Consumers And Advocates Worry As Reloadable Prepaid Cards Go Mainstream

Reloadable prepaid cards were basically a niche product several years ago. Now, it has become one of the most lucrative card businesses for financial institutions.

The reloadable prepaid card has its roots in the internet. During the rise of credit cards and the rise of the Internet, several financial institutions saw a lucrative and untapped market in teenagers who were interested in purchasing things through the Internet but who could not get credit cards which were, and still remains, the most used payment method in the internet. Soon enough, these institutions realized that they could expand to a much larger market, people who could not get credit and people who did not use banks.

Since then, usage of reloadable prepaid cards has slowly risen. Some have even gone to celebrity branding to bring in more customers. Celebrities such as Carmen Electra, Usher and Vince Young have endorsed reloadable prepaid cards. Notably, Russel Simmons has been quite active in marketing the card RushCard primarily to African-Americans, calling it a better alternative to credit cards and banks.

Issuers of reloadable prepaid cards consider them to be an excellent deal for consumers, allowing them to avoid getting charged with fees on low-balance accounts and on check-cashing merchants. Network Branded Prepaid Card Association Chairman Gary Palmer said, “If you look at these products today compared to even a checking account, many consumers have found that they can be far less expensive”.

Prepaid cards are not without its penalties however. Buried within the fine print of their agreement are fees to be issued when the card is activated, when the consumer uses a service such as ATM queries and transactions and other recurring fees. In most cases, when a prepaid card holder uses the card for any service, a fee is usually charged. Everything from ATM withdrawals to using the card for payment purchases to checking the card’s balance through the ATM has a corresponding charge amount.

Because of the relative newness of the prepaid cards, there isn’t any legislation which controls the industry. Consumers and consumer advocates are quite rightly worried about the situation and, already Congress is looking into the matter. Industry practitioners are, however quick to point out that there is no need for any legislation and that any legislation will actually increase the prices of these cards.

Consumer advocates are pushing for regulation, however. They believe that the lack of any regulation for prepaid cards would result in card users continuing to get blindsided by the many hidden fees that prepaid cards bring. Also, a lack of legal protection is problematic for card holders in cases when there are charges to be disputer or when cards are lost.