Reloadable pre-paid cards are becoming an increasingly common alternative to current accounts in the US and, as a result, need to be more tightly regulated to protect consumers, warns the Pew Charitable Trusts.
General purpose reloadable pre-paid cards - used to make purchases, withdraw money from ATMs and pay bills - have soared in popularity in recent years, with Pew expecting them to account for more than $200 billion in consumer assets in 2013, up from just $28.6 billion in 2009.
This growth has not been accompanied by a comparable increase in regulatory oversight, making pre-paid a risky option for many customers, warns Pew, which has reviewed 52 cards, covering more than 75% of the market in 2011.
The research reveals widely varying fee structures and disclosures for pre-paid cards, making comparison shopping difficult because most products have seven to 15 individual fees to consider and their disclosures are not uniform. The range for the median cost of the common fees Pew tracked, such as monthly and ATM charges, was $0.50 to $9.95.
While the cost of pre-paid cards can still be less than current accounts, they are not covered by laws requiring disclosure of fees and terms - nor those that limit consumer liability for unauthorised electronic fund transfers.
In addition, FDIC insurance does not necessarily apply to funds loaded onto pre-paid cards. Those companies that claim funds are FDIC-insured are not federally supervised and, therefore there is no guarantee the protections are executed correctly.
Pew's concerns echo those of the Consumer Reports lobbyist group, which carried out a similar examination of pre-paid cards earlier this year.
Both organisations are pinning their hopes on the new Consumer Financial Protection Bureau (CFPB), which under Dodd-Frank has been given the ability to write rules pertaining to the pre-paid market and actively supervise larger participants.
Susan Weinstock, director, safe checking project, Pew, says: "The pre-paid card market is an evolving industry that has inconsistent fee structures and services, which are confusing to customers. Consumer protections are needed to ensure that people are not misinformed and can comparison shop among products, including traditional checking accounts. We look forward to the new rules covering prepaid cards that the Consumer Financial Protection Bureau is slated to announce later this year."