Criticism of the industry has become so rampant it's easy to forget some important factors contributing to the sector's growth. First, the Credit Card Accountability, Responsibility and Disclosure Act, which prohibits companies from issuing credit to anyone under 21 unless the applicant has a stable source of income or a willing co-signer, caused parents to look for alternative plastic payment methods that could help college-bound kids in a jam.
In many respects, the controversy surrounding prepaid cards isn't driven by what the cards do or don't do -- it's who the cards are being marketed to, namely low-income people who can't get a credit card or even a bank account in many cases. Asking folks to pay a fee so they can spend their own money is incendiary on its own -- as evident by the revolt banks endured when they announced plans to impose fees on traditional bank accounts last year -- so it's only natural that asking people who are struggling financially to pay a similar fee (and then some) will kick the backlash up a notch. But if providers were to add incentives, as suggested, and actively market these to moderate income consumers as well, they could come out ahead. After all, debit card rewards programs were killed off by the Durbin Amendment and 5% interest on a savings account is few and far between. ... or bill it as a short-term solution.
If a prepaid provider isn't interested in widening their target market, then it might be best to acknowledge the card's limitations. Prepaid offerings don't help consumers build credit and, as such, aren't a viable solution for someone whose main aim is to get on the grid. Admittedly, many prepaid providers are trying to get credit bureaus to accept their data and factor it into credit reports, but until this happens -- and it's an uphill battle -- it needs to be clear the card isn't a solution to long-term credit problems. Not all prepaid cards are created equal. Find out which products rank among the most attractive on the market in our roundup of the best prepaid debit cards. >To submit a news tip, email: firstname.lastname@example.org. Follow TheStreet on Twitter and become a fan on Facebook.