The truth about prepaid cards Oct 31, 2013, 8:10 am By Heidi Carmack Pfaffroth

There’s a lot of hype surrounding prepaid, reloadable cards—with providers promising “no annual, monthly or overdraft fees and no minimum balance.” Users are interested in the idea of feeling like they aren’t tied to a bank.

Bank of American Fork exists to strengthen individuals and communities by providing safe financial services, and our dedication to our customers motivates us to develop products and services that fit your needs. Since there has been this buzz about prepaid, reloadable cards, our product development team decided to consider whether we could and how we should offer this product.

After extensive research, we concluded that this product may not be beneficial, or even desirable, to our customers. We want to tell you more about what we learned.

Research showed that there is little demand among our customers for this type of product, and where there is a demand there is reluctance to pay fees. However, one of the findings about existing prepaid cards is that they still carry fees—most of them more expensive than a checking account. An article in The Banc Investment Daily said the same thing. (Banc Investment Group, LLC. “Banc Investment Daily: No song bird,” PCBB, October 3, 2013).

If consumers want a product that allows them the flexibility of using a card, but hesitate to use a product that has fees, there are likely better options for them out there.

Many community banks still offer free banking services for many products, including free checking accounts that come with a debit card. The standard definition of a “free” checking account is a checking account with no minimum balance requirement and no monthly fee. In fact, Bank of American Fork offers a high-yield checking account with a free debit card, nationwide ATM refunds and more. You can read more details about this account at www.bankaf.com/MyRate. This type of account is low-cost, safe and easy for customers and usually fills the needs of those who are interested in the convenience of a prepaid card.

Besides the fee income a company earns from offering prepaid cards, why else are companies offering them? Is there really a high demand for them? Or have many of the benefits been oversold, creating the demand? Companies may not be offering prepaid cards just because they believe their customers want them, but also to encourage a product that earns them income and costs them less.

While much of the hype says that prepaid cards are a way to get away from banks, the fact is that regardless of where you buy a prepaid card, it’s still a bank product. Most companies are just offering financial services through a partnership with a bank, without a bank charter.

If you’re looking for a card that has low fees and allows you flexibility with loading and reloading, consider a financial institution that has a free checking account. They’re still out there.

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2 Responses to The truth about prepaid cards

  1. Clint Greene says:

    Can you comment on how legislation related the bill HR 4646 might impact this discussion and consumer/ bank relationships generally going forward?

    • Heidi Carmack Pfaffroth says:

      Clint, thanks for bringing up an interesting discussion point. At this time, it’s somewhat beyond the scope of what we are prepared to talk about. Especially since your comment, we’ve looked into this bill and right now, we don’t really have an answer to your question. In the lengthy process of a bill becoming a law (or not), there are often many changes to the details and a lot of study about how it will impact various groups. At this time, there aren’t any studies from the community bank associations that we look to as we form our opinions about the impact of various legislation on us and other community banks. Thanks for provoking an interesting discussion—hopefully others are following this, too.

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