The increased presence and use of prepaid cards in America has also increased the need for reform in the industry to prevent similar gauging and excessive fee-charging that once riddled the credit card industry.
Prepaid debit cards have been steadily rising in popularity of late. Whether it is due to the fact that lenders are tightening their restrictions on loans and credit services or that people simply do not want to be locked into responsibilities that an unstable economy may not be able to support their increased use is easy to notice.
Even if you are the kind of person who prefers to stay away from credit, you will have a difficult time trying to buy something online (which is almost always less expensive than in the actual store), paying for city parking, or even renting a car for your vacation, without some kind of plastic.
Of course, you don’t need a credit card to do these things, but you do need some physical card that is attached to your money in some way: hence, prepaid debit cards.
Obviously, prepaid debit cards are not the same thing as credit cards. They do not charge interest rates and rarely, if ever, charge you penalties in the same way that credit cards do.
Perhaps this is part of their widespread appeal. Still, the financial product companies who develop these cards need to find a way to profit so they will manufacture complicated fee structures into their system to ensure that they can maximize their profits (hopefully while offering you a streamlined convenience that make the fees worth paying).
What has been happening, though, is that as prepaid cards have become more popular, more and more popular are beginning to take note of (and, perhaps, complain about) the excessive fees they are being charged.
This is what the Consumer Financial Protection Bureau is investigating, and is the reason they are establishing regulations—much like that of the CARD act and the Fair Credit Act—in order to help to improve credit relations in the United States.
The reason for this is simple: prepaid cards do not help you build your credit so you shouldn’t have to pay enormous fees just for the convenience.
There are several fees that you might have to pay when you activate a prepaid debit card. These can differ depending on the card you choose to carry, but they can include fees for:
- Loading money
- Cash withdrawals (from an ATM)
- Checking your balance
- Calling customer service
- Requesting a copy of your statement
- Monthly or annual service charges (often called a “maintenance” charge)
An example of these includes Suze Orman’s “Approved Card” which charges a $3 monthly maintenance fee as well as a $2 cash withdrawal fee.
To the average card carrier, this probably looks reasonable, and it is, especially when compared to the $15 activation fee and $10 monthly fee that other cards might charge.
In fact, the average prepaid card could find the user paying upwards of $50 every month in fees!
New Rules And Regulations
So far, the CFPB has not been able to detail the exact specifications of these new rules and regulations, but they are on the way.
They are, however, taking everything into consideration and are looking to consumer concerns and complaints to help make their final decision, the process for which will begin at the end of June in order to finalize a proposal by the beginner of next year. They are, however, considering:
- Simplified language to better explain fees to customers
- Information regarding FDIC insurance
- Limiting customer liability (because they are currently not required to offer zero-liability protection from fraud)