I wrote yesterday about a surprising new trend — those plastic cards at checkout counters that look like credit cards but used to be hidden fee Trojan horses are actually a much better deal these days. There’s more competition now, because big banks like Chase are selling pre-paid debit cards, and Walmart is pushing them, too. That’s great news. Some cards are charging simpler, lower monthly fees. Issuers are also adding features. You can load the cards with fresh cash, even via direct deposited paychecks, and in some cases, pay no fees. You can use online billpay. Some even allow mobile phone check deposit. All good. In fact, folks who worry about the 10 million Americans who are unbanked think this development could be a breakthrough. Some prepaid debits cards are almost as good as a checking account, and the fees can be lower than those entry-level checking accounts big banks offer (Many have fees of $10 per month, or more).
Now, the bad.
Many cards still have confusing fees. Look at this list.
Because of that, these cards are still a terrible way to give a gift. Cyber expert Mark Rasch told me today that he received got a $25 card, and it cost $5 for him to “activate” it. The giver paid $5 too. AND…he had to give the issuer a whole bunch of personal info to active the card, which made him uncomfortable.
Governments are using them to issue benefits like unemployment insurance payments or tax refunds. Some of those cards are loaded with crazy fees, Consumers Union says.
Worst of all, these cards aren’t covered by Reg E and other federal consumer protections, which users to get refunds when there is fraud or a dispute. If you used a prepaid debit card on a website, that site gets hacked, and the hacker drains the value on the card, you are out of luck. Ditto if you have a dispute with a legitimate merchant over a charge. There will be no investigation, no provisional credit, and no leverage. You are simply out the money.
Plenty of consumers are complaining a lot about this, and adding in places like here that customer service can be terrible. If your money is stuck in limbo — say, if you used one of these cards for direct deposit — that can be a serious problem.
Bottom line: Prepaid debit cards are the least worst of a bad set of options for consumers who for whatever reason are blocked from traditional banking. They are pretty good if you want to give your college kid a recurring allowance, too. But give a retail store gift card — or better yet, cash — if you are gift giving. Really, cash is still accepted *almost* everywhere, and the only thing ruder than giving money is giving plastic that comes with hidden fees.
For more: Read the NBC News piece.