The Dangers of Prepaid Debit Cards
Prepaid debit and credit cards are fine in theory.
Many personal finance experts recommend them as the first step in rebuilding credit after filing Chapter 7 bankruptcy. They are also a common choice for people who are unable or unwilling to maintain a traditional bank account.
In fact, prepaid debit cards – such as Green Dot, Only 1, Rush Card and Wal-Mart – are a fast growing source of income for major credit card companies, particulalry in the wake of new laws that clamp down on credit companies tried and true income generators.
But, as you should know by now, if credit card companies are getting rich then they’re probably taking the money from your pockets.
The New York Times has a great article that looks closely at the hidden fees and true costs of using prepaid cards.
You may want to take note, because more and more people are using prepaid debit cards, which may be obtained at regular supermarkets and gas stations. According to the Times, banks expect this industry to grow from generating less than $25 billion this year, to a staggering $125 billion in 2012.
That money is being generated through a complex series of fees most consumers aren’t aware of. For example, many prepaid debit cards charge consumers fees for:
- Purchases
- Activation
- ATM use
- Customer service calls
- Balance checks
- Monthly maintenance
- Inactivity
That’s right, you have to pay to turn the card on! And then, in many cases, you have to pay a fee each time you use the card!
The average cost to use these cards in their first month is often $40-50, the New York Times reported. In one wild case, a consumer had problems getting $50 on card. But each time he called customer service to remedy the situation he was charged $1.
So if you’re considering using one of these cards, make sure you do your homework. While these companies may not currently advertise their fee structures, you should be able to get a full list of the costs associated with a card before you use one.
Also, it is possible that Congress, as they did with credit cards, will enact some regulations that limit the fees. But until then, beware!