Considering a prepaid card? Here’s everything you should know about prepaid cards, including fees, new protections and mobile wallet integration.
When prepaid cards rolled out decades ago, they were fun and exciting. As famous names like the Kardashians and Disney introduced their version of the prepaid cards, Americans couldn’t get enough of the disposable plastic.The novelty wore off quickly, once consumers discovered these cards had high fees and limited to no disclosures.
But fees didn’t act as a total deterrent because prepaid cards have staying power, especially for the unbanked and underbanked. And while the cards still come with fees, they’ve evolved since their initial introduction.
“The perception of prepaid cards being only a gift card, a one-and-done use case, couldn’t be farther from reality,” Laura Mackenzie, senior vice president of prepaid at Mastercard says. “Today’s prepaid cards are popular financial-management tools, inclusion tools, convenient ways to pay, travel companions and much more for next-generation consumers and businesses.”
Some ways people hold funds on a prepaid card include government social benefit disbursements, companies to pay salary and per-diem expenses to employees, payment for gig economy employees and for credit building, she adds.
Want to know more? Here are six questions about how prepaid cards are working these days.
See related: Prepaid cards: 9 facts you need to know
6 questions about prepaid cards
1. Do prepaid cards remain fee-heavy?
One of the biggest drawbacks to prepaid cards are the fees. For the most part, the user is typically unaware of the kind of fees and amount because companies may not disclose fees.
From 2011 to 2016 the Consumer Finance Protection Bureau logged 4,300 complaints about fees, especially for replacement cards, monthly fees, inactivity fees, transaction charges, fees for balance inquiries, PIN changes and overdrafts.
That has changed: Disclosure changes and new protections for prepaid cards came into effect April 1, 2019, Drew Guthrie, chief operating officer at The FoolProof Foundation explained.
Under a new rule by the Consumer Financial Protection Bureau, prepaid cards now have the same protections as debit cards.
According to the CFPB, starting April 1, 2019:
- You should be able to monitor your account for free.
- Your money should generally be protected if your card is lost, stolen or wrongly charged.
- You should also get clear, upfront information about account fees.
“The April rules will have design elements that make disclosures easier to read,” he says. “But remember, each card still has different features and fees. Some don’t address backend and access fees, which can pile up and be hard for consumers to decipher.”
More good news: Consumer Reports’ research shows that prepaid card fees are down, and many providers offer opportunities for consumers to avoid them, Tobie Stanger, senior editor at Consumer Reports says.
“Rather than focus on specific fees to avoid, consider how you expect to use your prepaid card, and find a card with the lowest – or no – fees for that type of use,” Stanger says.
2. How can I choose a prepaid card that fits my lifestyle?
Since a variety of cards deliver different benefits (and drawbacks), Guthrie advises consumers to do some research before diving in.
“Just a quick Google search will help guide you to finding the card that best fits your needs and lifestyle,” he says. “Know how you spend and deal with money, too. You don’t want to adjust your lifestyle to accommodate the card, but instead get a card that fits your lifestyle.”
Stanger offers an example. “If you want a prepaid card to shop online occasionally, it might make sense to have a card that requires a per-use purchase fee rather than a monthly fee,” he explains. “But if you want to use a prepaid card the same way you’d use a bank debit card, it makes sense to find one with a low monthly fee and see if you can qualify for a fee waiver.”
3. Can I add a prepaid card to my mobile wallet?
“Prepaid cards work within the mobile wallet as any other card does,” Mackenzie explains. “It can be loaded and tapped at point of sale to make a purchase..”
Another interesting opportunity for prepaid cards in mobile wallets is instant issuance, Mackenzie adds. Before the plastic card is physically delivered to the recipient, the card information can be loaded into mobile wallets and used immediately.
If you’re interested in using a mobile wallet in combination with a prepaid, debit or credit card, our guides can help:
4. Can I use a prepaid card as a student ID?
Capabilities like mobile wallet and instant issuance are just a few examples of how prepaid cards have evolved. But prepaid cards are also being used in new ways. For instance, college campuses across the country allow the students’ I.Ds. to double as a prepaid card.
“I would put a specific amount of money on it and use it for things all around campus,” explains Caitlin Caruso, a fourth year-student at Florida State University.
Caruso said she used the card for everything from Starbucks and laundry to printers, vending and restaurants on campus. She adds while you can use cash or a credit card, the prepaid card was a lot more convenient when you are living on campus.
5. How is the gig economy using prepaid cards?
Additionally, retail employees and gig economy workers may receive their paycheck via a prepaid or payroll card.
More companies are moving toward issuing payroll cards over a traditional paycheck, according to a study by the Sargent Shriver National Center on Poverty Law.
But the obvious downsides to this method for the employee are the fees, which depresses wages, especially for lower paid workers.
For instance, users of the Wells Fargo PayCard receive one free ATM withdrawal at Wells Fargo per pay period, free signature point-of-sale purchases and free teller cash advance transactions.
However, they have to pay a $1.50 fee for each subsequent ATM cash withdrawal on the same pay period and a $1.00 fee for each point-of-sale PIN transaction.
6. Prepaid cards for payroll: Do employees have options?
One distinction between prepaid and payroll cards are disclosures, according to Consumer Reports.
Payroll cards are subject to regulations and must provide disclosures, whereas currently, prepaid cards are not – yet.
Payroll cards are also protected from unauthorized transactions or errors and have almost the same coverage as a regular bank account.
Under the new CFPB rule, however, prepaid cards will have the same protections as debit cards.
Some employees, however, still don’t love being paid this way. Guthrie says The FoolProof Foundation has tracked this growing trend and has advice for workers who want to be paid another way.
“Workers should know that employers are required to give you other options,” he says. “They may push you toward the prepaid card but they are required to give you an alternative. Unfortunately, workers may not realize this, especially younger workers. They don’t realize they can still ask for a traditional paycheck.”