We have all read that prepaid cards are popular with individuals who are “too poor for checking accounts”. Many consumer advocate organizations argue that the prepaid cards are too lightly regulated and should face more restrictions and controls. These organizations many times rush to the conclusion that these individuals can’t afford a checking account when in reality it has been shown many times over that a checking account is affordable unless you do not have the discipline to use it correctly. If these individuals who have been tagged with being “too poor to afford a checking account” did not abuse the checking account then they would not experience the heavy fees associated with a checking account.
No one would argue the fact that if an individual cannot keep track of the balance of funds available in their checking account then the individual will probably experience NSF (Non-Sufficient Funds) fees and possibly harm to their credit status due to bounced checks and unpaid or late paid bills. I recently read that undisciplined checking account consumers will experience bank fees up to $90 and above yearly. I also read recently that these same individuals would have been better off using a prepaid card. They would have experienced fees around $25 to $30 which is much better than the $90 to $95 for a checking account.
It appears the consumer advocacy groups are missing a key point in their study. The individuals who are financially struggling can benefit by the prepaid card features that limit their spending to ONLY the funds they have available on their card. The benefits come from the immediate notification that your transaction has been declined. With this decline also comes the harsh fact that you cannot spend any more somewhere else. With a checking account, the individual can just keep writing checks and running up NSF fees for even small amounts. These organizations need to spend more time educating and less time promoting new regulations to restrict the use of prepaid cards. With that being said there are as with all products the opportunity for abuse.
Good products like a prepaid debit card can still go bad when the wrong companies see an opportunity to use a good product in a bad way. There are becoming more and more examples of companies taking a prepaid card and creating a fee structure that is similar to a checking account. These prepaid cards providers are using the good reputation of the prepaid cards to get business and then providing a product that has a high fee structure very similar to a checking account. It could be said this is a fox in a sheep skin.
We have all heard the phrase “buyer beware” and this applies to many products and services and it can be argued that it applies to prepaid cards too. With this being said, there will always be a need for consumer advocacy groups that help educate the individuals “too poor for a checking account”. The fact remains the real solution is in the education of individuals who are coming out of school today and in the future.
The prepaid card industry can be proud of the great products that have evolved from the early day prepaid cards. The prepaid cards have been a very good alternative to traditional checking accounts and these cards will continue to get better. It is also in the industries best interest to identify companies that are using the good name of prepaid and abusing the individuals purchasing these high fee cards. The prepaid card industry has a bright future and will see an ever increasing market share by providing good products for individuals “too poor for a checking account”.
~~ Doug Blasiman, Former CFO of Giftcards.com