By attempting to cover too much territory, this article ends up delivering confusion not clarity. Prepaid is complex all by itself, and trying to resolve the wide ranging perspectives of pure play prepaid providers, banks, and consumer groups simply results is an article that, in my opinion, misses the point.
This article gives consumer groups an opportunity to make their point:
“But the industry’s explosive growth, and large banks’ push into the market, has left some consumer advocates worried that low-income consumers will be trapped outside the banking system without the protections inherit in traditional checking and savings accounts.
The industry needs more oversight to ensure that players in the market aren’t simply profiting from low-income consumers by charging exorbitant fees, advocates say.”
Unfortunately this is a view that reflects a misunderstanding of the prepaid business, and the article does not explain that all open-loop prepaid cards are issued by regulated banks and must comply with a number of rules and regulations that extend many of the same protections.
The potential of prepaid to help the poor is recognized in another part of the article, but even then, it damns the industry with faint praise.
“Electronic cards are a good way to get people into the banking system, if they are low cost and operate similar to other accounts banks offer,” said Mark Pearce, director of the division of consumer protection at the Federal Deposit Insurance Corp. “Historically, prepaid cards haven’t measured up to that standard, but it has been an evolving marketplace.”
Treating prepaid as a single monolithic entity paints an over-simplified picture of what the prepaid industry is and how it provides value to cardholders. The underlying assumptions seem to be that free checking is ubiquitous and easy to obtain and that prepaid cards thus are always more expensive than accounts. Yet, as free checking accounts disappear, and customers begin to weigh their options, many opt for prepaid cards over checking because they feel they are getting a better deal. Rather than trying to get every opinion about prepaid cards into one piece, the article may have been better served by explaining the complexities of the market and explain that no one prepaid card, just like no one financial service product of any kind, can be all things to all people.
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