Right now consumers are under siege. From high unemployment to rising food and utility costs, consumers are just barely able to keep their heads above water.
Well, here is another issue to add to the list. Prepaid debit cards are the fastest growing form of electronic payment in the nation. Federal Reserve data shows that prepaid card transactions have grown more than 20 percent and these transactions are expected to explode in the near future.
These cards may seem like a great idea to individuals with little or no credit history or those who have difficulty obtaining traditional credit cards. But be wary, these cards come with fees that basically charge you to use your own money.
Three of the most popular, Liquid by Chase, the Capitol One Prepaid MasterCard and The Approved Card by Suze Orman are the most recent additions to the line-up of prepaid debit cards. There are a lot of promises behind these cards, the biggest being account and financial management and the possibility of improving your credit. This is simply not the case.
What are you as the consumer risking with these cards?
Exorbitant fees. These cards come loaded with fees. There are initiation fees, maintenance fees, and paper statement fees along with payment inquiry fees and don’t forget the fees on theses cards to reload with your own money range from $3.95 to $5.00 every time you want to reload your card with your own cash. Total fees on these cards can range from $142.00 to $200.00!
They do not build your credit. At this time it is not going to happen. Credit reporting agencies do not track debit card usage as an indicator of credit worthiness. Understand, prepaid debit card transactions are cash transactions and your credit score is determined by how you pay your bills over time not what groceries you picked up this week.
Not needed for account management. You do not need a prepaid debit card to get account management services. Any bank or credit union will do the same thing and without all of the fees. Yes, you can get these services for free.
The main issue with these prepaid debit cards is that they target a vulnerable financial underclass. This is a growing segment of the population that is typically underbanked or unbanked and may think that a prepaid debit card (especially one that promises to help improve your credit) may be the way to go.
1.) Know that it is always better to go with a bank or credit-union free checking account instead of a prepaid debit card.
You can always have free access to your credit report through www.freecreditreport.com
You can receive account management services through your bank or credit union or through free debt/financial counseling organizations; and think about it; would you really want to receive financial advice of any kind from a prepaid debit card service?
Black Enterprise Financial Columnist Jennifer Streaks is a Financial Author, Expert & Pundit. Continue the conversation by going to her website www.JenniferStreaks.com and following her on twitter @jstreaks.