News

Consumers Union calls for CFPB rules on prepaid fees

April 2, 2012

Consumers Union, the policy and advocacy arm of Consumer reports is recommending that the Consumer Financial Protection Bureau take action to require clearer fee disclosure and better protections for consumers who use prepaid debit cards.

In a news release today, Consumer Reports said it found that competition is beginning to help bring down prepaid fees, but that costs are not always disclosed upfront to users. The release advocated FDIC protection for prepaids, as well as the same protections extended to debit card holders in case of theft or loss.

"Now that so many households are relying on prepaid cards to manage their finances, it's time for the Consumer Financial Protection Bureau to take action to protect consumers," Michelle Jun, senior attorney for Consumers Union, said in a statement. "We need new rules that require fees to be disclosed in a simple format so consumers know the costs before they purchase a card. Prepaid cards should get the same strong protections as debit cards so consumers have the peace of mind that their money is safe if their card is lost or stolen."

Consumer Reports examined 16 different prepaid cards and found a variety of fees in varying amounts:

• Nine of 16 prepaid cards charged a card activation fee, ranging from $3–$14.95. Some card issuers, including NetSpend and Western Union no longer charge activation fees.
• Thirteen cards charged monthly fees from $2.95–$9.95. Some waived the fee if the consumer deposited a minimum amount onto the card monthly. Others gave consumers a choice between monthly or per transaction fee plans.
• Fourteen prepaids charged from $2–$2.50 to withdraw cash from a domestic ATM, not including additional operator fees. Some cards offered free access to Allpoint network ATMs, but charged a fee for use of foreign ATMs.
• Twelve of 16 cards charged from 45 cents to $1 for a balance inquiry, not including any additional operator fee. Many issuers charge no fee for balance checks by email, text message or phone.
• Seven prepaids charged from $1–$5.95 per month for a paper statement. Many provided free access to monthly statements online or via email or text alerts. Some prepaids offered no information about monthly statements.
• Some cards offered service at no charge. Others allowed a set number of free calls per month or provided free service if the customer set up direct deposit to the card. A few providers charged fees from 50 cents–$2.99 for each call.
• Five cards charged monthly fees if a card was not used for an extended period of time. Dormancy fees ranged from $2.50–$5.95 per month; dormancy periods ranged from 90 days to 13 months.

Some prepaid cards also offered small, short-term lines of credit. Much like payday loans, the loans were expensive and had to be repaid quickly.

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