Warning on Prepaid Debit Cards
In an effort to reduce their credit card usage and avoid high interest rates, many Americans are turning towards prepaid debit cards. Partially, because they think it will help control their spending, but also because credit card companies are actively pushing consumers with low-income and/or bad credit towards this new, emerging product. On the surface, it looks like a win-win. You load a pre-set amount on your debit card and then you can only spend what’s loaded on the card. It’s a quick, easy way to stick to your budget…or is it?
There’s a dark underbelly to using prepaid debt cards…the fees. Unlike secured credit cards, which are protected under The Credit Card Act of 2009, prepaid debit cards do not have the same regulations because they’re not credit cards. There are no laws currently in place that regulate the fees associated with them. Look at the recent scandal surrounding the short-lived Kardashian Kard. It was marketed to young consumers and fans of the reality show about the Kardashian sisters. The prepaid debit card included an array of fees, including a $99.95 up-front charge for a 12-month card. Then there was a $1 fee to check the card’s balance, $1.50 fee to talk with a live operator, $2 per transaction fee to pay bills automatically, and if users decided they didn’t want it anymore they had to pay a $6 cancellation fee.
Luckily, the recent public outrage about the fees caused the Kardashians to cancel their endorsement of this pre-paid debit card. There are other prepaid debit cards that are still taking advantage of consumers:
- Activation Fees as high as $40
- Monthly Fees of up to $10
- Paper Statement Fees as much as $5.95
- Inactivity fees up to $9.95
- Customer service fees as high as $3.95
Don’t spend your hard earned money on prepaid debit card fees. Before you choose to sign up for a prepaid debit card, make sure you understand the fees associated with it. Also, review secured credit cards and see if it’s a better option for your financial situation. Yes, they will charge fees but when you compare the two products (fee by fee), you might find that a secured credit card is a better option.
About the Author
The following post is from Kathryn Katz, a Certified Personal Finance Counselor who works for Consolidated Credit in Ft. Lauderdale, Florida. Their non-profit agency helps families through financial crisis using credit counseling, debt consolidation and financial education.