The Pew Charitable Trusts recently released a model for better disclosing the terms and fees of prepaid cards after finding a lack of uniformity in how card issuers present this information is making it difficult for people to comparison shop for prepaid cards. The same day Pew released its model, Chase (JPM) announced it would adopt the model for Chase Liquid, a Visa prepaid card with a $4.95 monthly fee.
Prepaid card use has grown significantly in the past few years, with consumers loading $64.5 billion onto prepaid cards in 2012, up from $28.6 billion in 2009, according to Pew research. Prepaid cards offer the convenience of ATM withdrawals and online shopping, like credit cards, and users can have their paychecks deposited directly to these cards. For people who can’t get credit cards, prepaid cards are a way to take advantage of plastic-based services, but they don’t help you build credit.
They also typically carry many fees, which Pew says aren’t clearly communicated to consumers. Nearly every one of the 66 most popular prepaid cards reviewed in Pew’s research failed to disclose at least one fee, service or consumer protection, so shoppers may be unsure of costs associated with the cards they choose. Pew’s research found that only 32% of consumers comparison shop for these cards, instead choosing one in-store or one used by a friend or family member.
The disclosure format Chase Liquid adopted fits inside the standard card packaging you see on those gift-card trees at the supermarket, and the customer can read the terms and conditions of the card upon opening the flap on the packaging. The disclosure box is based on Pew’s checking account disclosure box, which is used by 26 banks and credit unions, and allows customers to compare the terms among cards and checking accounts.
“Our customers appreciate that we use clear language when we describe how our products work,” said Barry Sommers, CEO of Chase Consumer Bank, in a news release about the new disclosure box. “Chase Liquid was built on the premise of being simple and easy to understand, so the Pew disclosure form is perfectly aligned with this product.”
Based on the 66 cards Pew reviewed, these are the median amounts of the most common prepaid card fees:
- Monthly fee: $5.95
- Acquisition fee: $9.95
- Out-of-network or in-network ATM withdrawal: $2
- ATM transaction declined: $1
- Point-of-sale signature or PIN transaction: $1
- Point-of-sale transaction declined: 50 cents
- Live customer service call: $1.95
- Automated customer service call: 50 cents
Prepaid cards are more of a debit card substitute (but make no mistake, they are not the same thing), and like debit cards, they don’t help you build credit. If you don’t qualify for a credit card, want plastic and want to improve your credit standing, getting a secured credit card may be a good option. You secure the line of credit with a $500 deposit, for example, and you then get a card with a $500 credit limit. You build credit by making your monthly payments on time and keeping your credit utilization low, but if you fail to make payments, the bank will take the money you owe from your deposit.
No matter what form of plastic payment you choose, the key is to know what you’re getting into. From Chase and Pew’s perspective, the hope is that clearer explanation of terms and fees will make that part a lot easier for you.
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