Hidden Costs of Prepaid Credit Cards Revealed

Consumer advocacy groups and financial consultants are raising concerns over the hidden fees of many popular prepaid credit card brands. Citing recent studies conducted by consumer groups, prepaid cards may not be as safe as most cardholders and consumers think. In fact, Americans can end up paying for more using these particular cards.

Once hailed as possibly the best alternative to conventional credit cards with high interest rates and unreliable debit cards, prepaid cards are now undergoing scrutiny for alleged hidden expenses.

A new report from the Consumers Union says that prepaid cards often have hidden fees that many cardholders are not even aware of. The consumer advocacy group also said in its findings that these cards lack the same level of protection that ordinary credit and debit cards have, leaving consumers open to security breaches and other attacks.

Michelle Jun, a staff lawyer for Consumers Union, explains that there are fees for just about everything. Jun adds that consumers have to pay close attention to what they will be using their cards for and to determine how much it will cost them.

Prepaid cards are fast gaining popularity with some $4 billion loaded onto them in 2007 by American consumers looking for better alternatives to their old credit cards. Most card companies marketed prepaid cards, promising clients better control over their finances. Unlike ordinary cards, consumers need to deposit money into their cards’ accounts. Prepaid cards function as substitutes for cash, providing cardholders with the flexibility of cash and the convenience of credit. This has prompted millions of consumers to switch to prepaid cards.

The Consumers Union reviewed 18 well-known prepaid debit cards and compared their features, as well as the expenses connected with them. Of the 18 cards, 15 had monthly fees ranging from a measly $2.95 to $9.95 for some cards. However, these fees are often waived if cardholders agree to directly deposit money into their accounts from their bank deposits.

The activation fees also varied greatly with some fees as low as $3. Some prepaid cards, on the other hand, cost $99 to activate. Eight prepaid cards out of the 18 charge fees for account inactivity. In fact, some cards slap hefty fines up to $9.95 per month if cardholders do not use them. Several of the prepaid cards also charge consumers every time they call the card companies for assistance. One particular card company charges cardholders $3 for every call while another charges $1 for every minute of a service call.

Consumer advocates are also calling on the federal government to initiate provisions and provider better protection for prepaid cardholders.