Alternative Finances

Competition Giving Prepaid Card Prices That Sinking Feeling

The market for general-purpose reloadable cards is maturing, and the age-defining changes are putting a new image on the prepaid market. Yet various issues also persist, including insufficient regulation that could be putting cardholders at risk, according to a new report.

Pew Charitable Trusts, which produced the 56-page report, considers general-purpose reloadable cards as versatile financial tools for the 10 million U.S. households that lack a checking or savings account, cannot obtain a credit card because of poor credit histories, and want to supplement checking or credit card accounts with one dedicated to saving or paying for something without the temptation of buying it on credit.

And the market appears to be adjusting to the demand, and to the competition.

In its report “Consumers Continue to Load Up on Prepaid Cards,” Pew found a pricing-strategy shift in that more issuers are charging monthly fees for their cards, but no other transaction-based fees, such as point-of-sale or customer-service fees.

“The structure more closely resembles traditional checking accounts than a fee structure in which no monthly fee is charged and cardholders incur fees for various uses of the card,” the report notes.

Despite the change in fee structure, however, general-purpose reloadable cards last year were slightly cheaper than they were in 2012, according to Pew.

Of the 66 cards Pew studied, 52 disclosed a monthly fee, and 14 allowed the monthly fee to be waived if the cardholder loaded a specific amount into the card account each month. Conversely, 28 of the 66 cards imposed no monthly charge. For cards that disclose a monthly fee, the range is $1.75 to $14.95, with the median price being $5.95. These numbers are essentially unchanged from the 2012 report, according to Pew.

In 2012, when Pew first examined general-purpose reloadable cards, such nonbanks as Green Dot Corp., NetSpend Corp., H&R Block Inc., AccountNow Inc. and UniRush LLC dominated the market. A year later, those same issuers drove 71 percent of the overall market’s load volume, down only slightly from 2012, according to Pew.

“But
 in 2013, three of the 10 largest prepaid cards are now bank managed, whereas none was in 2012,” Pew states in its report. “Those bank-managed cards still represent a very small part of the overall market, but it is expected that they will continue 
to gain share if banks invest in the growth of these products.”

Among the bank issuers cited in the Pew report were BB&T, BBVA Compass, JPMorgan Chase, Commerce Bank, Fifth Third Bank, OneWest Bank, PNC Bank, Regions Bank, U.S. Bank and Well Fargo.

The Pew report also included various other key findings, along with recommendations for policies related to general-purpose reloadable cards that should be mandated by law.

Among the key findings, Pew found that cards offered by large banks are particularly economical compared with nonbank cards. Moreover, cards offered by the same large banks often offer a better value than the institution’s checking accounts. In addition, disclosure of whether card accounts are protected by FDIC insurance were clearer last year than they were in 2012.

Indeed, no federal laws or regulations directly protect consumers from hidden fees, liability for unauthorized transactions, or loss of funds in the event of an issuing institution’s failure, Pew notes. Moreover, there are no federal rules requiring these cards to provide disclosures of fees, terms, conditions, or dispute resolution practices.

“These omissions are troubling because Pew’s research shows that most GPR prepaid cardholders do not want overdraft features to be available on their cards,” the report states. “Instead, they want a safe and useful financial tool that helps them maintain financial discipline.”

Pew’s report suggests not including with general-purpose reloadable cards overdraft or other automated or linked credit features. Issuers also should protect cardholders against liability for unauthorized transactions for lost or stolen cards, or when charged are incorrectly applied, Pew recommends.

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