One growing industry in financial services these days is the prepaid debit card. Many major players are developing and marketing their own prepaid card to make spending easier for consumers. Prepaid debit cards are meant to be a viable option over a banking account. For those who do not have an established checking or savings account, the prepaid card allows them to utilize their cash as a credit card for when the situation demands such a resource. However, as simple as the concept of prepaid debit cards seem, this type of plastic may have a darker side than many consumers realize.
Whats the Big Prepaid Problem?
There are a few common complaints about the prepaid debit cards on the market today. Unfortunately, there is also concern that the reason the cards exist is to cater to those with not-so-great credit. In other words, desperate people will be more willing to do what it takes to get some kind of credit card, even if it is prepaid with their own funds.
To that end, the consumer complaints are typically about the cost. If you have bad credit and want to get a loan, you generally will have to pay a higher rate of interest. With a prepaid debit card, consumers will face higher fees for the convenience of using the card. Many popular cards will require monthly fees, activation fees, fees for reloading the card with money, fees for withdrawing cash from ATMs, and some charge a fee for checking balances remaining on the card. When it is all added up, thats a lot of fees! For many people, putting $50 on a card means paying fees and having not much left over.
Recently, the Kardashian Kard, a prepaid card endorsed by the famous Kardashian sisters was pulled from the market because of its excessive fees. The Kardashians claimed ignorance of the fee structure and promptly backed out of the deal. However, many consumers also have no clue how much their prepaid debit cards cost them each month. They fail to realize a bank account may be the better option in the long run.
Why Were These Cards Developed?
As mentioned, many prepaid debit cards came to fruition due to a consumers need for an alternative payment resource because they didnt have a bank account. Why are so many people still without a checking or savings account? There are three main reasons:
- Lack of cash/income to justify an account or meet minimum balance requirements
- Have no need to write checks
- Do not want affiliation with a bank
In some cases, there are people who also can not get a bank account due to a history of delinquent banking practices (ie: bounced checks or overdrafts). Whatever the reason for not having an account, people now find the convenience of a prepaid debit card to be suitable to their needs.
Facing Consumer Criticism
However, many users with prepaid card experience find that they are losing more money than they care to or can afford to lose. Along with the high fees, there is also the possibility of losing or misplacing a card with a balance remaining. The prepaid debit cards do not offer the protection a bank account would and certainly does not offer the protection from a major credit card company. The Federal Reserve Board has not made a decision about whether prepaid cards should be protected under its credit regulations.
In addition to the lack of protection, customer service complaints also are popular among users. In many cases, a card user was denied approval while making a purchase at a store. When attempting to contact the card customer service center, they either were placed on hold for an extensive period of time if their call was handled at all.
Many people have been giving up on their prepaid cards after facing difficulties. In the end, whatever balance is left on the card will disappear due to the monthly charges and sometimes even inactivation fees.
For those looking for an alternative to prepaid debit cards, consumers should consider a secured credit card that will actually help improve your credit situation. They may also want to evaluate the benefits and costs of aligning with a bank that still offers free checking accounts and minimum balance requirements.