Loaded With Uncertainty

Are Prepaid Cards a Smart Alternative to Checking Accounts?

Loaded With Uncertainty


General purpose reloadable prepaid cards are rapidly growing in popularity. Consumers are using them to make purchases, withdraw money from ATMs, and pay bills. This new study reveals that the prepaid card is a risky, largely unregulated alternative to the traditional checking account, but may work for some consumers who frequently incur high bank overdraft fees.

The report, Loaded With Uncertainty: Are Prepaid Cards a Smart Alternative to Checking Accounts? reviews 52 prepaid cards that comprised at least 75 percent of the market in 2011. It finds that:

  • The varying fee structures and disclosures for prepaid cards make comparison shopping very difficult because most products have 7 to 15 individual fees to consider and their disclosures are not uniform.
  • The cost of prepaid cards can be less than checking accounts, but the cards come with significant risks. These products are not covered by laws requiring disclosure of fees and terms - nor those that limit consumer liability for unauthorized electronic fund transfers.
  • Most consumers use prepaid cards as a way to keep spending within their means; overdraft options run counter to this goal and should not be offered.
  • FDIC insurance does not necessarily apply to funds loaded onto GPR prepaid cards. Those companies that claim funds are FDIC-insured are not federally supervised and, therefore there is no guarantee the protections are executed correctly.