Beware Prepaid Card Fees, Senator Warns

Consumers should know what fees they face when they buy prepaid cards, Sen. Robert Menendez said at the  in Paramus Monday.

Prepaid cards function like debit cards, but they don't draw on checking accounts. Instead, consumers deposit money in separate accounts linked to the cards.

Standing in the crowded corridors of the mall just a few shopping days before Christmas, Menendez lifted a folded piece of paper covered in lines of text. 

The document listed all the fees consumers face for using prepaid cards, he said.

Charges can come upon activation of the card, ATM withdrawals, purchases, bill payments and for calling customer service, Menendez said.

But consumers often aren't told up front about the fees.

"You don't even get to receive this fine print until after you've purchased the card," he said.

Menendez is reintroducing a bill in the Senate that would require companies to reduce the scroll of fine print to a wallet-sized slip.

The Prepaid Card Consumer Protection Act would also ban fees for calling customer service, balance inquiries and closing an account, among others.

The act would also give prepaid cards Federal Deposit Insurance Corp. protection, allowing consumers to keep their money if the card companies go bankrupt.

The senator introduced the bill late last year, but it fizzled out in the lame duck session of Congress.

Chuck Bell, programs director for Consumers Union, publisher of Consumer Reports magazine, said his group has received many complaints about the prepaid cards. He called on Congress to act to lower fees and make them more transparent.

"We strongly support the Prepaid Card Consumer Protection Act and commend Sen. Menendez for introducing this bill," he said.

Prepaid cards are becoming increasingly popular. The Mercator Advisory Group said the total value of prepaid accounts went from $60.4 billion in 2009 to $233.8 billion today.

The cards' increasing popularity is in part due to celebrities, like the Kardashian sisters, putting their faces on the cards and marketing them to their television audiences. The reality show family released the Kardashian Kard last year, but shut it down in less than a month after drawing criticism for high and hidden fees.

"The Kardashian Kard was the poster child of predatory prepaid credit card practices," Menendez said.

Despite the fallout from the Kardashian Kard, rapper Lil Wayne launched a prepaid credit card in November. Hip-hop mogul Russell Simmons was a pioneer in the industry, releasing his RushCard in 2003.

The users of prepaid cards are often already financially vulnerable, unable to qualify for credit cards or bank accounts.

Under Menendez's bill, prepaid cards would face increased scrutiny.

"We think these are baseline protections and we think the industry will still make significant amounts of money," he said.