Consumer Reports says that prepaid cards can be an alternative to checking accounts, but it delivers this statement with a bevy of caveats.
Prepaid reloadable cards are promoted as a convenient alternative for people who don’t have a checking account and the debit card that often comes with it. You can use them to make purchases at any store that accepts those brands of credit cards, to withdraw cash from participating ATMs, even to pay bills or buy stuff online. They’re a lot easier to get than a bank checking account; you just buy one in a store. But while some prepaid cards are credible stand-ins for bank account that are FDIC insured and offer strong consumer protections, others are poor deals laden with costly gotchas.
The article goes on to praise American Express Bluebird and complain about overdraft fees and the RushCard outage. It neglects to mention, however, that the RushCard outage was not something that was connected to prepaid, but a processor glitch that has happened to credit and debit card programs in the past. Only one major prepaid program has an overdraft program, and it waives a large number of fees.
While the article praises the coming federal regulations, if the rules prove too onerous, then there may be no alternative for those people who have been shut out of bank accounts by high minimum balances, by a lack of bank locations near their home or work, or by account fees that are too high.
Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group
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