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Prepaid cards with clear terms

By David McMillin · Bankrate.com
Saturday, March 8, 2014
Posted: 6 am ET

As prepaid cards continue to soar in popularity, one big problem continues to plague consumers: confusing terms and conditions.

The Pew Charitable Trusts recently conducted a study of 66 prepaid cards and found that almost all of the cards failed to disclose at least one fee, service or consumer protection. As consumers look for alternatives to checking accounts, the not-for-profit group is asking banks and card issuers to adopt a simple disclosure form that highlights all the potential fees that a cardholder might pay.

"Pew's research shows that inconsistent disclosures make it difficult to understand the fees associated with each card," says Susan Weinstock, director of Pew's safe checking research. "Terms should be plainly stated so that consumers can make fully informed financial decisions."

The efforts have already started paying off. JPMorgan Chase & Co. has adopted the model disclosure form for the Chase Liquid card. Now, consumers can easily see the monthly fee, out-of-network ATM charges and other common costs. The form includes an easy-to-understand breakdown of how the card works and when loaded funds are available. It even highlights the hold-the-bank places on a card when paying for gasoline at the pump. Chase doesn't have much to hide, though.

The Liquid card is the most fee-friendly prepaid card I've seen on the market. It comes with a $4.95 monthly fee. The vast majority of other potential fees are very easy to avoid.

Other financial services companies may not be as easily motivated to adopt the form. Pew's research shows that prepaid cards include a wide range of bank fees. Here's a look at the average costs associated with a typical card:

  • Monthly fee: $5.95.
  • Acquisition fee: $9.95.
  • Out-of-network or in-network ATM withdrawal: $2.
  • ATM transaction declined: $1.
  • Point-of-sale signature or PIN transaction: $1.
  • Point-of-sale transaction declined: $0.50.
  • Live customer service call: $1.95.
  • Automated customer service call: $0.50.

While the disclosure form could prove to be a powerful tool in helping consumers avoid cards with hidden bank fees, Pew's research shows that the public needs to be more diligent in determining how much financial products actually cost. According to the study, only 32 percent of consumers even bother to compare terms before choosing a prepaid card.

What do you think of prepaid cards? Would you be more likely to consider an alternative to a traditional checking account if more banks and card issuers embraced an easy-to-understand list of fees?

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