The Appeal of Prepaid Debit Cards

March 3, 2014, Written By John H. Oldshue
Narrow Focus Of Debit Card With Money

Two new surveys from the Pew Charitable Trusts show that prepaid debit cards have become a popular alternative to checking accounts for more Americans.

Consumers loaded $64.5 billion onto prepaid debit cards in 2012, a 13% increase from the $56.8 billion in 2011, and more than double the $28.6 billion in 2009.

According to one survey, 12 million people, or 5% of adults, use prepaid cards at least once a month. The average prepaid card customer had a household income of nearly $30,000 per year. Three-quarters of these consumers are under 50 years of age.

Consumers are using prepaid cards as a way to stay out of credit card debt, control their spending, make purchases online and avoid overdrafts. Among the people who have had a checking account, two in five have had problems with overdraft fees.

Prepaid cards may be a way to avoid checking accounts, but there are no federal laws or regulations that directly protect consumers from hidden fees, liability for unauthorized transactions, or loss of funds in the event of an issuing institution’s failure. This may change soon since the Consumer Financial Protection Bureau is expected to issue some guidelines on prepaid cards this May.

Prepaid cards don’t have to provide disclosures of fees or terms. The study found that only 32% of consumers compared terms before choosing a card.

The Pew study shows the changes in the prepaid market from 2012 to 2013. Retail banks and established financial services companies are now offering these cards. Prepaid cards offered by large banks were more economical in 2013 and some of the disclosures were clearer including what is covered by FDIC insurance.

More cards are charging monthly fees that are similar to traditional checking accounts instead of other transaction-based fees. Of the 66 most popular prepaid cards, the median fees were $5.95 for a monthly fee, $2 for an out-of-network or in-network ATM withdrawal, $1 for a point-of-sale signature or PIN transaction, and $1.95 for a live customer service call.



The information contained within this article was accurate as of March 3, 2014. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.