Prepaid Debit Card Hidden Fees Hurt Consumers

Columbus, OHPrepaid debit cards are becoming increasingly popular. However, prepaid debit card companies are accused of using hidden fees to increase their profits. Customers and consumer protection groups say these prepaid debit card fees are hitting customers where it hurts—their wallet.

Prepaid debit cards are reloadable cards, used by many people who cannot have a bank account or do not qualify for credit cards. They are often marketed as fulfilling the same purposes as bank accounts and as being safe, cost effective budgeting tools. Customers can directly deposit their paychecks or other recurring income on their cards and can set up bill payments through the cards.

However, a study by Consumers Union, the nonprofit publisher of Consumer Reports, found that customers may be paying a very high price for the convenience of using a prepaid debit card.

The study, published in August, 2009, found that a hypothetical customer using a Millennium Advantage Card could pay up to $115.05 in fees during the first month using that card.

Prepaid debit cards are a growing business according to the Consumers Union report, "Prepaid Cards: Second-Tier Bank Account Substitutes." The report states that Green Dot reported in 2008 that its cards were used in over $4 billion in transactions. Furthermore, since 2007, approximately $1 billion has been loaded onto WalMart Money cards.

According to Consumers Union, prepaid debit card fees include initiation/activation fees, monthly fees, point of sale transaction fees, cash withdrawal fees, balance inquiry fees, transaction statements, customer service fees, bill payment fees, fees to add funds, dormancy fees, fees to access any remaining funds when the account is closed and overdraft fees.

The study notes that activation fees are as high as $29.99, while the Millennium Advantage card charges one dollar per minute for live customer service calls. Meanwhile, overdraft fees run from $14.95 to $29, depending on the card company. Furthermore, in some cases, the overdraft fee is referred to in the card's terms and conditions but the amount of the fee is not disclosed.