Editorial Policy

New Disclosure Box would put Prepaid Card Fees Front and Center

Marcia Frellick

March 19, 2012

Prepaid cards have their perks. Yet their convenience comes at a cost, as many prepaid card users well know.
Want to use the card to withdraw cash at an ATM? That will cost you a fee. Want to add more money to the card? That’ll be another fee. And don’t forget the monthly fees. Worse yet, many fees are hidden within the card’s terms and conditions, meaning consumers may not know what they’re in for until after they sign up.
To improve transparency, three major players in the prepaid card industry — Green Dot, Plastyc and Ready Credit — have agreed to test a fee-disclosure box so that consumers know exactly how much they’re spending when they use their cards.
Prepaid cards are similar to debit cards but are not linked to a checking account. They are most often used by people who don’t have checking accounts, but who want an alternative to using cash. Promotions often point out approval is guaranteed and no credit check is necessary, which is a given, since no credit is being extended. The amount available to use is the amount loaded on by the consumer.
Competition is fierce in this market because one in four American households is “unbanked” or “underbanked,” according to the Federal Deposit Insurance Corporation (FDIC).
Consumer advocates have criticized prepaid cards, saying that they carry heavier fees than what a bank would charge for a similar service. And fee structures vary among prepaid cards which makes it very difficult for consumers to compare them. In fact, when  financial guru Suze Orman launched her prepaid brand, the Approved Card, earlier this year, critics had a field day. A close look at the card’s fees revealed charges for more than one call a month to customer service, for a paper statement and sometimes for ATM withdrawals.
So nonprofit consultancy the Center for Financial Services Innovation proposed including standardized fee disclosure boxes within card terms and conditions. The idea is that, if the fees are displayed uniformly and prominently, consumers can compare them easily and know exactly what they are signing up for — and which card best fits their needs.
The CSFI prototypes list 14 fee categories, including the cost to set up the card, fees for inactivity, fees for calling customer service and fees for getting cash from an ATM. One version of the box also lists the amount the average user is likely to pay for a particular fee each year to make it easier for consumers to comparison shop.
The idea for these disclosure boxes is not new. Credit card contracts now carry the “Schumer box,” which standardizes fees and penalties, and some banks have agreed to adopt versions of the Pew Health Group’s proposed disclosure box for checking accounts.
Beyond adding disclosure boxes, the CFSI also is calling on the Consumer Financial Protection Bureau to improve protections for prepaid card users. Prepaid cards are regulated separately from debit cards, and they don’t always offer the same protections against fraud and theft that credit and debit cards do.
The CFPB has the authority to write rules governing prepaid cards and is considering adding prepaid card companies to the list of industries that it can monitor and supervise on-site.
No dates for the testing of the boxes for prepaid cards have been disclosed, but Green Dot, the largest of the issuers, said it plans to add the box to card packages in the fall.
“Consumers should not have to worry about surprise fees hidden deep within cardholder agreements,” Green Dot CEO Steve Streit said in a statement.