Examples of prepaid card products
Chase Liquid: $4.95 flat monthly fee; $2 fee for ATM withdrawal from a non-Chase ATM, in addition to ATM charge
www.chase.com/online/prepaid-card/liquid-prepaid-card.htm
PNC SmartAccess Prepaid Visa Card: $5 flat monthly fee; $2.50 non-PNC ATM withdrawal or balance inquiry, in addition to ATM charge; $7.50 card replacement fee
www.pnc.com/smartaccess
U.S. Bank Convenient Cash Card: $3 enrollment fee; $3 monthly service fee; $2 fee for ATM withdrawal from a non-U.S. Bank ATM, in addition to ATM charge; $1 non-U.S. Bank ATM Balance Inquiry/Decline; $3 teller withdrawal fee; Two free customer service calls a month and $2 fee per call after that; $15 card replacement fee
www.usbank.com/prepaid/convenient-card.html
Green Dot Prepaid MasterCard and Visa cards: $4.95 or less purchase fee plus initial deposit at a retail store; $0 activation fee online; $5.95 monthly fee, which is waived if 30 or more qualifying transactions are made a month or card has $1,000 loaded in month; no charge for direct deposit or government benefits; $4.95 or less to load cash at retail store; $2.50 for cash withdrawals and 50 cents for balance inquiries at non-MoneyPass ATMs and bank teller locations, in addition to any fee the bank or ATM owner may charge; $4.95 replacement fee
www.greendot.com
Others: www.netspend.com, www.walmartmoneycard.com, www.americanexpress.com/prepaid
Prepaid cards open up a rapidly growing market to banks at a time of hyper competition, slim interest margins and lost fee revenue.
As many as one in four people are “unbanked” or “underbanked” and funds loaded on these cards are growing at annual rates of more than 40 percent. Numbers like that enticed in July two of the region’s largest banks, PNC Financial Services and JPMorgan Chase & Co., to offer such cards. They will compete against major retailers, payment processors and prepaid companies with new reloadable card products.
The cards are not without concerns, but industry advocates say consumers benefit from access to the financial system and more competition.
“As these new entrants have been offering prepaid products at lower cost, either cost per month or cost per transaction, the costs to consumers have been going down,” said Terry Maher, a Nebraska attorney who serves as general counsel to the Network Branded Prepaid Card Association, a national trade group. “The cost of checking accounts have been going up. Prepaid is one of the few products where the costs are actually going down.”
Prepaid cards aren’t a new phenomenon, having started with gift and loyalty cards. Reloadable cards that act similar to debit cards, but without a checking or savings account tied to them, emerged eight to 10 years ago, Maher said. Because prepaid cards aren’t tied to checking accounts, they don’t have overdraft fees—when the money’s out, the transaction is denied.
People who choose not to use banks or get locked out of the banking system because of previous financial problems are increasingly using prepaid cards as a low cost alternative to checking accounts.
“Like any financial instrument, it’s a tool and if you use it the right way it can help you. If you use it in the wrong way it can hurt you,” said Bill Staler, chief executive officer of LifeSpan Inc., which offers credit and home counseling in Butler County. “I think the fees have come down, which is a very good thing in the last year or so, but you have to understand fees … and you should shop around for the card that has fees that most closely match your lifestyle.”
Low income people, along with youth who prefer technology and convenience of prepaid products over brick and mortar branches, are expected to help the industry grow to $145.9 billion by 2014, not including retail gift or loyalty cards.
“We’re now seeing the mainstream banks offer the cards heavily,” Maher said. “They’ve all decided that they need the product that caters to the lower balance customer … because if they don’t, they’re going to lose that customer.”
NetSpend and Green Dot are two of the biggest players in the market as prepaid card companies, with Green Dot cards available to buy and reload at area gas stations, retail stores and drug stores. Depending on the company, prepaid cards have monthly service fees, fees to load or unload money, or activation fees.
Chase Liquid was introduced nationally July 10 and has a flat monthly $4.95 fee, the bank said.
“Today there’s now a product that we can offer those customers who may have in the past didn’t feel like we could offer every solution to them,” said Cliff Hemmert, Chase’s local retail market manager.
Customers have also found prepaid cards useful for managing their students’ money and for travel or online purchases, Hemmert said.
PNC also introduced the week of July 17 its first consumer prepaid card. The SmartAccess Prepaid Visa Card has a flat $5 monthly fee.
“It’s a very low cost option, much lower cost,” said Peg Moertl, the regional head of community development banking for PNC. “It’s a terrific way for us to build relationships.”
U.S. Bank has offered a prepaid card for about a year. Fifth Third Bank doesn’t have one, the companies said.
As a high growth but little regulated segment, prepaid has caught the attention of the federal government’s consumer watchdog, the Consumer Financial Protection Bureau. The CFPB in May announced intentions to propose rules over the industry for minimum standards, transparent fee disclosures and loss protections, ending a public comment period in July.
Ohio Credit Union League said in a July 23 comment letter that as the market expands exponentially, so does the potential for abuse. The trade association also said it hopes any rules will be “reasonable” and not “substantially add to costs or the regulatory burden on credit unions.”
Americans for Financial Reform commented the CFPB must prohibit overdraft fees and any form of credit.
“Prepaid cards are overwhelmingly marketed to and used by a variety of vulnerable groups, including low income consumers, consumers with blemished credit histories, unbanked and underbanked consumers with limited access to traditional accounts, young consumers and students, undereducated consumers, public benefit recipients and consumers who are trying to control their spending,” the nonprofit consumer group’s letter reads. “Consumers who can handle credit can access checking accounts, credit cards or other credit products. For those who cannot, prepaid cards must remain a safe product.”
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