Our Use of Prepaid Cards Has Doubled Since 2009, But Dangers Remain

NEW YORK (TheStreet) -- More and more Americans are turning to prepaid credit cards to fix their toxic credit problems, but consumers need a reality check on so-called "GPR" cards, a study says.

That study comes out at a time when "general purpose reloadable" prepaid credit cards are being used heavily by consumers.

The Pew Charitable Trusts issued a Consumers Continue To Load Up On Prepaid Cards study last week showing U.S. cardholders loaded $64 billion into prepaid cards in 2012, twice as much as in 2009.

The market isn't just Americans leaning on prepaid cards because they have bad credit and can't get a traditional card.

"More consumers are turning to prepaid cards as a convenient tool to control spending and fees," says Susan Weinstock, director of Pew's safe checking research division. "While prepaid cards offer many benefits to consumers, they are a relatively new product with little oversight. A lack of protections undermines prepaid cards as a safe and easy way to manage money."

The Pew study offers some additional insights, some good and some not, for prepaid cardholders:

  • Prepaid card cards are a better deal for consumers than they were two years ago largely because of heightened competition among card providers and there being fewer "fly-by-night" prepaid card companies in the marketplace.
  • Prepaid cards are also now a better deal than bank checking accounts.
  • Prepaid cards "do not offer consumers the limited liability protection required by federal law for checking accounts." That's because some financial liability has been "shifted" to card consumers.
  • Not all prepaid cards are covered for financial losses by the Federal Deposit Insurance Corp.
  • If there is a problem with prepaid cards, it's up to prepaid cardholders to bring in their own third-party "decision maker" to mediate the issue, and possibly make a decision that works against the cardholder.

Pew has a few recommendations for prepaid cardholders in advance of new Consumer Financial Protection Bureau regulations covering the industry.

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