramontana, NBPCA