Some consumers
have embraced the prepaid card as an alternative to traditional bank accounts
and credit cards. Some have bad credit and can’t get a credit card or open a
bank account. Some are trying to avoid
credit card debt and bank fees. But, Consumer Reports recently outlined the
dangers of prepaid cards and revealed that the industry is largely unregulated
and devoid of the usual protections.
The
report cited a variety of hidden fees and a lack of basic safeguards that
expose consumers to risks that could leave them financially devastated. Twenty
six prepaid cards were reviewed and ranked on hidden fees. The best ranked prepaid card was Bluebird (American Express) with no monthly fee and no activation fee.American Express for Target ranked worst. Some prepaid cards lacked
transparency about their policies and services, had ongoing monthly fees, and
lacked protection against fraud or bank failure. Many included high fees for “inappropriate”
reasons such as not using the card, needing a replacement card and even for
calling customer service.
Not all
prepaid cards are risky. Many have added insurance, lowered their fees, and
improved their policies so that they function as reasonable alternatives to low
income consumers. The Consumer Financial Protection Bureau is cracking down on
unfair prepaid card policies.
The use
of prepaid cards for payroll is growing. The research firm Aite Group reports
that last year $34 billion was loaded to 4.6 million active cards. In five
years, the expected growth will reach 68.9 billion loaded to 10.8 million active
prepaid payroll cards. These cards do not offer the usual information found on
a pay stub, i.e. hours worked, overtime hours and pay, deductions, etc. This
lack of pay check records can be a means of wage theft and takes us to an era
reminding us of “the company store” or sharecropping.
Some
state attorneys general are investigating businesses using prepaid cards for
payroll. New York attorney general is investigating Orlando based Darden Restaurants,
i.e. Olive Garden and Red Lobster, who use prepaid cards as work paychecks. Other
companies using prepaid cards for payroll include some Wal-Mart stores, Home
Depot, Wendy’s, McDonalds, Taco Bell, and Walgreens.
Some of the fees/charges associated with
prepaid payroll cards include $1 per purchase, $2 per purchase suing a pin,
$2.50 per ATM withdrawal, $1.95 per bank transfer, $15 per overdraft, and $5.95
inactivity fee (after 90 days).
Some
government benefits or assistance is provided through prepaid cards. Government
agencies disbursed $136 billion on prepaid cards or 13% of all disbursements.
Card issuers collected $190 million in fees from card holders. Sixty percent of
cardholder fees came from ATM withdrawals, although one or two withdrawals are
free. Other fees are from customer service, account servicing, overdrafts and
other penalties.
As the prepaid
card industry grows, changes are to be expected and outside oversight and
monitoring should be increased to protect the American public.
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