Consumer Law

Prepaid Debit Cards Largely Unregulated

Prepaid debit cards continue to grow in popularity and usage. In 2009, consumers loaded $28.6 billion onto these cards. In 2011, the amount was $83.3 billion. By 2013, industry experts predict that the amount will be $201.9 billion.

Consumers should be aware that the fast-growing pre-paid debit card industry is almost entirely unregulated.

Prepaid Debit Cards

Prepaid debit cards are also known as reloadable debit cards. Consumers can buy them at stores and then load money onto them. The card can then be used, just like a regular credit or debit card, to pay for a wide variety of services and purchases. They can also be used at ATM machines and online. Usually, it is possible to spend only the amount of money deposited in the account.

The Unbanked and Underbanked

At least 17 million unbanked adults do not have a checking or savings account. Another 43 million “underbanked” adults have a modest bank account, but rely heavily on alternative financial services such as check-cashing stores and payday loans. In other words, 60 million Americans operate outside the traditional banking system.

The Banks See an Opportunity

New federal regulations have restricted traditional banks’ ability to collect fees on credit cards, regular debit cards, and overdraft services. As a result, banks are turning to the unregulated prepaid debit card industry to tap this large market and shore up revenues. Banks are moving quickly into the space created by prepaid debit-card providers like Green Dot and NetSpend.

Benefits of Prepaid Debit Cards

Prepaid debit cards are safer than carrying cash. They are accepted by merchants and ATMs. They eliminated the need to pay a credit card bill or go into debt. Anyone over the age of 18 can apply and be accepted without regard to credit quality. Paychecks and government benefits can be directly deposited into the accounts for free.

Risks of Prepaid Debit Cards

The charges for using prepaid debit cards can far exceed the costs associated with use of regulated credit cards, checking accounts or other forms of payment. Prepaid debit cards often charge activation fees, monthly maintenance fees, cash withdrawal fees, balance-inquiry fees, reloading fees, customer service fees and even inactivity fees.

Proposed Regulation of Prepaid Debit Cards

Consumer advocacy groups question whether issuers of prepaid debit cards clearly explain all fees to their cardholders. The newly established Consumer Financial Protection Bureau is working towards requirements that prepaid cards offer the same protections as regulated bank-linked debit cards.

A Consumer Lawyer Can Help

The law surrounding prepaid debit cards and their fees can be complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. For more detailed, specific information, please contact a consumer lawyer.

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