Consumer Action Prepaid Card Survey

Prepaid cards are useful but costly if you don’t avoid the ‘gotchas’

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April 12, 2012—Consumer Action’s Prepaid Card Survey, released today, found that most prepaid cards come with an assortment of fees, but there are ways consumers can avoid many of them.

Consumer Action learned that all surveyed cards voluntarily extend Regulation E “type” protections for unauthorized use and error resolution, although these arrangements lack legal requirements and could be changed at anytime, for any reason. Most cards also offer FDIC insurance.

“Given the plethora of fees on prepaid cards, it’s not a simple task to compare one card to another, so we’ve done the legwork to find the ‘gotchas’ to assess how these cards work,” said Linda Sherry, Consumer Action’s director of national priorities.

Consumer Action reviewed 28 general purpose reloadable prepaid cards and found that with a little effort to avoid fees, this fast growing payment and money management tool can help people control spending, make online purchases, and distribute spending money to family members. They don’t require a credit check, generally allow cardholders to recover lost funds and don’t lead to debt. All but American Express’s prepaid cards offer FDIC coverage. American Express cards rely on state transmitter laws to keep funds on reserve.

Unlike credit cards, which loan you money, and debit cards, which draw on your bank account, prepaid cards must be “loaded” with funds before you can use them. The money you spend is deducted and the balance goes down until you reload the card again.

'Gotcha' fees galore

The laundry list of prepaid card fees include charges for cash withdrawal, reloading, balance inquiries, purchase transactions and foreign transactions, monthly maintenance, activation, customer service, using a teller, account closure and more.

Some prepaid fees are particularly hard to stomach:

  • Automated customer service fee: There’s a 50¢ fee for contacting automated customer service on Account Now and NetSpend cards.
  • Inactivity fee: H&R Block, Netspend, Western Union Prepaid and Western Union mun2 charge a monthly penalty fee if you haven’t used the card for a certain period.
  • Declined transaction fee: Seven surveyed cards charge you when your ATM card is declined: Account Now, Bank Freedom, Modern Cash, NetSpend, Paypal, Suze Orman’s Approved Card and Western Union’s mun 2. (ReadyDebit Control charges for declined purchases.)

Reload fees. We found that many issuers say they don’t have a fee to load and reload funds on their cards—but consumers who want to load cash must pay up to $4.95 each time they add money. Depending on the card, reload fees may be charged by storefronts owned by the issuer itself (Western Union) or by “cash conversion” services such as Green Dot’s MoneyPak.

Double-dip withdrawal fees. Some cards come with one free monthly ATM cash withdrawal. Others allow cardholders to withdraw cash free at ATMs associated with specific networks. Outside of these freebies, all cards charge a fee to withdraw cash at an unaffiliated ATM and consumers may also face a second fee charged by the ATM’s owner.

Avoiding fees

Tips for cardholders to avoid fees and save a lot of money when using a prepaid card.

To avoid ATM withdrawal fees, request cash back for free at a retailer when making a point of sale purchase using your PIN (personal identification number). Make sure you avoid cards with PIN purchase transaction fees, such as Account Now, ReadyDebit and RushCard.

  • Six surveyed issuers offer free cash withdrawals at in-network ATMs: Greendot, Modern Cash, One West, Regions, Univision, Walmart.
  • Issuers that offer one free cash withdrawal per month include American Express and Capital One. RushCard offers two per month. After freebies, cash withdrawals cost $2 to $3 per withdrawal depending on the card.

Avoid reload fees using direct deposit (of your salary or benefits income) or in some cases transfers from a bank account. Many cards allow you to load funds online or by phone for free.

Added attractions. Some cards offer extras like purchase protection plans (American Express), or savings accounts with high yields (Mango, NetSpend, Paypal).

Find a card that works for you

Keep fees low by assessing what type of prepaid cardholder you are. If you are a:

  • Shopper: Look for a card that has no purchase, monthly or balance inquiry fees (American Express, Capital One).
  • Cash–a-holic: Choose a card that offers free in-network withdrawals or free cash back with a PIN purchase.
  • Driver: Prevent gas stations from putting a hold on your prepaid balance ($75 or more) by going inside the gas station and using your card to pay for a designated amount of gas before you pump. If you use your card to “pay at the pump” you’ll face a hold.

Protections you can’t always depend on

Legal consumer protections do not extend to prepaid cards, although voluntary measures tend to mirror debit card protections for billing errors and unauthorized charges. Consumer Action believes voluntary protections are not sufficient, given that they can disappear at any time and are subject to individual company policies. For example, H&R Block’s prepaid card offers zero liability “if you safeguard your card” but the company reserves the right to limit that protection in certain cases.

Consumer Action’s Prepaid Survey, conducted Jan. 16-March 22, 2012, appears in the April 2011 issue of Consumer Action News, the organization’s newsletter (online at Shortcut URL:

In addition, all survey data is included in a PDF that you can read online at this link:

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About Consumer Action

Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A nonprofit 501(c)3 organization, Consumer Action focuses on financial education that empowers low to moderate income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.


Consumer Action Prepaid Card Survey   (prepaid_survey_PR.pdf)




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