NEW YORK (MainStreet) — Municipalities are branching out from the traditional services of police, fire and parks to offer a product that until recently has traditionally been available primarily through financial companies: prepaid debit cards.

But before you scrap your American Express Bluebird or Netspend Visa and head to city hall looking for banking services be warned: far from being a low-cost panacea to fee-ridden corporate offerings, the cards can be costly.

"The prepaid cards that [governments] offered were inferior to products that were generally available on the market," said Christina Tetreault, a staff attorney at the Consumers Union, noting that high fees were problematic. "If cities are going to [offer cards], we want to see that they are the best prepaid cards available."

In theory, if not in practice, providing cheap financial services is exactly what the cards are meant to do. Cities can use the cards to help "unbanked" residents – those who don't have access to a traditional checking account – avoid expensive check cashing stores, said Paule Cruz Takash, research director of University of California, Los Angeles North American Integration & Development (NAID) Center, which came up with the idea for the municipally offered cards. They can also help residents avoid making themselves targets for robbery by carrying around their payday earnings in cash and becoming "walking ATMs," she said.

In February, Oakland became the first city to offer a pre-paid debit service attached to a municipal identification card. The Chicago Transit Authority followed suit in September, providing a debit option on its transportation fare card. Richmond is set to become the second California city to launch a combined municipal ID and pre-paid debit card early next year. New York City and Los Angeles have also expressed interest, said Cruz Takash.

But residents, by and large, have been staying away. Only 84 of the 4,137 people who have received a municipal ID from Oakland have activated the debit card. The CTA's rollout of its subway cards has been so riddled with errors (even without the complication of the debit card option) that one alderman referred to it as a "debacle."

Consumers also don't have a good reason to sign up for the municipal debit cards versus private cards, said Lauren Saunders, managing attorney of the National Consumer Law Center's Washington office.

"Cities that are getting into the prepaid card business seem to be several years behind states and others in terms of trying to negotiate," said Saunders, referring to the pre-paid unemployment and other benefit cards that some states offer. "Consumers can generally do better for private markets."

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In the wake of consumer advocates' concerns and low uptake, cards have lowered their fees. The CTA dropped fees including a $1.50 charge for using the ATM and a $2 live customer service fee. NerdWallet, a personal finance and credit card comparison website, said that the card now ranks 8 out of 60 cards surveyed, up from 17 before the charges were reduced. Oakland has reduced its fees twice since launching. The changes are a significant improvement, but some private cards still have better features than the Oakland card, said Tetreault.

Cruz Takash, who also consults for SF Global LLC, Oakland's third-party vendor for the prepaid debit cards, said that the company will work on continuing to lower the cost of the card as the company expands the number of cities and associations that offer the card. Once 1 million people sign up, the cards will be able to scrap consumer fees entirely and rely entirely on merchant interchange fees, she said.

Tetreault says that getting 1 million cardholders will be a tall order, noting that Bluebird, marketed by American Express and Wal-Mart, both well-known brands, took about a year to acquire that many enrollees.

But Takash says there's a need for municipal pre-paid cards. Some 10 million households are unbanked, and there are 821,000 fewer people holding bank accounts compared with two years earlier, according to a 2011 Federal Deposit¿Insurance Corporation study. Municipalities, some of which are already reaching out to people without state identification to offer local IDs, are well positioned to offer the debit cards, she said. And she said that marketing campaigns for the pre-paid debit cards, which should increase the number of enrollees, hadn't yet begun.

But Tetreault doesn't see a clear reason to offer the cards. Getting a prepaid debit card attached to an ID, rather through a private company, is "if anything, a disadvantage" since there are privacy concerns with having identity information tied to your money, she said.

Still, she said that in general, pre-paid cards had tremendous advantages over check cashing and other high fee services.

So, her advice for a municipal card is the same as that for any other debit or credit card: "Shop around."

--Written by Simone Baribeau for MainStreet