A new form of payment system is re-emerging in the market in the form of prepaid debit card, which has been raking millions of dollars from 80 million consumers who have no access to bank accounts and not eligible to have credit cards.
It is a cheaper alternative for people, who are tight on their budget and want to control their spending.
Owning a prepaid debit card is fast and hassle-free. It is available in many stores and comes with $25, $100, and even $500 denominations.
On the other hand, these plastics come with hidden charges that quickly accumulate the card's value. Most consumers are not aware that there is $9 to $10 fee for activation alone. Other recurring fees include transactions for ATM- withdrawal as well as balance inquiry, purchasing, monthly maintenance fee, and a $1 charge for calling customer service. Dormancy fee is also applied if it is left unused for two months.
Prepaid debit cards were introduced in the market 10 years ago. Its popularity gained momentum when most banks and credit companies massively reduced consumers' credit lines and closed some accounts as a result of economic crunch and climbing unemployment rate.
Over the years, it created hefty amount of profits to bank industry and financial institutions. In 2008 alone, the sale of these plastics dramatically soared to $8.7 billion, a 125 percent increase from 2007.
The market of prepaid plastic is unlimited since it caters not only to consumers who cannot get credit cards, but to people, who are students, those with low-income, immigrants that have limited financial options, or those who are cautious not to give out their credit card information into the Internet.
Unfortunately, there is no existing law that will restrict policy and fees in prepaid cards since it is not included in the Credit Card Reform Act in 2009. No congressional scrutiny has been made with regard to prepaid debit cards.
Recently, Congress has passed a bill expediting implementation of the card reform act, which overhauls the credit system in the US, in December this year.
Currently, banks are under congressional scrutiny for forcefully enrolling its customers in overdraft programs. This inquiry aims to regulate overdraft fees on checking accounts. It also orders regulatory commissions to look into gift cards; if the fees being charged to recipients are fair and suitable.
Jean Ann Fox, director of financial services at the Consumers Federation America, appealed to lawmakers to look into the re-loadable prepaid cards system.
She said consumers may be at risk of being abused with hidden fees tangled in the re-loadable prepaid cards.