As banks nationwide struggle to regain their reputations after the financial crisis that hit Wall Street, and consumers’ frustration with additional checking account and credit card fees grows constantly, more people are turning toward the prepaid debt card.
A recent report released by the Mercator Advisory Group found, in fact, that the $20.6 billion placed onto prepaid cards in the United States in 2009 is expected to hit $201.9 billion by 2013. In order to gather attitudes related to prepaid debit card use, benefits and drawbacks, the Pew Charitable Trust conducted focus groups with consumers who utilize the cards last November.
According to the Pew study, prepaid cards are not strictly for use by the unbanked—those who can’t or refuse to open a bank account. Many focus group participants had a checking account, but grew weary of the fees they had often unknowingly incurred. Participants preferred paying small flat fees to use the prepaid cards that they were aware of upfront.
“I think (prepaid card fees) are fair because they’re upfront,” one study participant commented. “I think the idea of the marketing behind a checking account is they’re your friend; they’re your hometown bank. You can depend on them. You can count on them and, really, they’re just lulling you into the sense of comfort because they’re going to whammy you with fees on the backside. Whereas prepaid debit cards, they’re very upfront. This is the cost of the card; this is the cost for the services. It’s up to you at that point.”
Many participants also found that prepaid cards served as a budgetary tool during tough economic times. Consumers stated they could budget an amount, put it on the card and know they would not have an option to spend more than that. Likewise, a checking account might allow them to overdraw—and charge a fee—or a credit card to spend too much and be left to deal with monthly payments.
Many in the focus groups found staying within budget to be easier with the easy balance-monitoring options available with prepaid debit cards, either by telephone or the Internet. The participants had no concerns with the lack of a monthly itemized account statement, standard for most checking accounts, but instead felt greater control with instant up-to-date balances queries.
A common theme among group participants was the sense of security they felt when using prepaid debit cards, which they perceived to offer more protection from identity theft. Not only do the cards not leave personal account information behind for vendors with whom they had made a purchase, but group members complimented the cards’ anonymity factor.
“If you have a credit card, you have a credit application somewhere,” a Houston woman said. “They have a lot of personal information about the person who’s holding that card. Whereas if you have a prepaid debit card, all they know is that somebody at some point bought that card and paid that much money for it.”
Still, according to the Pew study authors, prepaid cards have their drawbacks. Although group participants were not concerned that prepaid debit card fees were too high, they did complain about the amount of fees charged. Prepaid debit cards can include fees to reload money, monthly maintenance fees, replacement card fees, ATM fees and even customer service fees.
The survey also found that most prepaid card users were unaware the cards are not regulated by the federal government the same was as credit cards, and many do not include FDIC protection. Prepaid card companies are also not required to disclose all fees.
Participants stated they were “very concerned” they had no recourse if they experience a problem with the card, such as a dispute, because of little federal government oversight. Some said, however, that additional government regulation might increase the cost of using prepaid cards.
“Somebody has got to pay for this federal government oversight, and that’s going to come out of tax money, which is going to bite into my money that I’m trying to save,” a Houston participant said.
Most of the group participants were also very concerned about the lack of FDIC insurance on their cards.
“Because I want my money back,” a Chicago man stated. “Give me my money, and if I put it on your card, I deserve to get it back. I think they should be regulated by the FDIC.”
And, of course, most group participants were highly concerned that the prepaid debit card companies are not required to disclose fees the way banks are, especially since many of them had migrated toward the cards over frustration with bank fees.
