Beware Branded Prepaid Payment Cards
When it debuted in time for the holidays, the Kardashian Kard was touted as the ultimate glitz-and-glam stocking stuffer. But don't try finding one.
The prepaid payment card, emblazoned with a sultry image of the Hollywood celebrity-sister trio, was almost immediately yanked off the market, amid widespread criticism that it was overloaded with costly, hidden fees.
Short-lived as it was, the Kardashian Kard is just one of many celebrity, sports and cartoon-branded plastic payment cards, primarily aimed at teens/young adults or those with poor credit.
"Prepaid cards may walk and talk like regular credit or debit cards, but they're not the same thing," said Suzanne Martindale, associate policy analyst with Consumers Union in San Francisco. A recent report by the nonprofit warned consumers about the prepaid cards' often-hefty fees and weak financial protections. (For the full report, go to www.consumersunion.org.)
"The fees can be high, multiple and confusing. ... And you're at the mercy of the prepaid card company if your card is lost or stolen. There's no guarantee you'll get your money back," said Martindale.
But that hasn't slowed the "explosion" of prepaid card offers. And during the economic slowdown, when many people are consciously trying to cut credit card debt -- or can't obtain a traditional card due to financial troubles -- a prepaid card is often seen as a viable solution.
"With so many people still out of work or [dealing] with damaged credit scores, it leaves many consumers feeling no choice but to turn to these 'fringe' banking products," said Martindale.
Prepaid payment cards aren't covered by the same mandatory federal protections that limit consumer losses on bank-linked credit cards to $50, for example.
With prepaid cards, any consumer protection is strictly voluntary.
In its September report, Consumers Union compared the fees charged by 19 prepaid cards and found they vary tremendously by type and amount. For instance, the survey found that one-time activation fees ranged from zero to $39.95; monthly fees were up to $10; typical charges for ATM withdrawals were $2.
(The ill-fated Kardashian Kard, by comparison, charged $99.95 for 12 months, which included a $7.95 monthly fee, as well as a long list of extra charges.)
Prepaid cards in general carry many miscellaneous fees, for items such as calling customer service to getting a paper statement listing monthly purchases.
Among the cards with the lowest fees in Consumer Union's survey were the Wal-Mart Money and nFinanSe cards, which charged $3 for activation, $3 monthly service and ATM fees of $2 (Wal-Mart) and 99 cents (nFinanSe).
"It's buyer beware," said Bill Hardekopf, CEO of LowCards.com, a credit card comparison site that also rates prepaid cards.
Hardekopf is especially bothered by prepaid cards catering to teens. "Cartoon characters, athletes and celebrities who may not know anything about financial management can influence teens and young adults," he said. "They're wanting these cards, but not for the right reasons."
MyPlash, a prepaid MasterCard for teens, offers cards picturing the "hottest" music, sports, film and cartoon stars, everyone from teen surfer Kassia Meador to rapper Rich Boy to nine versions featuring the "Twilight" vampire movie cast. It's free to activate, with $4.95 monthly charges, $1.50 for ATM withdrawals and incentives to get free services.
One of the less-splashy entrants in the teen market is San Diego-based BillMyParents.com, whose prepaid card is geared to ages 13 to 18. Its cards don't carry images of rap stars, fictional vampires or other teen idols, but lean toward flowers, puppies and skateboards. The company says its card aims to promote family communication and help parents teach kids "financial responsibility." Its website hosts teen-friendly budgets and money advice, as well as tips for parents. The fees: free activation, $3.95 monthly, $1.50 for ATM withdrawals.
Meanwhile, Consumers Union and other groups are asking the FDIC to require more consumer protections on prepaid cards.
Until that happens, consumer specialist Martindale recommends: "Do your homework. If you're getting a prepaid card, find out the fees and do your best to avoid them so you're not nickel-and-dimed to death."
Read the card's terms and conditions, just as you would with any debit or credit card. Look beyond the basic fees posted on the card's packaging; you may need to drill down on the company website to find fee schedules. Ideally, get a prepaid card that reports to a credit bureau, so the user can establish a good credit history.
And keep low amounts on a prepaid card so you don't risk losing everything if the card is lost or stolen.
Despite the glitzy, Kardashian-style marketing of many prepaid cards, Hardekopf reminds: "These are not toys. They can be very costly and create some bad habits. If we don't teach our children how to use money properly, they could cause a lot of [financial] damage that could take years to dig out of."