Prepaid Credit Cards On The Rise But Consumers Should Be Wary

As credit card companies continue to raise the cost of getting and maintaining a credit card, consumers are beginning to move away from credit cards and even the traditional concept of maintaining a bank account in favor of a new, growing trend: prepaid credit cards.

Prepaid credit cards functional similarly to credit cards, only that card holders need to load them with money before they can be used. Prepaid credit cards are fast becoming very popular among consumers, caused mainly by the rising cost of credit cards and the convenience that these prepaid credit cards offer.

Consumers can easily acquire a prepaid credit card. There is no need for any applications or waiting for the card for consumers – they can easily buy them off the counter from some of the major retailers and drugstores all over the country. There isn’t even any need for a credit check, a very welcome development for consumers who have been hit hard by the credit crisis and are unable to get traditional credit cards. Prepaid credit cards can be used for most transactions that traditional credit cards are used in, from paying for groceries at the checkout line or paying for plane tickets online.

Basically, prepaid credit cards offer the convenience of credit cards without a lot of the hassle and risks that it brings. It is therefore no surprise that, according to research firm Mercator Advisory Group which is focused on the payments industry, prepaid credit cards have become very popular among American consumers. In 2008, American consumers loaded around $8.7 billion to prepaid credit cards, more than a 50% increase from the year before, which was only at $4 billion. Mercator reported that these prepaid credit cards carried major credit issuer logos Visa, Mastercard, Discover and American Express and can be used just about anywhere.

The growing popularity of prepaid credit cards have consumer advocates worried, however. Prepaid credit cards usually carry many fees that are very costly to consumers once they add up.

Consumer Union staff attorney Michelle Jun said, “A lot of people think it keeps your spending down and is good for budgeting, but you’re getting charged fees every which way you turn”.

In a Consumer Union survey last August of 18 prepaid cards, it was found that 17 prepaid credit card issuers charged card holders with activation fees. These fees range from $3, the Wal-Mart Money Card, to $99.95, the Millennium Advantage prepaid credit card. 15 issuers also charged monthly fees for their cards which ranged from $2.95, the nFinanse card, to $9.95, the Rush Card. All of the 18 surveyed cards charged ATM withdrawal fees ranging from $1.50 to $2.50. Checking balances in ATM’s would also cost $0.50 for 17 of the 18 surveyed cards. Some prepaid cards also charged card holders for calls to customer service as well as for a lack of activity of the card.