Who uses prepaid plastic?About 13 percent of U.S. households had a prepaid debit card last year, according to research published by Javelin Strategy & Research on April 11. So who lives in those households? Javelin says that this form of plastic is particularly popular among Generation Y and other youngsters, along with those who don't use traditional banking products (often because they don't have access to them). In a press release, Beth Robertson, the company's director of payments research, explained the appeal of prepaid debit cards:
Today's prepaid features match and even surpass the features of many checking accounts. Functionality that can enable consumers to manage their account using their mobile device or social media account, establish and build a history that can be used for credit-issuing, or enable person-to-person transfers provide high value to under-served consumers.
Some prepaid cards aren't so greatOn April 12, the day after Javelin issued its report, Consumer Action published its own. And this exposed that the story of prepaid cards isn't unrelentingly rosy. Like others before ("Senator proposes new rules for prepaid debit cards"), Consumer Action warned against the numerous "gotchas" that await the unwary. Four of these are:
- Sneaky fees. With some cards, you pay to call customer service, you pay inactivity fees if you don't use your card, you pay to load money, you pay to use ATMs, you pay if a transaction is declined…These and other charges can quickly add up.
- No FDIC insurance. If your deposited funds aren't held at an FDIC-insured institution, if your card issuer goes bust, you could lose your money.
- No regulation. If you and your card issuer fall out, there's no authority to go to bat for you. And, by the way, there's no legal obligation on issuers to disclose fees upfront.
- No statutory protections. Suppose you lose your card or it's stolen. Even if the issuer promises to help you out, such programs are often voluntary and could be difficult or impossible to enforce.