In a poorly-titled post decrying high fees, MSNBC’s ‘Consumerman’ blogger explains why people have turned to prepaid cards for financial services by citing research from organizations like the Pew Charitable trusts. The post, entitled “Despite ‘egregious’ fees, prepaid card sales soar” details how consumers prefer the straight forward pricing for service that prepaid cards offer along with their benefits.
To find out, the Pew Health Group’s Financial Security Portfolio conducted focus groups with people who buy prepaid debit cards. Users said they like the cards because they help them budget and control their spending. They put a certain amount of money on the card and when it’s empty, they’re done.
Most of those in the focus groups also had checking accounts. But they use prepaid cards to avoid overdraft fees.
The post fails to make any meaningful comparison to the value offered by other forms of financial services. The other place where ‘ConsumerMan’ Herb Weisbaum should have done more research is where he says that cardholders could lose money on prepaid cards.
Something else to remember: unlike checking accounts, prepaid cards may not have FDIC protection. If the company goes bust, you could be out the money loaded onto the card.
He is not clear which company and does not seem to understand how prepaid cards work. If a program manager were to fail, the funds on the cards would be held by the bank, so those funds do not vanish into thin air. Reclaiming them might take some work, but it is incorrect to say that cardholders would lose all their money. If the bank fails, the funds are insured to the cardholder as long as the FDIC can ascertain how much is due to each cardholder.
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