Prepaid debit cards–Fees and confusion galore

Reposted from Ed Mierzwinski on US PIRG’s Consumer Blog:

Candice Choi of the Associated Press tried living without a bank account and relying on prepaid cards and check-cashing stores for a while for her story “Living without a bank: Fees and confusion galore.”

Although many consumer advocates have hopes that prepaid debit cards — because they can be less expensive to provide due to their electronic, not paper, base – can act as a low-cost bridge for the unbanked to become banked, Choi found instead that prepaid cards came loaded with fees, including fees for reloading the cards:  “These charges were the most frustrating because they were so unpredictable. The two cards I used each cost $4.95 — on top of the money I was putting on the card — but came with wildly different terms. Some cards cost as much as $29.95 upfront.” This sidebar lists the fees on three popular cards.

Also today, Washington Post report Ylan Q. Mui reports on “Debit cards replacing credit cards on college campuses.”

On some campuses, student IDs are now outsourced to bank partners that provide a re-loadable debit card feature, sometimes  in a closed-loop system usable only on and near campus and sometimes — with a Visa or MC logo — usable where any debit card can be used.

The big growth in campus cards appears to be in providing student loan refunds on debit cards, a business dominated by a ten-year-old firm called Higher One. Some Higher One cards also function as IDs. As Mui reports, there has been scattered but noisy opposition to the ATM and PIN debit and other fees students pay to Higher One, especially at two schools in Oregon, which recently re-negotiated student fees. PIN debit fees? Banks make more money from merchant interchange fees on signature debit, so some, like Higher One (through its bank partner), charge a fee for carrying out PIN debit transactions.

A recent column in the Oregonian has details on the spat between Higher One and Portland State and Southern Oregon Universities. Believe it or not, there is also a campus card news service, CR80, with more.

Here’s some research on the potential benefits for the unbanked from prepaid cards and other savings ideas from the Center for Financial Services Innovation.

By the way, Walmart is investing big in prepaid debit and also recently bought a small stake in one of the biggest general purpose re-loadable prepaid cards, Green Dot.