Source: CNBC (YouTube)
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General purpose reloadable (GPR) cards are seeing increased use by consumers, especially among “unbanked” cardholders who tend to use those cards like checking accounts.
That’s among the findings of the Pew Charitable Trusts, which released a report Tuesday (June 30) titled “Banking on Prepaid,” in which research showed that 23 million adults regularly use GPR prepaid cards nationwide. Those cards let holders load funds using either cash or direct deposit activity as their source. Then the cards can be used at ATMs or at retail locations to make direct purchases.
Those surveyed by Pew totaled 587 respondents who use those cards at least once per month. The respondents were questioned late last year on various attitudes towards, and use of, the cards.
Pew said its findings reflect an increased use of prepaid cards, with a 50 percent jump logged between 2012 and 2014. Key drivers came from a growing use of the cards among those respondents with bank accounts; they tended to get their prepaid cards at either banks or credit unions. Demographically speaking, Pew noted, these users had higher incomes than did unbanked prepaid cardholders.
The survey found that unbanked users tend to treat their cards virtually as traditional checking accounts — and check their balances more frequently than their banked brethren. Of the unbanked, statistics from the survey showed that more than eight out of 10 cardholders have annual household incomes lower than $50,000 and roughly one-third of that number have incomes below $15,000. These users treat cards as a budgeting aid, with an eye on controlled spending and avoiding debt.
Pew’s report also states that a majority of prepaid card users do not in fact know if their cards have protections in place, such as an arbitration clause, or whether the funds tied to the cards are FDIC insured. Yet Pew’s research shows that roughly three quarters of cards do actually have such a clause, though many cardholders do not know if they are covered by liability protection; however, the cards must be registered for the clause to be in effect.
Noting that the Consumer Financial Protection Bureau had proposed a number of safeguards to boost consumer protection on prepaid cards, Pew stated that those rules should be finalized quickly.
Source: PYMNTS.com
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The cards aren't attached to bank accounts, and you can load and withdraw as much money as you want onto them from ATMs and make payments anywhere that debit or credit cards are accepted. And since you can only spend the amount that you've placed on the card, there's no risk of overdrawing your account and getting hit with overdraft fees. They've become so popular in recent years that celebrities, big banks, drugstores, tech companies and even organizations like Occupy Wall Street have rolled out their own versions.
While often viewed as an alternative banking product for the millions of Americans who lack bank accounts, the unbanked are no longer the primary users of prepaid cards, according to a Pew Charitable Trusts survey that polled 613 prepaid card users. In fact, the majority, 59%, also have checking accounts. Most prepaid card users reported struggling with credit card debt, overspending and overdraft fees in the past -- with two in five customers closing their own checking account or having an account closed after incurring too many overdrafts. And the most common reasons respondents cited for using prepaid cards were to avoid spending more money than they have and to avoid credit card debt.
"I am already negative in my checking account. So with this, I know what I can put on and what I can and cannot use," said one respondent in Pew's survey.
Unbanked prepaid card users said they want to be able to purchase items online. "I'm avoiding banks, and I still have Netflix, so I need to pay for it with some sort of plastic because you can't pay for things online with cash," another user stated. Many people who previously dealt in all cash said they switched to prepaid cards because it's safer than walking around with wads of money in their pocket, and others reported liking prepaid cards because they allow you to make transactions more annonymously -- since they aren't tied to a bank account. Another group of consumers said they simply can't qualify for checking accounts.
Fees used to be a big problem with prepaid cards, and still are in many cases. But as demand grows, more affordable options are entering the market -- and some are even less fee-heavy than traditional checking accounts. Overall prepaid cards are shifting their fee models to look more like checking accounts -- getting rid of some of the ancillary fees like customer service fees and charging more consistent monthly fees. This is a positive development, says Pew, since customers are less likely to be hit with charges they aren't expecting.In addition, three of the 10 largest prepaid cards are now issued by banks, which are generally better options because they carry lower -- and clearer -- fees, Pew finds.
There's still a big problem with prepaid cards, however. While federal laws regulate traditional bank accounts, limiting the fees they can charge and requiring certain protections from fraud losses and insurance coverage, prepaid cards remain unregulated.
"While prepaid cards offer many benefits to consumers, they are a relatively new product with little oversight. A lack of protections undermines prepaid cards as a safe and easy way to manage money," said Susan Weinstock, director of Pew's safe checking research, in a statement.
Source: CNN Money
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