Prepaid Cards: Second-Tier Bank 

Account Substitutes 

Consumers Union, the nonprofit publisher of Consumer Reports ® 

By: Michelle Jun, Staff Attorney 

With Consumer Federation of America and 

National Consumer Law Center, on behalf of their low-income clients 

September 2010 with Fee Update 

West Coast Office 

1535 Mission Street 

San Francisco, CA 94103 
I. Introduction 

Prepaid cards, or “general purpose reloadable cards,” are marketed as sensible, 

attractive alternatives to check cashiers and traditional bank accounts. 1

 However, 

consumers face dangers and traps with prepaid cards, which are becoming the foundation 

of a second-tier banking system that shadows the traditional banking system. Until 

consumers who use prepaid cards are guaranteed the same protections as consumers who 

use traditional debit and credit cards, consumers who use prepaid cards will be at risk of 

losing all their money, face multiple, high, and sometimes confusing fees, and be offered 

convenient but very expensive forms of credit associated with the card. 

It would be easy to assume that a prepaid card has the same features and 

protections as a traditional debit or credit card. The prepaid card industry puts out 

advertisements and other promotional materials with slogans like “The Checking 

Account alternative that lets you borrow money and builds credit,” “No Hidden Fees,” 

and “Bank On Your Own Terms.”2

 In addition, prepaid cards look like other plastic 

payment cards and usually bear network logos of Visa, MasterCard or Discover, often 

have the word “debit” printed prominently on the front of the cards, and can be used to 

make payments in many circumstances where traditional debit cards or credit cards could 

also be used. 

Prepaid cards are a growing business. Sizable sums of money have been loaded 

onto prepaid cards in recent years. Green Dot, one of the major prepaid card players, 

reported that in 2008 more than $4 billion in transactions were made using its cards that 

year.3 UniRush Financial Services reported that $2 billion had been deposited on its 

RushCards since the 2003 launch until the end of 2008.4

 These numbers may only 

increase as the prepaid card industry works to steadily expand its reach to enroll the 

millions of unbanked and underbanked, which experts estimate to be between 44 to over 

70 million consumers with limited or no access to bank accounts.5 

Part of the lure of prepaid cards is that they can provide debit convenience to 

consumers who may not qualify or feel comfortable using bank accounts or credit cards. 

 

1

 The prepaid card industry refers to prepaid cards as “general purpose reloadable cards.” 2 See, e.g., AccountNow Prepaid, https://www.accountnow.com/mktcap/signup2_mb.aspx?pcode=Cg001Sgs71&gclid=CI2LmeiQzpkCFQKJxgodDWQ0uQ; RushCard, 

https://www.rushcard.com/; Access Prepaid MasterCard pamphlet distributed by Check N’ Go. 3

 James Flanigan, As Credit Cards Falter, The Cash Variety Gains Popularity, N.Y. Times, March 19, 

2009 (statement of Mark Troughton, Green Dot president), available at

http://www.nytimes.com/2009/03/19/business/smallbusiness/19edge.html?_r=1&scp=1&sq=as%20credit%

20cards%20falter&st=cse. 

4 The Prepaid Visa RushCard Reaches Milestone of $2 Billion in Cardholder Deposits, Reuters, Dec. 16, 

2008, available at http://www.reuters.com/article/pressRelease/idUS218838+16-Dec-2008+BW20081216. 5 See Flanigan, supra note 3 (statement of NetSpend chief executive Daniel R. Henry); Smart Card 

Alliance, Serving Unbanked Consumers in the Transit Industry with Prepaid Cards (2008), 

http://www.smartcardalliance.org/pages/activities-councils-transportation; Javelin Strategy & Research on 

behalf of First Data Corporation, Underbanked/Unbanked Opportunity (2008), 

http://www.firstdata.com/about/thought_leadership/whitepapers/WP13_Unbank_Underbank.pdf. 

2
However, prepaid cards can be inferior to debit cards linked to traditional bank accounts 

in several ways: 

• Fees can be high, multiple, and confusing; 

• Not all prepaid cards provide adequate protection against theft of funds 

using the cards or card account numbers; 

• Promised credit lines or features to build a credit record may be expensive 

and overstated; and 

• Federal deposit account insurance applies differently and may be capped 

at less than the value of all of the prepaid cards issued by a particular card 

program. 

Until these consumer problems are solved, consumers using prepaid cards may find 

themselves stuck in a second-tier and much less desirable banking system. 

Prepaid cards6

 are increasingly marketed to fulfill the same purposes as bank 

accounts. Consumers are invited to directly deposit their paychecks, government 

payments or other recurring income onto the card, to set up bill payment through the 

card, offered checks to draw against card funds, and some prepaid cards offer rewards 

programs, credit lines and savings account options.7

Part of the prepaid card industry’s strategy is to make these cards readily available 

and easy to use.8 Tax preparers, big box retailers, check cashiers, money transmitters and 

payday lenders all offer their own prepaid cards. Once consumers obtain personalized 

prepaid cards, they can be reloaded with additional funds at drugstores, grocery stores, 

and convenience stores by purchasing “reload packs.”9 Consumers are encouraged to 

have funds directly deposited because this method of loading funds usually does not 

include a fee.10 

 

6

 Generally, the term “prepaid card” refers to a wide range of products including gift cards (both retailerissued and bank-issued), payroll cards, self-arranged spending cards, government benefits cards and 

incentive cards. “Open loop” cards are generally accepted anywhere the network-brand is accepted. 

“Closed loop” cards are generally issued by retailers and can only be used at the retailers’ locations. “Semi 

closed loop” cards or “multimerchant gift cards” can be used at participating retailer locations. Philip 

Keitel, Fed. Res. Bank of Philadelphia, The Laws, Regulations, Guidelines, and Industry Practices That 

Protect Consumers Who Use Gift Cards (2008), available at http://www.philadelphiafed.org/paymentcards-center/publications/discussion-papers/2008/D2008JulyGiftCard.pdf. 

7

 The NetSpend card offers a NetSpend Savings Plan. NetSpend, www.netspend.com (last visited Aug. 10, 

2009). The CapCom Unity Rewards Card is an example of a prepaid card providing rewards. Capcom 

Unity Card Home Page, http://www.capcomrewardscard.com/?about (last visited Aug 10, 2009). 8

 The importance in having convenient locations for consumers with prepaid cards to add more money to 

their card accounts was evidenced by the Visa and MoneyGram deal announced in early 2009. 

MoneyGram offers “40,000 U.S. sites to reload...Visa prepaid debit cards.” Statement from Eric Grover, 

Intrepid Ventures (Visa-MoneyGram in Reload Deal, Am. Banker, Mar. 10, 2009). 9

 These reload packs are offered by reload networks which include “Ace Cash Express, GreenDot, 

InComm, MoneyGram, Western Union, ReadyLink—which includes BlackHawk” and are sold at 7-

Elevens, Safeway, Walgreens, and other grocery and convenience store locations. Celent, LLC, Where the 

Banks Aren’t: Nontraditional/Nonbank Advcances in Branded Prepaid Cards 24 (2007). 10 Some prepaid cards require a minimum direct deposit amount per month to avoid fees. 

3
Consumers have collectively placed billions of dollars in household funds on 

prepaid cards. In addition to the billion dollar reports by Green Dot and UniRush, 

industry news reported in early 2009 that H&R Block issued 2.6 million of its Emerald 

cards in 2008.11 Since its launch in the summer of 2007, WalMart issued 1 million 

WalMart Money Cards, with an estimated $1 billion loaded onto the cards.12

Where are these monies held? As one prepaid card study describes it, funds 

loaded to prepaid cards “are held in the aggregate account until the cardholder draws 

down the available balance.”13 By contrast, a traditional debit card is linked to a 

consumer’s individual bank account. As discussed later in this paper, the use of an 

aggregate, or pooled account to hold all of the funds in a prepaid card program has 

important and unfortunate consequences for the application of consumer protections to 

prepaid cards in contrast to those provided by current law for other types of debit cards. 

 The prepaid card industry plans to make prepaid cards the “third mainstream 

product” alongside credit and debit cards.14 MasterCard has announced a plan to help 

boost the industry by running television spots on prepaid cards to increase exposure of 

the product as well as build consumer awareness.15 Households may also choose prepaid 

cards in lieu of bank accounts or credit cards in response to economic uncertainty or out 

of frustration with banks and bank fees.16 Analysts predict that prepaid cards will grow 

along with the general growth of debit as “transactions that would have used credit cards 

in the past are migrating to debit cards and other ‘pay now’ options, as well as ‘pay 

before’ methods such as prepaid cards.”17 

This report discusses the prepaid card market and details needed improvements. 

The federal regulations under the Electronic Fund Transfer Act must be updated to 

protect prepaid cardholders when cards are lost or stolen or when funds go missing. 

Prepaid cardholders should be fully protected if the bank issuing the card fails. Fees 

should be simplified and clearly and consistently disclosed so that consumers can see the 

fees up front and comparison shop easily before handing over any money. Finally, 

claims for certain prepaid card product features such as small credit lines and credit 

building appear to be overstated. 

 

11 Frederick H. Lowe, Tax Firms Try Prepaid Cards for Revenue Lift, ATM & Debit News, Jan. 27, 2009. 12 Anne D’innocenzio, WalMart Lowers Fees For its Branded Debit Cards, Business News, Feb. 18, 2009. 13 See Smart Card Alliance, supra note 5, at 21. 14 Patrick Lunsford, Big Card Issuers Look to Prepaid for New Market Growth, Inside ARM, June 9, 2008, 

available at http://www.insidearm.com/go/arm-news/big-card-issuers-look-to-prepaid-for-new-marketgrowth. 

15 Maria Aspan, MasterCard Readies TV Push for Prepaid, Am. Banker, Apr. 15, 2009. 16 Many credit card companies are either raising fees or expressly attempting to get rid of some of their 

customers. See, e.g., American Express Paying Customers $300 to Leave, Wall St. J. Online, Feb. 23, 

2009, available at http://blogs.wsj.com/wallet/2009/02/23/american-express-paying-customers-300-toleave/; Kathy Chu, Chase adds fee for low-rate credit cards, USA Today, Feb. 9, 2009, available at 

http://www.usatoday.com/money/perfi/credit/2009-02-08-chase-interest-rates-fee_N.htm. 17 Bruce Cundiff, New Opportunities for Banks in Alternative Payment Tools, Am. Banker, Feb. 24, 2009. 

4
Prepaid Cards: Are They What They Claim To Be? 

Prepaid cards are widely marketed as more convenient, safe and cost effective, a 

straightforward way to manage funds, particularly for consumers who are underbanked or 

unbanked.18 The prepaid card industry touts the products as convenient budgeting tools 

that can help build credit.19 Prepaid card companies also seek to appeal to consumers 

who are becoming increasingly dissatisfied with banks.20 But the devil is in the details, 

and upon closer examination, these cards are laden with numerous types of fees and other 

gotchas, making prepaid cards a shaky alternative to a bank account with a debit card. 

II. Costs Associated with Prepaid Cards 

Consumers Union examined fees for a range of prepaid cards available for 

purchase and use.21 We found prepaid cards assess many different types of fees, and that 

these fees may vary widely from card to card. The types of fees include: 

• Initiation or activation fees; 

• Monthly fees; 

• Point of sale transaction fees; 

• Cash withdrawal fees;22

• Balance inquiry fees; 

• Transaction statements, including paper and other; 

• Customer service fees; 

• Bill payment fees; 

• Fees to add or “load” funds;23 

 

18 Green Dot Corporation’s Website states, “Green Dot products open doors for millions of unbanked, 

underbanked and credit challenged families and individuals.” Green Dot, Products, 

http://www.greendotcorp.com/products.htm (last visited Aug. 10, 2009). MasterCard’s website for the 

Everyday Prepaid Card states “Make every day simpler and more secure.” MasterCard, Everyday Prepaid 

Card, http://www.mastercard.com/us/personal/en/aboutourcards/prepaid/everydayprepaid.html (last visited 

Aug. 10, 2009). 

19 AccountNow Prepaid’s homepage states, “The Checking Account alternative that lets you...borrow 

money and build credit history.” AccountNow Prepaid Home Page, https://www.accountnow.com/mktcap/signup2_mb.aspx?pcode=Cg001Sgs71&gclid=CMv074ewgJsCFQVuswodEj34dA (last visited Aug. 

10, 2009). 

20 Maria Aspen, Economy’s Loss Prepaid Cards’ Gain, Am. Banker, Apr. 8, 2009. ReadyDebit’s Website 

states, “Big banks take billions of dollars every year from their customers in checking account overdraft 

and other fees. We've designed the READYdebit® Card to help you eliminate those fees.!” ReadyDebit 

Home Page, 

http://www.readydebit.com/AWPPDC001/Site/Default.aspx?gclid=CIrDvOGwgJsCFQazsgod_lVSdw (last 

visited Aug. 10, 2009). 

21 The prepaid cards examined in this paper include those identified by consumer advocates and cards 

frequently reported in the media and by internet searches. Consumers may sign up for all of these cards 

online and some are available for purchase in stores. This study does not include cards issued under 

contract with a government or an employer, such as payroll cards. 

22 Prepaid card fees for ATM cash withdrawals do not include surcharges assessed by ATM owners or 

other fees. 

23 Most prepaid cards provide the option to reload fees with reload packs which require separate fees 

assessed by reload pack companies. 

5
• Dormancy fees; 

• Fees to get your remaining funds when closing the account; and 

• Overdraft or “shortage” fees. 

Consumers typically can find information on only a few of the fees before 

deciding to sign up, purchase and use prepaid cards.24 Retail displays often contain only 

purchase prices and initial load amounts. Consumers who research or purchase cards 

online will often have to engage in a careful inspection of the prepaid card websites to 

find complete fee information. Access to fee information is often less prominent on 

prepaid card websites than the sign up pages or registration forms for card purchase. If a 

consumer is able to find the fee information, including fee types and fee amounts, they 

are usually in small print in the Cardholder Agreement or Terms and Conditions. 

Consumers Union found prepaid cards charge each of these types of fees: 

(Refer to Appendix A: Fee Schedule) 

• Activation Fees 

Activation fees can range from no fee to $39.95, although the median fee we 

observed was about $10.25 Some cards may waive activation fees if direct deposit is set 

up.26 Many cards have an initial load requirement, or a requirement to place $10 to $20 

on the card at the time of purchase. Between activation and initial load fees, a consumer 

is likely to pay at least $30 to obtain or purchase a prepaid card. 

• Monthly fees 

Most prepaid cards assess monthly fees, ranging up to $10 per month. Not all 

prepaid cards assess monthly fees, but many do.27 Some prepaid cards, like the Bank 

Freedom prepaid card, require a minimum direct deposit amount per month to waive the 

fees.28

Other cards like the Eufora MasterCard Prepaid Card have annual fees ranging 

from $29.95 to $99.95 and may assess monthly fees if the cards with the credit builder 

programs are chosen.29 

 

24 All of the prepaid cards we analyzed were reviewed from materials provided online. We have added 

three new cards to our assessment: GreenDot, ReadyCard, and Univision. Two cards, the Millenium 

Advantage and the SVC Revel card are no longer offered. 

25 Some cards also waive the activation fee if a recurring deposit is established. nFinanSe lowered their 

Activation Fee to $3 from $5.95 since last year’s August 2009 report. AccountNow no longer has an 

activation fee, which was $9.95. See Chart in Appendix B. 26 See e.g., AccountNow Prepaid Home Page, www.accountnow.com. 27 Western Union Prepaid Visa and Exact Prepaid cards do not assess monthly fees but rather assess many 

per transaction fees. See 

http://www.westernunion.com/WUCOMWEB/staticMid.do?method=load&countryCode=US&languageCo

de=en&pagename=HomePage#; https://www.exactmastercard.com/fees.html (last visited Sep. 2, 2010). 28 Bank Freedom requires a minimum $350 direct deposit per month to waive the monthly fee. Bank 

Freedom, How to Add Money, http://www.bankfreedom.com/addingmoney.html (last visited Sep. 2, 2010). 

29 The Eufora MasterCard Prepaid Card offers three prepaid cards. The Elite has a $99.95 annual fee, 

Preferred has a $59.95 annual fee and the Associate has a $29.95 annual fee. The Credit Builder Option is 

offered to Elite and Preferred Prepaid cardholders and requires annual fees and monthly fees for the first 

6
Some cards, like the BuyRight prepaid card provide the option of either selecting 

the monthly fee plan or a per transaction fee plan. A BuyRight prepaid cardholder with a 

monthly fee plan pays $4.95 each month and is not charged for point of sale transactions 

or dormancy fees. Alternatively, that cardholder can opt to pay $1 each time he or she 

uses the card to make a purchase.30 

• Point of Sale Transaction Fees 

Most of the prepaid cards we examined did not charge fees for point of sale 

transactions – that is, using the card to make a purchase. However, for cards that include 

point-of-sale transactions fees, fees for PIN-based transactions are usually twice as high 

as fees for signature-based transactions. For example, the Vision Premier Prepaid card 

has a $0.95 fee for PIN-transactions and but no fee for signature-based transactions.31 

Rush Card Pay As You Go Program prepaid cardholders pay $1 for each transaction, up 

to a cap of $10 a month. There is a catch. The RushCard Cardholder Agreement states 

that fees which go over the $10 cap are refunded the following calendar month, so 

consumers might pay more in fees and then have to wait nearly a month for a refund of 

the portion of those fees which exceeded $10 during the prior month.32

• Fees to Withdraw Cash [at an ATM] 

Most of the prepaid cards we reviewed have a $2 fee to withdraw cash from 

domestic ATMs. This does not include the cost of surcharges imposed by ATM owners. 

According to a Bankrate.com survey from 2006, the average ATM surcharge fee by the 

ten largest banks and thrifts was $1.64.33 The fee to withdraw funds from ATMs outside 

the U.S. range from $2 plus a 2% foreign transaction fee to $4.95. Consumers using 

prepaid cards are able to request cash-back from merchants when using cards at the pointof-sale without incurring fees for obtaining cash. 

There can also be a fee for ATM declines. This fee is assessed by most of the 

prepaid cards we reviewed and ranges from $0.50 to $1.95 for each decline. Again, the 

ATM owner’s surcharge fee is not included in this fee. 

 two years. The website provides information for a fee waiver for the monthly fees for the second year. 

Eufora Prepaid Card, http://www.eufora.com/contents/aboutTheCard/creditBuilder/index.jsp (last visited 

Sep. 2, 2010). 

30 BuyRight Prepaid MasterCard Cardholder Agreement, http://www.buyright.com/mc/terms.html (last 

visited Sep. 2, 2010). 

31 Vision Premier Prepaid Cardholder Agreement, 

http://www.visionprepaid.com/pdfs/Vision_Premier_TsCs_Bank_Approved_Web.pdf (last visited Sep. 2, 

2010). 

32 RushCard, Terms and Conditions, http://www.rushcard.com/cardholder.aspx (last visited Sep. 2, 2010). 33 What Banks are Charging Non-customers to Use Their ATMs, USA Today, Sep. 13, 2007, available at 

http://www.usatoday.com/money/industries/banking/2007-09-13-atm-feeschart_N.htm?loc=interstitialskip. 

7
• Fees to Withdraw Cash [at a Financial Institution] 

Most of the prepaid cards we reviewed provide the option to withdraw cash from 

tellers at financial institutions who accept card network brands. These withdrawals are 

often referred to as “cash advances” although consumers are withdrawing from existing 

funds.34 These cash withdrawals come with higher fees and may also not include 

additional fees assessed by the financial institution. The fees for such transactions are 

higher, typically about $4 to $5, which is more than the fees for withdrawing fees from 

ATMs. 

• Balance Inquiry and Statement Fees 

Most cards require a fee to check the balance at ATMs. These fees range from 

$0.50 to $1 per balance inquiry. Any surcharge imposed by the ATM owner is 

additional. Many prepaid cards provide other methods to obtain balance information 

without charge, such as by email or text message. For those prepaid cards that provide 

balance information by phone, such as the Western Union card, there is also no fee.35 

Consumers who use prepaid cards should and need to carefully track their prepaid 

card activities. Consumers using prepaid cards do not automatically obtain monthly 

paper statements as consumers using debit cards do. Most of the prepaid cards whose 

terms we reviewed state that they offer paper statements. Paper statements must be 

requested and the fee to receive monthly paper statements ranges from $1 to $2, although 

GreenDot prepaid cards provide free monthly paper statements upon request.36 However, 

we found the NetSpend Visa prepaid card still charges $5.95 for a paper statement, while 

Bank Freedom has since dropped this fee to $2 a paper statement. 

• Fees to Call Customer Service 

Prepaid cards offer customer service with an automated service or live 

representative. Customer service fees vary significantly among the prepaid cards we 

examined. Some prepaid cards offer free customer service; for example, Western Union 

offers either automated or live customer service calls at no charge.37 However, the 

Espree prepaid card has a steep $3 fee for live customer service calls. Other cards offer 

free customer service when consumers set up direct deposit, or some free calls per month. 

• Bill Pay Fees 

Not all prepaid cards offer bill pay, but for those that do, consumers using prepaid 

cards may pay for bills online, by check or by phone. The prepaid cards we examined 

had lower fees for online bill payment than for other forms of bill payment. For example, 

 

34 For example, Account Now calls this feature a “cash advance.” AccountNow Prepaid, Prices and Fees, 

http://www.accountnow.com/services/fee-schedule.aspx (last visited Se.t 2, 2010). 35 Western Union Prepaid Card Fees, 

https://www.mycardplace.com/cards/onlinesales/categoryc/westernUnionInsName/jsp/fee.jsp (last visited 

Sept 2, 2010). 

36 GreenDot Reloadable Prepaid Card Cardholder Agreement, 

https://www.greendotonline.com/greendot/cardholder-agreement (last visited Sep. 2, 2010). 

37 Western Union, Frequently Asked Questions, 

http://www.westernunion.com/WUCOMWEB/staticMid.do?method=load&pagename=faqPrepaidMC#tstfa

q3_16 (last visited Sep. 2, 2010). 

8
AccountNow offers bill pay for free online and the Wired Prepaid Card offers online bill 

pay for a fee of $0.45 per payment. To pay by check, AccountNow has a $5 fee per 

check and the Wired Prepaid Card has a $0.95 per check fee. 

• Adding Money 

To add, or “load” funds, direct deposit is free but to add additional funds by any 

other method usually requires a fee. Although some prepaid cards do not charge a 

separate fee to add money to the cards, consumers will typically need to purchase reload 

packs to add funds other than by direct deposit. The WalMart Money Card provides an 

example of various ways to add funds onto prepaid cards. There is no cost to load funds 

if a consumer cashes a check, although there is a fee of up to $3 to cash a check at 

WalMart.38 Or, a consumer can choose to pay a $3 fee to load more money onto the 

card. A consumer can also load more funds by purchasing a GreenDot reload pa

MoneyPak, which typically costs $4.95 and is sold at retail locations such as grocery and 

convenience stores.

ck or 

 

39 

• Fees For Inactivity 

Dormancy or inactivity fees may be charged when cards are unused for a period 

of time. Nine of the 19 cards we examined assess dormancy fees. These dormancy fees 

may begin as early as after 60 days of inactivity, and range from about $2 to $9.95 per 

month.40 

• Fees To Get Your Remaining Funds When Closing The Account 

Even closing a card account can trigger a fee unless the balance has been 

successfully spent down to the last penny. The Western Union, BuyRight and 

AccountNow prepaid cards impose a fee of $10 to $15 to redeem any remaining money 

in the account by check.41 The card agreements call this fee a “check issuance fee” or 

“cancellation fee”42 

38 Walmart Check Cashing, http://www.walmart.com/catalog/catalog.gsp?cat=632047; Walmart Money 

Card Cardholder Agreement by GE Bank, 

https://www.walmartmoneycard.com/AcctMgmt/Controls/Walmart/Support/CardholderAgreement.aspx?sit

eid=walmart (last visited Sep. 2, 2010). 

39 The website states that most of the MoneyPak’s are sold for up to $4.95. Green Dot Reloadable Prepaid 

Cards, Reload with MoneyPak, 

https://www.greendotonline.com/AcctMgmt/Content/Common/AddFunds/AppyMoneyPakInitFrm.aspx 

(last visited Sep. 2, 2010). 

40 The Vision Premier Prepaid Visa Card has a $3.95 inactivity fee that begins on day 61 of inactivity and is 

assessed the first day of each subsequent month until the card is used again. Vision Premier Prepaid Visa 

Card Cardholder Agreement, http://www.visionprepaid.com/docs/Vision_Cardholder_Agreement.pdf (last 

visited Sep. 2, 2010). 

41 Western Union Prepaid Visa Card Terms and Conditions, 

https://www.mycardplace.com/cards/cardholder/html/wuvisa/en/Privacy.jsp (last visited Sep. 2, 2010); 

BuyRight MasterCard Prepaid Card Terms and Conditions http://www.buyright.com/mc/terms.html (last 

visited Sept 2, 2010); AccountNow Prepaid Card Terms and Conditions, 

https://www.accountnow.com/secure/SignUp.aspx; then follow “Terms and Conditions and E-Sign Act.” 

(last visited Sep. 2, 2010). 

42 The Millenium Advantage Prepaid MasterCard has a $9.95 check issuance fee. The Millenium 

Advantage MasterCard Stored Value Card Terms and Conditions, 

http://www.nmbadvantagecard.com/terms.htm (last visited Aug. 10, 2009). The Vision Premier Prepaid 

9
• Overdraft/”Shortage” Fee 

Overdraft, or “shortage” fees, range from $14.95 to $25 when stated, and at often 

referred to in the terms and conditions without disclosing the amount of the fee. Some of 

the cards we reviewed in the 2009 report which stated specific shortage fees now only list 

in their terms that cardholders are responsible for making up the “negative balance” or 

“shortage” and “any applicable fees or charges.” For example, Bank Freedom used to 

assess a fee of “up to $25” and now the terms state the cardholder is liable for the 

negative balance and “any applicable fees or charges.”43 These fees are charged because 

the card was used for more money than the remaining card balance. 

Some prepaid card issuers claim not to have overdraft fees, but their contracts 

permit “shortage fees” which are disclosed only in the fine print of the Cardholder’s 

Agreement or Terms and Conditions. When transactions exceeding the account’s balance 

are processed, a consumer becomes subject to a shortage fee even though the contract 

terms do not state the fee for the shortage.44 For example, the Terms and Conditions for 

NetSpend cards describe a “shortage” fee when customers “exceed the balance of the 

funds available.” The clause reads: 

“You are not allowed to exceed the available amount on your Card through an 

individual transaction or a series of transactions. Nevertheless, if a transaction 

exceeds the balance of the funds available on your Card (creating a "shortage") 

you shall remain fully liable to us for the amount of the transaction and any 

applicable fees or charges. You agree to pay us promptly for the shortage and any 

applicable shortage fees.”45 

The AccountNow prepaid card had a $29 shortage fee when we evaluated the card in our 

2009 report but has since eliminated the fee. Instead, the cardholder is responsible to pay 

for the shortage amount and AccountNow “reserves the right to cancel your card” due to 

activity creating “one or more shortages.”46 

Other cards, such as the Vision Premier prepaid card, also acknowledge that 

overdraft is possible if a consumer is approved for the feature.47 If a consumer qualifies, 

 Visa charges a $14.95 Cancellation Fee to obtain the remaining funds in your account, Vision Premier 

Prepaid Visa Card Cardholder Agreement, 

http://www.visionprepaid.com/docs/Vision_Cardholder_Agreement.pdf (last visited Aug. 10, 2009). 43 Bank Freedom Prepaid Card Terms and Conditions, http://www.bankfreedom.com/termsconditionsmv.html (last visited Sep. 2, 2010). 

44 The shortage fees are not listed in the fee schedule which is linked off the NetSpend homepage. A 

consumer must select the option to sign up for the card and then select the link below the registration form 

to find the terms and conditions. After finding the fee schedule, the amount of the shortage fee is not 

included. NetSpend Terms and Conditions, https://www.netspend.com/prepaid-debitcard/prepaid_visa_card_terms.m#popmast (last visited Sep. 2, 2010). 45 NetSpend Terms and Conditions, “Using Your Card,” https://www.netspend.com/prepaid-debitcard/prepaid_visa_card_terms.m#popmast (last visited Sep. 2, 2010). 46 AccountNow Prepaid’s Terms and Conditions, “Using Your Card,” 

http://www.accountnow.com/company/terms-conditions.aspx (last visited Sep. 2, 2010). 47 It is unclear whether a cardholder has the option to opt out of the overdraft feature if he or she has 

overdrawn the account. In the Terms and Conditions, Vision Premier reserves the right to suspend or 

10
the feature allows an overdraft amount of up to $50 for a $25 Overdraft Fee. The fee plus 

the overdraft amount owed must be paid within fifteen days; otherwise, the consumer is 

on the hook for an Overdraft Late Charge of an additional $3 a day until the payment is 

made. 

A. Case Study: What It Costs to Use a Prepaid Card 

Costs can vary widely depending on which cards consumers choose. These three 

prepaid cards, with a total of four different pricing structures illustrate how costs may 

vary from card to card for a consumer: the WalMart Money Card, the Rush Card and the 

AccountNow Card.48 

For a two month period, our sample consumer makes: 

• Three ATM withdrawals49

• Three Bill Payments (Rent, Utilities, and Phone) 

• Eight Point of Sale Purchases (Groceries and Meals once a week) 

• Weekly balance inquiry 

• Two deposits50 

With the WalMart Money Card, the sample consumer pays a One-Time Issuance 

Fee of $3 and loads money onto the card. She pays $2 for each ATM withdrawal ($6 

total for 3 ATM withdrawals). She pays for groceries and meals at no extra cost. In 

order to pay the bills, she pays $0.88 for each bill payment with the Standard Bill 

Payment Option offered with the WalMart Money Card ($2.64 total for 3 bills).51 To 

reload funds the second time that first month, she pays $4.95 to load funds by purchasing 

a MoneyPak.52 She checks her balance for free by phone. Her monthly total is $16.59 to 

use the WalMart Money Card the first month. For the second month, with the same 

usage pattern, the $3 issuance fee is replaced with a $3 monthly fee, and $9.90 to reload 

funds twice ($9.90 for two reload packs at $4.95 each). The total second month’s cost is 

$21.54. 

 cancel the card, or cancel the overdraft feature. Vision Premier Prepaid Cardholder Agreement, 

http://www.visionprepaid.com/docs/Vision_Cardholder_Agreement.pdf (last visited Aug. 4, 2009). 48 The WalMart Money Card recently lowered its fees to $3. Hip hop mogul Russell Simmons has stated 

that he is working on lowering fees on his popular RushCard and has provided two RushCards with 

different price structures. Maria Aspen, Prepaid Star Now About Low Prices, Am. Banker (Apr. 20, 2009). 

Both the WalMart Money Card and the RushCard have reported billions of dollars have been loaded onto 

their cards. The AccountNow Prepaid Card is one of the cards featured in One Size Does Not Fit All, a 

survey on prepaid card usage published by the Center for Financial Services Innovation. “One Size Does 

Not Fit All,” Rachel Schneider, Center for Financial Services Innovation, An Affiliate of ShoreBank 

Corporation. 

49 Based on findings from a PULSE study of active debit cardholders. Despite Recession, Card Issuers 

Expect Debit Growth in 2009 Press Release June 4, 2009. 50 There would be no fee to upload funds from a recurring direct deposit. 

51 WalMart MoneyGram Express Bill Payment, http://www.walmart.com/catalog/catalog.gsp?cat=632045 

(last visited Aug. 10, 2009). 

52 Green Dot, supra note 39. 

11
With the Rush Card’s Pay Monthly Program, the same consumer pays a $3 Card 

Activation Fee and loads money onto the card. She would be able to make 2 free 

calendar month ATM withdrawals and pay $2.50 for the additional ATM withdrawal 

($2.50 total for 3 ATM withdrawals). She pays for groceries and meals at no cost by 

selecting the Signature option instead of inputting her PIN, or selecting the “debit” option 

(the PIN option has a $1 per transaction fee). She uses the bill payment option for $1 

each, and must pay a $2 one-time enrollment fee for bill payment ($5 total=$3 for each 

bill + $2 enrollment fee). To reload funds for the second time in the first month, she pays 

$4.95 for the MoneyGram reload pack. She checks her balance for free by phone as she 

does not have easy internet access to view her spending activity. The total is $15.45 to 

use the Rush Card’s Pay Monthly Program in the first month.53 For the second month, 

with the same usage pattern, she pays the monthly fee of $9.95, and $9.90 for two reload 

packs, making the total cost $25.35. 

If the consumer chooses instead the Rush Card’s Pay As You Go Program, the 

same consumer pays a $19.95 Activation Fee and loads money onto the card. She pays 

$1.95 for each ATM withdrawal ($5.85 total for 3 ATM withdrawals). For every grocery 

and meal purchase, she pays a $1 Convenience Fee ($8 total for 8 purchases). She uses 

the bill payment option for $1 each, and must pay a $2 one-time enrollment fee for bill 

payment ($5 total=$3 for the bills + $2 enrollment fee). To reload funds the second time 

that first month, she pays $4.95 for the MoneyGram reload pack. She checks her balance 

for free by phone as she does not have easy internet access to view her spending activity. 

The total is $43.75 to use the Rush Card for the first month.54 For the second month, 

with the same usage pattern, the monthly cost is $26.75 with no monthly fee and two 

reload fees ($9.90 for two reload packs). 

With the AccountNow Prepaid Card, the same consumer pays loads money onto 

the card .

55 She pays $2.50 for each ATM withdrawal ($7.50 total for 3 ATM 

withdrawals). She pays for groceries and meals at no extra cost. She can pay for bills 

online at no cost, but since she does not have internet access, she purchases money orders 

at the post office for $1.05 each ($3.15 total for 3 bills).56 To reload funds for the second 

time in the month, she pays $4.95 for the MoneyGram reload pack. She checks her 

balance for $0.50 a call ($2 total for 4 calls).57 Her monthly total is $17.60 to use the 

AccountNow Prepaid Card for the first month. For the second month, with the same 

usage pattern and adding the $9.95 Monthly Fee and two reload fees ($9.90 total for 2 

reloads); the total cost is $32.50. 

 

53 http://www.accountnow.com/ (last visited Sep. 14, 2010). 54 RushCard, supra note 33. 55 The $9.95 Activation Fee is waived if a recurring direct deposit is set up. 

https://www.accountnow.com/secure/SignUp.aspx; then follow “Terms and Conditions and E-Sign Act.” 

(last visited Aug. 4, 2009). 

56 USPS Domestic Money Orders, www.usps.com/money/sendingmoney/moneyorders/welcome.htm (last 

visited Aug. 4, 2009). 

57 AccountNow, supra note 55. 

12
Card Activation/

Issuance 

Monthly 

total for 3 

ATM 

Withdrawal 

3 

(transactio

n fee) 

Monthly 

total for 8 

Point of 

Sale 

purchases 

(transactio

n fee) 

Monthly 

Total for 3 

Bill 

Payments 

(bill 

payment 

fee) 

Monthly 

Total for 2 

Deposits 

(reload 

fee) 

Monthly 

Total for 

Weekly 

Balance 

Inquires 

(inquiry by 

phone or 

text fee) 

Total 

Monthly 

Cost –First 

Month 

(includes 

Activation 

or 

Issuance 

Fee if 

applicable 

and Fee 

for 1 

deposit) 

Total 

Monthly 

Cost – 

Second 

Month 

(includes 

Monthly 

Fee if 

applicable 

and Fee 

for 2 

deposits) 

WalMart 

Money 

Card 

$3.00 $6.00 $0.00 $2.64 $4.95 

(1st Month); 

$9.90 

(2nd Month) 

($4.95 each 

MoneyGram) 

$0.00 $16.59 $21.54 

Rush Card 

– Pay 

Monthly 

Program 

$3.00 

(activation); 

$9.95 

(monthly 

fee) 

$2.50 

(first 2 ATM 

withdrawals 

in calendar 

month are 

free) 

$0.00 

(Signaturebased POS 

= free; PINbased POS 

= $1.00) 

$5.00 

($2.00 OneTime 

Activation 

Fee; $1.00 

per bill) 

$4.95 

(1st Month); 

$9.90 

(2nd Month) 

($4.95 each 

MoneyGram) 

$0.00 $15.45 $25.35 

Rush Card 

– Pay As 

You Go 

Program 

$19.95 

(activation); 

$0 

(monthly 

fee) 

$5.85 

($1.95 

each) 

$8.00 

($1.00 

each) 

$5.00 

($2.00 One 

Time 

Activation 

Fee; $1.00 

per bill) 

$4.95 

(1st Month); 

$9.90 

(2nd Month) 

($4.95 each 

MoneyGram) 

$0.00 $43.75 $26.75 

Account 

Now 

Prepaid 

Card 

$0 $7.50 

($2.50 

each) 

$0.00 $3.15 

($1.05 

Money 

Orders at 

the Post 

Office) 

$4.95 

(1st Month); 

$9.90 

(2nd Month) 

($4.95 each 

MoneyGram) 

$2.00 $17.60 $32.50 

II. Consumers Using Prepaid Cards Should Not Have to Worry About Lost Funds 

Prepaid cards do not necessarily have the same legal consumer protections as 

traditional debit cards. Prepaid card information can be stolen and misused by identity 

thieves. One of the largest data breaches reported in 2009 was the Heartland Payment 

Systems breach.58 Since the same processing systems are used to process prepaid cards 

as to process traditional debit cards, prepaid card account information was likely included 

in the breach. Experts predict identity fraud against prepaid cardholders. Fair Issac, the 

 

58 Heartland reportedly processes payments transactions for over 250,000 businesses. Brian Krebs, Payment 

Processor Breach May Be Largest Ever, Wash. Post, Jan. 20, 2009, available at 

http://voices.washingtonpost.com/securityfix/2009/01/payment_processor_breach_may_b.html. 

13
company that produces the FICO scoring model, projects that “[t]he growing popularity 

of prepaid cards presents ample opportunities for fraudsters and likely will lead to the 

next wave of card fraud.”59 

Voluntary Protections Are Not Enough 

Both Visa and MasterCard, the two major card networks, claim their cardholders 

can be worry free and have peace of mind with their zero liability policies. Visa’s Zero 

Liability policy states it will protect cardholders from unauthorized use, and requires 

financial institutions “to extend provisional credit for losses from unauthorized use within 

5 business days of notification of the loss.”60 MasterCard has a similar Zero Liability 

policy which will not hold “you responsible for ‘unauthorized purchases’.”61 

 Voluntary consumer protections, like the Visa and MasterCard zero liability 

policies are insufficient. For instance, prepaid card holders may be subject to the whims 

of customer service representatives’ knowledge of the policies.62 Plus, these policies 

have significant loopholes. Visa’s zero liability policy does not cover ATM transactions 

or PIN transactions that are not processed on the Visa network.63 Card transactions may 

take place on other networks even if the card has a Visa logo.64 MasterCard’s zero 

liability policy also has loopholes. That policy doesn’t give any protection if a consumer 

reported more than two or more unauthorized events in the past 12 months, does not 

cover ATM or PIN transactions and may required the card to have been registered.65 

 Traditional debit cards have statutory and regulatory protections that must be 

extended to all prepaid cards. The Electronic Funds Transfer Act (EFTA) and Regulation 

E provide debit card users important protection from unauthorized use and provide error 

resolution rights. If a consumer contacts a debit card issuer about a lost or stolen card 

within two business days, a consumer’s liability is limited to no more than $50. If a lost 

or stolen debit card is not reported to the issuer within two business days, a consumer’s 

liability is capped at $500. Unauthorized charges discovered on statements must be 

reported within 60 days to limit liability to $500. If a consumer does not report 

unauthorized charges until after 60 days, a consumer may be responsible for all charges 

made after the 60 days and until the debit card issuer is contacted. For most consumers 

 

59 Fair Issac: Prepaid Cards Spread Fraud, Am. Banker, July 15, 2009. 60 Visa Zero Liability, http://usa.visa.com/personal/security/visa_security_program/zero_liability.html (last 

visited Aug. 4, 2009). 

61 MasterCard Zero Liability, 

http://www.mastercard.com/us/personal/en/cardholderservices/zeroliability.html (last visited Aug. 4, 2009). 62 “A voluntary policy is subject to the risk of uneven application and to the discretion of employees about 

how and when to apply the policy, which may disadvantage consumers whose primary language is not 

English, who are less able to spend time on the phone with customer service due to the nature of their jobs, 

or who are less able to write a persuasive letter describing the problems—in many cases, the very 

consumers to whom prepaid debit cards are being marketed as account substitutes.” Gail Hillebrand, 

Before the Grand Re-thinking: Five Things to Do Today With Payments Law and Ten Principles to Guide 

New Payments Products and New Payments Law, 83 Chi.-Kent L. Rev. 769, 790 (2008). 63 Visa, supra note 60. 64 A merchant’s financial institution chooses a network to process debit transactions. 

65 MasterCard, supra note 61. 

14
holding a debit card linked to a bank account, the maximum exposure for a lost or stolen 

debit card is $50. 

 Consumers using debit cards also have error resolution rights, or missing funds 

must be put back in the account within a certain period of time. When the EFTA applies, 

financial institutions must either resolve disputes or provisionally recredit missing funds 

within ten business days.66 This is an important protection as it provides consumers 

access to missing funds and means that consumers are not left waiting for their funds if 

the investigation takes too long. This is particularly important when the money is needed 

to pay bills and other household needs. 

 But with prepaid cards, consumers might be out of all their money due to an 

unauthorized transaction regardless of how quickly the loss is reported, and may not have 

access to missing money when money is needed to pay bills and for daily essentials. 

Some prepaid card issuers appear to give unauthorized transaction protections and error 

resolution rights by contract in their cardholder agreements or terms and conditions. For 

example, the WalMart Money Card provides unauthorized use protections in its 

Cardholder Agreement, limiting losses at $50 if the terms and conditions are met.67 The 

AccountNow Prepaid Card Terms and Conditions refer to limits on liability although 

specific dollar amounts are not specified.68 The WalMart Money Card also provides 

error resolution rights to existing customers which are similar to those provided for debit 

 

66 Under Regulation E, a financial institution may take up to 45 days to conduct an investigation but must 

provisionally recredit the consumer with the missing funds within 10 business days. 12 C.F.R. § 205.11(c). 67 WalMart Money Card Cardholder Agreement, “Your Liability for Unauthorized Use of Your Walmart 

MoneyCard or PIN:” “Tell us AT ONCE if you believe your Walmart MoneyCard or PIN has been lost or 

stolen. Telephoning is the best way of notifying us. You will not lose any part of the money on your 

Walmart MoneyCard based on unauthorized use if you have exercised reasonable care in safeguarding your 

card and PIN from risk of loss or theft. However, if these conditions are NOT met, you could lose the lesser 

of $50 or the amount of unauthorized use from your Walmart MoneyCard before you notify us that your 

card has been lost or stolen. If you believe your Walmart MoneyCard or PIN has been lost or stolen, report 

it on-line at walmartmoneycard.com or call (877) 937-4098, or write to Our Mail Address,” WalMart 

Money Card Cardholder Agreement, 

https://www.walmartmoneycard.com/AcctMgmt/Controls/Walmart/Support/CardholderAgreement.aspx?sit

eid=walmart (last visited Aug. 5, 2009). 

68 AccountNow Prepaid Terms and Conditions, “Your Liability for Unauthorized Transfers,” “Tell us AT 

ONCE if you believe your Card has been lost or stolen. Telephoning toll-free at 1-866-925-2036 is the best 

way of keeping your possible losses down. You may not be liable for unauthorized use of your Card 

provided that you notify us within a reasonable time after learning of the loss or theft of your Card... 

Reasonable time will be determined in our sole discretion based on the circumstances but will not be less 

than 60 days from the transaction date. If your Card has been lost or stolen, we will close your Card to keep 

losses down. We reserve the right to investigate any claim you may make with respect to a lost or stolen 

Card, and you agree to cooperate with such investigation. We may ask you for a written statement, affidavit 

or other information in support of the claim. Also, if your transaction history shows transactions that you 

did not make, tell us at once. If you do not tell us within 60 days after the transaction history was made 

available to you, you may not get back any money you lost after the 60 days if we can prove that we could 

have stopped someone from making the unauthorized transaction if you had told us in time. Our liability is 

limited to reimbursing you for the face amount of any unauthorized transaction,” AccountNow Prepaid 

Card Terms and Conditions, https://www.accountnow.com/secure/SignUp.aspx; then follow “Terms and 

Conditions and E-Sign Act” (last visited Aug. 4, 2009). 

15
cards.69 AccountNow also provides error resolution rights in its Terms and Conditions.70 

However, like the Visa and MasterCard Zero Liability policies, these unauthorized use 

protections provided by prepaid card issuers may be changed or rescinded at any time 

because the companies reserve the right to change the terms of the contract at any time 

for any reason.71 

 

The Federal Reserve Board has not yet decided whether prepaid cards, other than 

payroll cards, are protected under the EFTA and its regulations. In declining to act on a 

request by consumer groups made in 2004 to clarify or extend the protection, the Federal 

Reserve Board stated that there would be little benefit to consumers to provide 

Regulation E protections for cards that “may be used for limited purposes or on a shortterm basis, and which may hold minimal funds.”72 Prepaid cards are just the opposite. 

They are used for everyday use, with many consumers depositing important household 

funds, and even their wages, onto prepaid cards. The Federal Reserve estimated that in 

2006, 312.8 million transactions were conducted using open-loop prepaid cards for a total 

value of $13.3 billion and the Mercator Advisory Group estimates that $38.7 billion was 

loaded onto network-branded prepaid cards in 2007.73 

 

69 WalMart Money Card Cardholder Agreement, “Notice of Error Resolution Rights for Your Walmart 

MoneyCard,” “We will determine whether an error occurred within 10 business days after we hear from 

you and will correct any error promptly. If we need more time, however, we may take up to 45 days to 

investigate your complaint or question. If we decide to do this, we will credit your Walmart MoneyCard 

within 10 business day for the amount you think is in error, so that you will have the use of the money 

during the time it takes us to complete our investigation. If we ask you to put your complaint or question in 

writing and we do not receive it within 10 business days, we may not credit your Walmart MoneyCard. For 

errors involving new customers, point-of-sale, or foreign-initiated transactions, loads, or reloads, we may 

take up to 90 days to investigate your complaint or question. For new customers, we may take up to 20 

business days to credit your Walmart MoneyCard for the amount you think is in error.” WalMart 

MoneyCard Cardholder Agreement, 

https://www.walmartmoneycard.com/AcctMgmt/Controls/Walmart/Support/CardholderAgreement.aspx?sit

eid=walmart (last visited Aug. 5, 2009). 

70 AccountNow Prepaid Terms and Conditions, “Information About Your Right to Dispute Errors,” “If you 

provide this information orally we may require that you send your complaint or question in writing within 

ten (10) business days. We will determine whether an error occurred within ten (10) business days after we 

hear from you and will correct any error promptly. If we need more time, however, we may take up to 

forty-five (45) days to investigate your complaint or question. If we ask you to put your complaint or 

question in writing and you do not provide it within ten (10) business days, we may not credit your Card. 

For errors involving new Cards, point-of-sale, or foreign-initiated transactions, we may take up to ninety 

(90) days to investigate your complaint or question. We will tell you the results within three (3) business 

days after completing the investigation. If we decide that there was no error, we will send you a written 

explanation.” AccountNow Prepaid Card Terms and Conditions, 

https://www.accountnow.com/secure/SignUp.aspx and click on Terms and Conditions and E-Sign Act. 

(last visited Aug. 5, 2009). 

71 Prepaid card contracts such as those of the WalMart Money Card, the Millenium Advantage Card and the 

Eufora prepaid cards all have provisions allowing the terms to be changed at any time for any reason. 72 Electronic Funds Transfers, 71 Fed. Reg. at 51,441. 

73 Center for Financial Servs. Innovation, The Industry Forecast for Prepaid Cards, 2009 4 (2009). 

16
III. Prepaid Cards Are Unlikely to Boost Credit Records 

Prepaid cards are now offering credit-like features, which include “credit 

building” features and small credit lines. Close inspection of these features indicate that 

consumers should stay away from signing up for credit building and credit lines offered 

by prepaid cards. These prepaid products do not provide sufficient information to build a 

credit report that consumers get with mainstream credit products, nor will consumers 

obtain fairly priced short term credit lines. Unfortunately, with these products, 

consumers using prepaid cards may find themselves stuck further in a second-tier 

banking system. 

Uncertain “Credit Building” 

Some prepaid cards tout credit building features which claim to “establish your 

credit history” or rebuild credit by reporting positive monthly payment history to credit 

reporting agency partners.74 These credit building features may come at a steep price and 

not all of them will create a record at one of the big three credit reporting agencies 

commonly used by creditors. For instance, Eufora’s Credit Builder fee is $139.75 for the 

Preferred and $219.95 for the Elite membership levels, which includes annual fees and 

monthly payments.75 

Prepaid card companies touting this feature report monthly prepaid card fee 

payments to either major credit bureaus or to a nontraditional credit bureau, such as 

Payment Reporting Builds Credit (PRBC), an alternative self-reporting credit reporting 

agency which consumers can sign up with to self report their bill payments. For 

example, the Eufora Card reports monthly payments of the fees paid to Eufora to 

TransUnion and Experian. Other prepaid cards, such as the AccountNow prepaid card, 

report to PRBC.76 AccountNow reports bill payment made through AccountNow’s bill 

payment to PRBC.77 

Although credit building features may seem attractive to unbanked and 

underbanked consumers trying to establish credit files or consumers with bad credit 

trying to rebuild credit, it is not clear whether these nontraditional reporting mechanisms 

actually help consumers establish good credit and credit scores. Information on 

AccountNow’s website discloses that this type of credit reporting and scoring may be 

effective in obtaining a mortgage, but will not help with other loans, credit cards or 

insurance policies.78

 

74 Eufora Home Page, http://www.eufora.com/ (last visited Aug. 10, 2009). 75 The Eufora Preferred Credit Builder program requires a $59.95 annual fee and a $6.65 monthly fee for 

the first year, while the Eufora Elite Credit Builder program requires a $99.95 annual fee and a $6.65 

monthly fee for the first year. Eufora Credit Builder Payment Schedule, 

https://www.eufora.com/contents/aboutTheCard/creditBuilder/payment.jsp (last visited Aug. 3, 2009). 76 AccountNow Prepaid, FREE! Credit Builder, https://www.accountnowvisa.com/services/creditbuilder.aspx (last visited Aug. 5, 2009); see also PRBC, www.prbc.com. 77 AccountNow, supra note 76. 78 AccountNow Prepaid’s Website states, “Home loan associations like Freddie Mac and Fannie Mae and 

Citicorp Mortgage use bill payment information as part of their decision making process for home loans. 

Soon, other companies including auto loan, credit card, and insurance companies may start using Bill 

17
Consumers have other, better ways to build a credit history. As a researcher put it 

in a publication of the Federal Reserve Bank of Philadelphia in May 2005; “[s]imply 

put...they [stored-value cards] will necessarily be an imperfect vehicle for building a 

credit history.”79 

Very Pricey Credit Lines 

Some prepaid cards offer small lines of credit which must be paid within a short 

period of time. These short term loans are expensive and need to be paid quickly, like a 

payday loan. Banks that include prepaid lines of credit may not be limited even by lax 

state payday loan laws. First, the bank is able to avoid state usury limits, small loan laws, 

and/or payday loan laws. While payday lenders hold personal checks or in some states 

take an authorization to debit the borrower’s bank account to secure the loan, banks that 

extend credit through prepaid cards have direct access to the next paycheck or exempt 

benefits that are direct deposited to the card. Just as payday lenders can extract exempt 

funds from federal recipients’ bank accounts, prepaid cards on which exempt funds are 

loaded can be tapped to repay lines of credit and associated fees. 

One example is the iAdvance line of credit on prepaid cards, such as the 

AccountNow Prepaid card.80 The loan operates like a payday loan. The loans are small 

and provide short term credit with a flat fee ($25 per $200); require that borrowing 

consumers have recurring direct deposits such as of paychecks or government benefits 

and lead to frequent rollovers and triple digit Annual Percentage Interest Rates (APRs). 

The disclosed APR is 150%, but this assumes that the loan is outstanding for 30 days. 

This is highly unlikely, as the loans are most likely taken out at the end of the pay cycle. 

The APR is 650% if the loan is taken out a week before payday, and even higher if the 

loan is taken out only for a few days. 

IV. Depository Insurance Caps May Not Apply To Each Prepaid Cardholder 

Consumers with traditional bank accounts have peace of mind that their money 

will not be lost if their banks go into receivership, up to a sizable dollar cap. Consumers 

know that as long as their money has been deposited into Federal Deposit Insurance 

Corporation (FDIC) member banks, their funds (typically in checking or savings 

accounts) are insured up to the FDIC limit.81 Consumers with traditional bank accounts 

can easily find out if their banks are FDIC member banks by using the FDIC’s lookup 

 Payment Scores to comply with the Nation's Fair Housing and Fair Lending laws.” AccountNow Prepaid, 

Free! Credit Builder, http://www.accountnow.com/services/credit-builder.aspx (last visited June 18, 2009). 79 James McGrath, Fed. Res. Bank of Philadelphia, The Cost Effectiveness of Stored-Value Products for 

Unbanked Consumers (2005), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=927073. 80 The AccountNow prepaid card offers the iAdvance credit line. iAdvance, http://www.myiadvance.com/ 

(last visited June 23, 2009). AccountNow’s description of the iAdvance Line of Credit – “a sensible 

borrowing alternative to payday loans. The iAdvance Line of Credit is a short term loan program that is 

easy to get and cost less than a payday loan.” AccountNow Prepaid Home Page, www.accountnow.com 

(last visited June 23, 2009). 

81 12 U.S.C. § 1813(l); 12 C.F.R. § 330.1(n). 

18
site;82 looking for gold and black FDIC logos on the banks’ windows; or finding the 

phrase “Member of FDIC” or “Member FDIC” on banks’ websites.83 The FDIC requires 

member banks to “continuously display the official sign at each station or window where 

insured deposits are usually and normally received.”84 

However, consumers who use or are considering using prepaid cards do not have 

the same guarantee that they would recover all their money in the event of a bank failure. 

Even if a prepaid card website displays the familiar FDIC logo or phrase, that means the 

funds are insured but leaves open the question of whether the $250,000 deposit insurance 

cap applies to the whole pooled account in which many cardholders’ money is held, or 

applies individually to each cardholder. For example, the Capcom Unity Visa Prepaid 

Card’s website displays the FDIC logo, but does not clearly inform consumers whether or 

not the funds on the cards are FDIC insured to each individual cardholder. The website 

only instructs cardholders or potential cardholders to call the issuing bank to find out if 

all their funds are FDIC insured.85

Consumers using prepaid cards should have peace of mind that their money is 

safe if the issuing bank fails. There has been some progress on this issue, but more 

remains to be done. The FDIC clarified that prepaid card funds qualify for FDIC 

coverage as long as the funds are maintained in accounts that satisfy “pass through” 

requirements set forth in the FDIC’s new General Council Letter No. 8.86 Pass through 

matters because without it the funds of thousands of cardholders would be subject to the 

single allowable cap, currently at $250,000. However, whether FDIC insurance passes 

through to the cardholder depends on the choices made by the card issuer in setting up the 

account. Some of the fine print by card issuers tells consumers that the money is not 

insured. For example, the Rush Card terms and conditions in 2009 stated that the card 

funds are not FDIC insured, even though the issuing bank, Manufacturers and Traders 

Trust Company is a Member of FDIC.87 Other prepaid issuers, such as BuyRight, state 

that “[d]eposited funds are insured up to $100,000 or to the extent allowable by the 

 

82 To find out if the bank is a FDIC-insured institution, see http://www2.fdic.gov/idasp/main_bankfind.asp. 83 12 C.F.R. § 328.2. 

84 12 C.F.R. § 328.2(a). 

85 Prepaidcardholder.com, http://prepaidcardholder.com/fd/fdic.html. 86 Stored Value Cards and Other Electronic Payment Systems, 61 Fed. Reg. 150 (Aug. 2, 1996). The 

FDIC’s “pass-through” requirements are: 1) the account records at the insured depository institution must 

disclose the existence of a custodial relationship; 2) the records of the insured depository institution or 

records maintained by the custodian or other party must disclose the identities of the actual owners of the 

funds and the amount owned by each such owner; and 3) the funds are owned by the cardholders. A card 

issuer’s choices will determine whether these requirements are met. 

87 RushCard’s Terms and Conditions, “Limitations on Card Transactions,” 

“8. Limitations on Card Transactions. The following limitations apply to the use of your Card: 

(a) Your Card is a prepaid Visa debit card. THERE IS NO CREDIT LINE, CREDIT CARD OR 

OVERDRAFT PROTECTION ASSOCIATED WITH YOUR CARD OR YOUR CARD BALANCE. 

YOUR CARD BALANCE IS NOT A DEPOSIT ACCOUNT AND THERE IS NO DEPOSIT ACCOUNT 

ASSOCIATED WITH YOUR CARD. FUNDS REPRESENTED BY YOUR CARD BALANCE THAT 

ARE ACCESSIBLE WITH YOUR CARD ARE NOT INSURED BY THE FEDERAL DEPOSIT 

INSURANCE CORPORATION OR ANY OTHER STATE OR FEDERAL GOVERNMENT AGENCY 

AND ARE SUBJECT TO RISK OF LOSS,” RushCard, Terms and Conditions, 

https://www.rushcard.com/terms_cardHolder.aspx (last updated Aug. 4, 2009). 

19
Federal Deposit Insurance Corporation (FDIC). This statement doesn’t make it entirely 

clear whether the deposit cap applies per card or to all of the funds for all of the cards in 

the program.”88 This confusion may be easily alleviated by the Federal Reserve Board 

declaring it an unfair practice to offer a prepaid card unless it is set up to qualify for 

either direct or pass through FDIC insurance. In addition, the FDIC should clarify its 

regulations concerning the use of the term “FDIC insured” to prevent that use unless the 

insurance in fact is in place and passes through on a per-cardholder basis. 

V. Policy Recommendations 

Refer to Appendix B

 Fees 

• Prepaid card fees should be displayed in a simple comprehensive chart, much 

like the Schumer Box for credit cards, which displays important fees with 

clear explanations for what the fees are for.89

• Monthly costs should be capped for use of prepaid cards and should be known 

up front. 

• Fee information should be provided in plain sight: on the outside of prepaid 

card packages; prominently on prepaid card website homepages; and, in other 

places consumers find prepaid cards. 

• Fee advertising that creates an impression of low cost by touting the absence 

of one fee without disclosing other fees should be stopped. 

• Overdraft or shortage fees should be eliminated. 

• Dormancy or inactivity fees should be eliminated. 

• Paper Statements should be provided to consumers monthly for no fee or a 

nominal fee. 

 Right of Recredit 

 Reduce Loss Cap to $50 on all cards, including prepaid 

 Chargeback Protection (although not discussed in report) 

 Guarantee Deposit Insurance for Each Prepaid Cardholder 

• Prepaid card FDIC ads and websites should be clear about individual 

depository coverage 

VI. Conclusion 

 Prepaid cards function much like traditional debit cards. They can be used like a 

bank account – to make debit purchases, withdraw cash at ATMs and from tellers, 

receive direct deposits and pay bills online or with checks. Consumers should be able to 

see and compare the cards’ fees up front before handing over any money. Prepaid card 

 

88 BuyRIGHT Home Page, http://www.buyright.com/#back (last visited Aug. 5, 2009). 

89 Similar to the “Schumer Box” for credit card terms and fees. 12 C.F.R. 226.5a 

20
21

issuers should provide fee information in a simple comprehensive chart, and the cost of 

using prepaid cards should be capped monthly. The consumer protections on these cards 

must be improved to equal those of bank accounts linked to debit cards; so that 

consumers using prepaid cards do not find themselves empty-handed as a result of 

unauthorized transactions, lost or stolen cards, identity theft or fraud or a bank failure. 

A growing number of consumers are using and relying upon prepaid cards to 

manage household funds and conduct daily financial transactions, making consumer 

protections increasingly critical for prepaid cards. Until those protections are required, 

prepaid cards are second-tier substitutes for bank accounts which do not provide 

cardholders with the same stability or protections that all consumers expect and deserve. 

 
NetSpend Visa 

H&R Block Emerald Card Rush Card Vision Premier WalMart Money Card

Green Dot 

(Visa/MC)** Western Union Ac

MetaBank (Visa)

H&R Block Bank (MasterCard)

Manufacturers and Traders Trust Company (Visa) Bancorp (Visa) GE Money Bank (Visa) Synovus Bank MetaBank (Visa) Me

"Card Fulfillment (S&H)" Fee:

$9.95/varies $0 

$19.95 (Pay As You Go Program); $3 (Pay Monthly Program) $9.95; $20 initial load $3; $20 initial load

Up to $4.95 ($6.96 for NASCAR prepaid card); $10 initial load $0; $5 initial load $0; 

Fee Advantage: $9.95 (unlimited transactions) OR "Pay As You Go": $0 $0 

N/A for Pay As You Go; $9.95 (Pay Monthly) $6.95 $3 

$0 with $1000 minimum balance or 30 posted transactions; otherwise $5.95 $0 $9.

Signature

Fee Advantage: Free OR "Pay As You Go": $1 Free

Free (Pay Monthly); $1 Domestic (capped at $10 per 

month), $2 Int'l (Pay As You Go) Free Free Free Free Fre

PIN

Fee Advantage: Free OR "Pay As You Go": $2 Free

$1 (Pay Monthly); $1 Domestic (capped at $10 per 

month), $2 Int'l (Pay As You Go) $0.95 Free Free Free Fre

Domestic Up to $2.50 $1.95 

2 Free each calendar month, $2.50 after (Pay Monthly); $1.95 Pay As You Go) $1.95 $2 

Free at in-network ATMs; otherwise $2.50 $1.95 $2.

International $4.95 $2.50 

$2.50 (Pay Monthly); $1.95 (Pay As You Go); additional 2% foreign transaction fee may apply $4.95 

$2 + 2% of withdrawal amount

$2.50 + 3% of withdrawal amount

$1.95 + 1% of withdrawal amount

$4.am

At Distributor: Up to $2.50 1.5% of funds requested $4.95 $2 $2.5 $4.$0.50 

$1(Domestic); $1.50(Internat'l)

$0.50(Domestic); $1(Internat'l) Both Programs $0.50 $1 $0.50 at non-network ATMs $0.45 $1.

ATM $1 $0.50 $0.95 Free $0.45 $0.Purchase $2.95 Paper 5.95 ("addt'l stmt fee") Free upon request $1 $2.95 free upon request $3 $2.Online Free (also free by phone) Free Free Free Free (also free by phone) FreEmail/Text Free Free Free Free Fre

$9.95 

$10 (+ $35 if request express delivery) $9.95 $4.95 

$3 (+ $20 if request rush delivery)

$6 (+$19.95 if request express delivery) $5 

$10 exp

Determined by reload method

Determined by reload method

Determined by reload method $0.95 and reload method fee

Free with Check Cashing at WalMart; $3 without Check Cashing at WalMart; or reload pack fee varies

$4.95 Western Union Load Fee

Detme

"account maintenance" $5.95/mo after 90 days $2.50/mo after 3 mos.

N/A (Pay Monthly); $1.95 after 90 days (Pay As You Go)

$4.95 (inactivity determined by fee plan; varies) N/A $2.50 (after 12 months) N/A

Free Free Free Free Free Free Free Fre

First 5 live calls per year for Free; $2 after Free

$0.50 (automated); $1.00 (Live)

Free (both automated and operator assisted)

Free (both automated and operator assisted)

Frefree age(au

Online offered, but fee undisclosed 

$1 (+$2 one time enrollment fee) Free $0.99 Fre

Check Free $5 Phone $5 

Issuing Bank (Card Network)Activation Fee/Initial LoadMonthly FeeCash Advance from Financial InstitutionBill PayStatementsAppendix A (UPDATED Sept 2010)Dormancy: Inactivity/Nonuse feeDirect DepositCustomer ServiceDecline: unable to complete transactionCash Withdrawal: ATMPoint of Sales Fees: Purchase feesBalance Inquiry: ATMReplacement Card: to replace lost/stolen card (for expedited card delivery)Reload: Adding funds

*Information was obtained from prepaid card websites. Some of the categories remain blank as it was unclear whether fees or services were provided for the cards.**GreenDot, ReadyCard and Univision prepaid cards were added to this 2010 update.
NetSpend Visa 

H&R Block Emerald Card Rush Card Vision Premier WalMart Money Card

Green Dot 

(Visa/MC)** Western Union Ac

Appendix A (UPDATED Sept 2010)

"fully liable to us for the amount of the transaction and any applicable fees or charges"

"fully liable to us for the amount of the transaction and any applicable fees"

"fully liable to us for the amount of the transaction and any applicable fees

Depends on fee plan. Standard plan has no overdraft; Direct Deposit and Lifetime Value fee plans offer

"Umbrella Protection" overdraft coverage for $15 (Direct Deposit) and $20 (Lifetime Value)

FAQ states "no" but are subject to cardholder agreement which does not provide info

None. "agree to pay us the overdrawn amount immediately"

"fully liable to us for the amount of the transaction and any applicable fees or charges"

Nonthe tran

$5.95 (Check Fee) or charges. $30 (Express Check Fee) $14.95 (Check Fee) undisclosed "liquidation fee"

$15brinclos

No No Yes

iAdvance RushPath Yes

Gas at Pump

$55 to $100, length of time undisclosed No

No - cannot pay at pump with

card

May result in hold of $75. Terms state takes up to seven days to clear after final amount received.

Up to 4 day hold of at least $35

May result in hold of $75. Terms state takes up to seven days to clear after final amount received.

No Con

suband inqautaccbal

$50

Hotel

about 15%; need to ask hotel if accept prepaid cards

May hold funds up to 30 days

Require 20% more than purchase amount. Terms state takes up to seven days to clear once amount is received.

Require 20% more than purchase amount. Terms state takes up to seven days to clear once amount is received.

May result in hold for up to 10 days.

May result in hold for up to 90 days

Require 25% more than purchase amount. Terms state takes up to seven days to clear once amount is received.

No Con

suband 

inclremaccclai

Rental Car

about 15% above authorized security deposit; need to ask hotel if accept prepaid cards 

May hold funds up to 30 days

Require 20% more than purchase amount. Terms state takes up to seven days to clear once amount is received.

Requires 20% more than purchase amount. May hold funds for 60 days

May result in hold for up to 90 days.

May result in hold for up to 90 days

Require 25% more than purchase amount. Terms state takes up to seven days to clear once amount is received.

No Con

suband 

inclremaccclai

Held Fund Policies: for transactions where the final amount may not be known, prepaid cards have separate policies for holding additional funds for certain time periodsCredit BuilderCredit LineCancellationOverdraft/Shortage

*Information was obtained from prepaid card websites. Some of the categories remain blank as it was unclear whether fees or services were provided for the cards.**GreenDot, ReadyCard and Univision prepaid cards were added to this 2010 update.
Signature

PINDomesticInternationalATMPurchasePaperOnlineEmail/TextOnlineCheckPhone

Issuing Bank (Card Network)Activation Fee/Initial LoadMonthly FeeCash Advance from Financial InstitutionBill PayStatementsAppendix A (UPDATED Sept 2010)Dormancy: Inactivity/Nonuse feeDirect DepositCustomer ServiceDecline: unable to complete transactionCash Withdrawal: ATMPoint of Sales Fees: Purchase feesBalance Inquiry: ATMReplacement Card: to replace lost/stolen card (for expedited card delivery)Reload: Adding funds

First Vineyard ReadyCard** READYDebit nFinanSe Eufora Wired Espree Bank Freedom 

Bancorp (MasterCard) MetaBank(Visa/MC) MetaBank (Visa)

Palm Desert National Bank (Discover) Bancorp (MasterCard) Bancorp (Visa) MetaBank (MasterCard) MetaBank (MasterCard

$39.95; $20 initial load $0; $5 initial load

$9.95 (Control, Select & Platinum); $20 initial load $3; $10 initial load

Associate: $29.95; Preferred: $59.95; Elite: $99.95 ($10 initial load for all 

levels) $9.95; $10 initial load $19.95; $10 initial load None; $20 initial load 

$6.95 $4.95

$3.95(Control, but free with at least $1500 direct deposit); $9.95(Select); $14.95(Platinum) $2.95 

For Credit Builder: $6.65 for Preferred and Elite members for 1st year membership (+$19.95 processing fee) $3.95 $4.95 

$5.95 (Free if Direct Deof at least $350 per moncash loads totaling $700 month) 

Free; $0.50 (internat'l) Free

$0.95(Control); Free(Select&Platinum) Free Free Free Free Free (domestic); $1 (int

Free; $0.50 (internat'l) Free

$0.95(Control); Free(Select&Platinum) Free Free $0.95 $0.50 $1 

$2 $1.95 

$2.25(Control&Select); $2(Platinum) $0.99 $2 $1.95 $1.50 $2.50 

$4.50 + 1% of withdrawal amount

$3 + up to 1% of withdrawal amount

$3 + up to 1% of withdrawal amount

card can only be used in the U.S.

terms and conditions do not refer to int'l ATM fee; however, withdrawals may incur 2% foreign transaction fee

$4.95 + $0.45 int'l transaction fee

$4.95 + 1% of withdarawl amount

$3.95 + up to 1% of withdrawal amount

$4.50 

$5.95 "over the counter cash advance"

$5 (Control, Select & Platinum) $2 $4.95 $4.95 

$1 $0.95 

$0.50(Control); Free(Select&Platinum) $0.49 $1 $0.95 $1 $0.50 

$1 $0.95 

$1.95(Control); Free(Select&Platinum) $0.49 $0.95 domestic; $1.95 int'l $1.50 $0.50 $1.95(Control); Free(Select&Platinum) $0.45 (PIN) $0.50 

$3 $3 

$2 (Control, Select & Platinum) $1 $2.95 $5 $2 

Free Free (also by phone) Free Free Free (also by phone) Free Free Free

$9.99/mo unlimited alerts; $6.99/mo Cricket & Boost for 30 alerts Free Free 

$15 (+$15 if request express 

mail)

$4.95 (+$20 if request expedited delivery)

$10 (+$50 if request expedited delivery) for all

Free ($20 if request priority)

$9.95 (+ $20 if express delivery)

$3.95 (+ $15 if express delivery) 10 (+ $40 if express delivery) $9.95 (+ $40 if expedite

Varies by reload method; assess $1 if use MoneyGram or Visa ReadyLink

Determined by reload method; $1 for ReadySTATION reload

Determined by reload method

$2.95 if non Western Union or MoneyGram 

$1; $5.95 Addt'l Retail Value Load Fee (or $13 Addt'l Bank Wire Transfer Fee)

Varies by retailer; $1 for MoneyGram or ReadyLink Varies by retailer Up to $4.95 for MoneyP

N/A N/A N/A

$2 per month after 90 days of no POS/ATM transaction

$19.95 " card reactivation fee" 

Free Free Free Free Free Free Free

Free (must be at least $per month)

Free

4 free calls/mo, $0.25/call after (automated or online); 4 

free calls/mo, $3/call (live agent)

Live Calls: $2 per call (Control); 1 Free call/mo, then $2/call (Select); Free (Platinum); Automated: Free (all)

Free (live or automated)

$0.50 (automated); Free (live 

person)

2 free calls per month, $0.95 after $3 (live customer service) Free (live or automated

$0.50 $0.25 

$0.45 ("Click n Pay Electronic Payment")

$1.50 Transaction Fee (qualify for Espree checks after 2 months of direct deposit of $500 +)

$4.95 (for first 5 payme

30 days; $.85 per paymthereafter) 

$1 $2.50 

$0.95 ("Click n Pay Paper Check")

$1.50 Transaction Fee (qualify for Espree checks after 2 months of direct deposit of $500 +)

$4.95 (for first 5 payme30 days; $.85 per paymthereafter) 

N/A $1 (payment to third pa

*Information was obtained from prepaid card websites. Some of the categories remain blank as it was unclear whether fees or services were provided for the cards.**GreenDot, ReadyCard and Univision prepaid cards were added to this 2010 update.
Appendix A (UPDATED Sept 2010)

Gas at PumpHotelRental Car

Held Fund Policies: for transactions where the final amount may not be known, prepaid cards have separate policies for holding additional funds for certain time periodsCredit BuilderCredit LineCancellationOverdraft/Shortage

First Vineyard ReadyCard** READYDebit nFinanSe Eufora Wired Espree Bank Freedom 

"Fully liable to us for the amount of the transaction and any applicable fees"

Will be required to pay a negative balance and any applicable fees or charges

None. Responsible for the "shortage"

Will be required to pay any negative balance and applicable fees

liable for amount of transaction and "any applicable fees"

"fully liable for amount of transaction and any applicable fees"

$9.95 Overdraft Activation Fee; $14.95 Shortage Fee

negative balance "liable 

for the amount of the transaction and any applicable fees or charg

$15 (Cancellation Fee)

$20 (acct closure via paper check for remaining funds)

$15 (acct closure via paper check for remaining funds) for all

$9.95 (Balance Reimbursement Fee) $15.95 (Check fee) $1 (check fee) 

Yes Yes

Yes for Elite or Preferred Members (reports to TransUnion and Experian) No No No No No No No 

Up to $75 or more. May take 

up to fifteen days to be removed.

No info in Terms and Conditions

May result in hold of $75.

No. Must pay with cashier

May have up to $75 hold. May take up to seven days for hold to be removed after final payment amount is received.

May preauthorize up to $75 or more. May take up to 15 days for hold to be removed.

May hold funds up to five days.

May have $100 hold for 

60 days. 

Might be preauth for amount plus 20% or more. May take up to fifteen days to be removed. 

No info in Terms and Conditions

No info in Terms and Conditions

Subject to Hotel Terms 

and Conditions

May have 20% more held. May take up to seven days for hold to be removed after final payment amount is received.

May have 20% more held and may take up to 90 days for hold to be removed

May hold funds up to five days.

May have $100 hold for 

60 days.

Might be preauth for amount plus 20% or more. May take up to fifteen days to be removed. An additional 15% or more may be added.

No info in Terms and Conditions

No info in Terms and Conditions

Subject to Rental Car Terms and Conditions

May have 20% more held. May take up to seven days for hold to be removed after final payment amount is received.

May have 20% more held and may take up to 90 days for hold to be removed.

May hold funds up to five days.

May have $100 hold for 60 days.

*Information was obtained from prepaid card websites. Some of the categories remain blank as it was unclear whether fees or services were provided for the cards.**GreenDot, ReadyCard and Univision prepaid cards were added to this 2010 update.
APPENDIX B: Policy Recommendations 

 Fees: Prepaid Card Fees Must Be Presented, Lowered and Simplified 

The proliferation of fees just described interferes with comparison shopping. Change 

is needed so that consumers can easily compare and understand prepaid card fees up 

front, before handing over any money. These changes are essential: 

• Prepaid card fees should be displayed in a simple comprehensive 

chart which displays important fees with clear explanations for what 

the fees are for.1

 

Consumers need to be able to see fees up front to decide which prepaid 

card best suits their needs. Consumers who make frequent in store or online purchases may benefit from cards which charge a flat monthly fee and 

include an unlimited number of free point-of-sale transactions. However, 

that same consumer might find that the fees for bill payment may be too 

high, making a difference in the total cost of using a card. 2

 

Inconsistent fee descriptions also make cost comparisons difficult. 

Explanations for fees should be more straightforward and obvious. For 

example, many prepaid cards refer to the cost to close accounts as “check 

issuance fees,” or fees to obtain checks with the remaining balance.3 A 

standard, simple chart which lists and describes every fee with the name of 

the fee, the amount, and what the fee is for is essential for consumers to 

compare costs among prepaid cards. 

• Monthly costs should be capped for use of prepaid cards and should 

be known up front. 

Prepaid card issuers should cap transaction fees monthly. Prepaid 

cardholders are subject to numerous fees. Replacing this barrage of fees 

with one flat fee paid monthly would provide consumers knowledge of the 

cost of using a prepaid card so they are not blindsided by hidden or 

unexpected fees such as dormancy or inactivity fees. An alternative way 

to reach the same result would be a requirement that each prepaid card 

include a monthly cap on the total cost of use, and that cap would be 

prominently disclosed before purchase. 

 

1

 Similar to the “Schumer Box” for credit card terms and fees. 12 C.F.R. 226.5a 2

 For example, AccountNow Prepaid offers free online bill pay and Espree offers free checks, but the 

Ready Card charges $4 per online bill payment under its Basic Option and AccountNow Prepaid charges 

$5 per check. 

3

 Cards such as the Millenium Advantage Prepaid MasterCard refers to the fee to close an account and 

redeem the remaining balance as a “check issuance fee” as described previously. Millenium Advantage 

Prepaid MasterCard Terms and Conditions, http://www.nmbadvantagecard.com/terms.htm (last visited Aug 

10, 2009). 
• Fee information should be provided in plain sight: on the outside of 

prepaid card packages; prominently on prepaid card website 

homepages; and, in other places consumers find prepaid cards. 

Consumers should be provided fee information before loading funds onto 

prepaid cards. Fee information should be provided on the outside of 

prepaid card packages, prominently on prepaid card website homepages, 

and wherever they may be sought and expected. 

Currently, consumers cannot easily see or find important prepaid card fee 

information, particularly when prepaid cards are purchased at retail 

locations.4 Prepaid card packages state consumers will obtain 

personalized plastic cards and accompanying documents arrive seven to 

ten days later, after consumers have already loaded funds and provided 

personal information. Websites also make fee information difficult to 

find. Links are often provided in small font and not placed prominently on 

webpages as compared to the large signup buttons and registration forms. 

Consumers must know which selections to choose to locate important 

information on the websites. For example, when a consumer visits the 

Account Now website, the fee information cannot be seen until two-clicks 

after using the “Open an Account” link on the homepage.5 

• Fee advertising that creates an impression of low cost by touting the 

absence of one fee without disclosing other fees should be stopped. 

Prepaid cards are promoted as sensible, cost-effective alternatives for 

consumers who are wary of high bank fees, especially bank overdraft fees. 

AccountNow’s “No overdraft fees” claims likely draws in many 

consumers who are fed up with bank fees or are no longer able to obtain 

bank accounts.6

 Contrary to AccountNow’s claims of no overdraft fees, 

they assess a shortage fee of up to $29.7

 

 

4

 The packaging from several of the Green Dot prepaid cards only provides the purchase fee and the 

monthly fee. Information regarding the many other fees is provided only after the card has been purchased. 

The terms and conditions arrive with the permanent card after submitting further information. Green Dot 

Everyday MasterCard and Nascar Prepaid card packaging found at Rite-Aid location in San Francisco, CA 

on April 22, 2009. Consumers may obtain fee information if they access GreenDot’s website and search 

for the terms. See Green Dot Reloadable Prepaid Card Cardholder Agreement, 

https://www.greendotonline.com/AcctMgmt/Controls/MyMCCARD/Support/CardholderAgreement.aspx?s

iteid=MyMCCARD. 5

 AccountNow Prepaid Home Page, https://www.accountnow.com (last visited August 5, 2009). 6

 A 2008 study from the Center for Responsible Lending illustrates the financial problems overdraft often 

creates: “overdraft loans become an extremely expensive substitute for a line of credit, and they 

[consumers] are paying fees that can be as costly as payday loans.” Eric Halperin, Overdraft Loans Trap 

Borrowers in Debt, Center for Responsible Lending, March 18, 2008. The AccountNow Prepaid Home 

Page touts “No Overdrafts” https://www.accountnow.com (last visited August 5, 2009). 7

 NetSpend, Terms and Conditions, https://www.netspend.com/prepaid-debitcard/prepaid_visa_card_terms.m#popmast; AccountNow Prepaid Terms and Conditions 

http://www.accountnow.com/company/terms-conditions.aspx (last visited July 16, 2009). 
Thus, consumers considering using a prepaid card should be aware that 

claims of “no overdraft fees” may be false. One-third of the prepaid cards 

we reviewed explicitly have overdraft or overdraft-like fees, and a few of 

the other cards subject cardholders to “any applicable fees” when 

transactions exceeding balance amounts are processed. This is an 

enormous problem, since one of the reasons consumers choose prepaid 

cards is to avoid bank account overdraft fees. 8

Prepaid card issuers should be stopped from advertising “No Overdraft 

Fees” when there are fees for overdraft, shortage, or any other term used 

to describe transactions that are processed that go over the account’s 

balance. The Federal Trade Commission should bring enforcement 

actions against prepaid card program sponsors who promise no overdraft 

fees and then charge a fee triggered by the overdraft, just giving that fee a 

different name. 

• Overdraft or shortage fees should be eliminated. 

 

Overdrafts may occur when a card is processed using a signature rather 

than a PIN. Prepaid cardholders owe repayment if they spend more 

money than they have placed in the card account. However, overdraft fees 

in prepaid cards, whether called overdraft, shortage, or by some other 

name, should be prohibited. 

• Paper Statements should be provided to consumers monthly for no fee 

or a nominal fee. 

Statements or other account information is essential for consumers to be 

able to monitor unauthorized charges, to be aware of fees that deplete their 

funds, and to avoid overdrafts. Most of the cards we analyzed allow 

consumers to check their accounts online, but these cards are often 

marketed to unbanked and underbanked consumers or immigrants who 

may not have easy internet access. Even for those who do, consumers 

may have no reason to check transaction activity if they have not been 

using the card. 

Prepaid card issuers should be required to give consumers the right to sign 

up for statements for no fee or a nominal fee and should not be allowed to 

hold consumers liable for unauthorized charges unless and until a 

statement or other account information revealing the charge has been 

provided to the consumer. 

 

8

 The Center of Financial Service Innovation’s One Size Does Not Fit All report includes personal 

assessments of consumers using prepaid cards who cite overdraft and bank fees as reasons for no longer 

having bank accounts. Rachel Schneider, One Size Does Not Fit All, CFSI (2009). 
• Dormancy or inactivity fees should be eliminated. 

 Expand EFTA’s Right of Recredit 

Taking the step to expand the Electronic Funds Transfer Act and Regulation E to 

include all reloadable prepaid cards and reloadable “gift cards” with a balance of at least 

$250 is not a giant leap, but rather comes full circle to provide consumer protection to 

consumers who use plastic payment cards which transfer funds using electronic systems. 

This is the overarching intent of the EFTA. 

Consumer advocates have long urged the Board to ensure consumers using 

prepaid cards have the same protections as debit card users. All prepaid cards marketed 

or used as account substitutes should be expressly covered by Regulation E. The Federal 

Reserve Board should clarify that “‘account’ includes all prepaid card products which are 

marketed or used as account substitutes or which provide significant sources of income or 

assets to an individual or household.”9

 By clarifying that the definition of “account” in 

Regulation E includes prepaid cards, important household funds for the growing number 

of consumers using prepaid cards would be protected in the event of unauthorized use 

and provide error resolution rights.10 

The Electronic Funds Transfer Act’s Regulation E should be extended to include 

all prepaid payment cards that function like debit cards or that serve the functions of a 

checking account, as well as reloadable “gift cards” with a balance of at least $250.11

The Federal Reserve Board should amend Regulation E by adding: 

12 C.F.R. § 205.2 Definitions 

... 

(b)(1) Account means: 

... 

(b)(3) The term includes a ‘spending account,’ which is an account that is 

directly or indirectly established by the consumer and to which prepayments are 

to be made on behalf of the consumer by the consumer or by others, or to which 

recurring electronic fund transfers may be made at the discretion of the consumer. 

This definition includes an account operated or managed by a retailer, third-party 

processor, a depository institution or any other person, an account held in the 

name of the consumer or the name of another entity, and an account where the 

funds are pooled with the funds of others. 

 

9

 October 28, 2004 letter to Secretary of the Federal Board of Governors, Jennifer Johnson from advocates, 

including Consumers Union, Consumer Federation of America and NCLC, available at

http://www.consumersunion.org/pdf/payroll1004.pdf. 10 The $250 balance amount is based on a minimum wage earner’s weekly income. Federal minimum wage 

will be $7.25 beginning July 24, 2009. See Minimum Wage Overview, Wage & Hour Div., U.S. Dep’t of 

Labor, http://www.dol.gov/esa/whd/minimumwage.htm (last visited Apr. 15, 2009). 

11 This figure is based on minimum wage and biweekly payments. See Compliance Assistance – Fair Labor 

Standards Act, Wage & Hour Div., U.S. Dep’t of Labor, http://www.dol.gov/esa/whd/flsa/ (last visited Apr. 

15, 2009). 
EFTA as the Floor: Payroll Card Protections 

To encourage uniformity among different payment cards and methods, we also 

recommend that all cards, devices, and other plastic payments should have loss 

caps at no more than $50. Congress should amend the EFTA to reduce the 

EFTA’s dollar cap applicable to debit cards to the level of the credit card cap—no 

more than $50. This could be accomplished by deleting 15 U.S.C. § 1693g(a)(2) 

and the “or” at the end of § 1693g(a)(1).12

 Extend Chargeback Rights to Prepaid Cards 

Congress should amend the EFTA to include a chargeback provision for both 

bank account debit cards and prepaid cards to provide protections consumers already 

have when paying with credit cards. Chargeback is an important consumer protection 

which allows the cardholder to dispute a charge when goods or services are not accepted 

by the cardholder or not delivered as agreed.13 Consumers should have the same 

chargeback rights when using debit cards or prepaid cards as consumers who use credit 

cards. 

Include in Section 908 of the Electronic Funds Transfer Act (15 U.S.C. § 1693f) 

by adding at the end of the following:14

(g) Rights of Consumers With Respect to Accepted Cards and Other Means of 

Access 

 

(1) In General—Subject to the limitation contained in paragraph (2), the 

issuer of an accepted card or other means of access to a consumer shall 

be subject to all claims (other than tort claims) and defenses arising out 

of any transaction in which the accepted card or other means of access 

is used as a method of payment, if 

(A) the consumer has made a good faith attempt to obtain 

satisfactory resolution of a disagreement or problem relative to 

the transaction from the person honoring the accepted card or 

other means of access; 

(B) the amount of the initial transaction exceeds $50; and 

(C) the transaction was initiated by the consumer in the same State 

as the mailing address previously provided by the consumer, or 

within 100 miles from such address, except that the limitations 

set forth in subparagraphs (A) and (B) with respect to the right 

of a consumer to assert claims and defenses against the issuer 

 

12 Hillebrand, supra note 63, at 790. 13 Regulation Z, 12 C.F.R. § 226.12(b). 

14 Hillebrand, supra note 63, at 798. 
of the card or other means of access shall not be applicable to 

any transaction in which the person honoring the accepted card 

or other means of access 

(i) is the same person as the issuer; 

(ii) is controlled by the issuer; 

(iii) is under direct or indirect common control with 

the issuer; 

(iv) is a franchised dealer in the products or services 

of the issuer; or 

(v) has obtained the order for such transaction 

through a mail solicitation made by or participated 

in the issuer in which the cardholder or other 

means of access holder is solicited to enter into 

such transaction by using the accepted card issued 

by the issuer. 

(2) Limitation—The amount of claims or defenses asserted by the holder 

of the card or other means of access under this subsection may not exceed 

the amount paid by the holder of the card or other means of access with 

respect to the subject transaction at the time in which the holder first 

notifies the issuer or the person honoring the accepted card or other means 

of access of such claim or defense.” 

 Guarantee Deposit Insurance to Each Prepaid Cardholder 

The Federal Reserve Board should require that prepaid card issuing banks set up 

these programs to qualify for FDIC insurance for each cardholder. This could be done by 

setting up individual card accounts or by complying with the FDIC General Council 

Opinion No. 8’s “pass through” requirements to provide pass through insurance to 

individual cardholders.15 Additionally, the FDIC should clarify its regulations to stop 

prepaid card product advertisements, including websites, from displaying the FDIC logo 

or phrase “FDIC insured” unless the prepaid card funds in fact are insured to the 

individual cardholder directly or on a pass through basis.16

 

15 In a November 23, 2008 letter, Consumers Union asked the Office of the Comptroller of the Currency to 

ensure their national banks only issue prepaid cards with accounts backed by the FDIC to the individual 

cardholder. In the OCC’s January 23, 2009 response, the agency stated that the they lacked the authority to 

direct their banks. Letter from Julie L. Williams, First Senior Deputy Controller and Chief Counsel, OCC, 

to Michelle Jun, Staff Attorney, Consumers Union, Jan.23, 2009, available at

http://www.defendyourdollars.org/2009/01/occ_response_on_prepaid_cards.html. 16 12 C.F.R. § 328.2, et seq. 
Appendix C: Consumer Advice and Tips When Using Prepaid Cards 

• Consider a regular bank account instead—you get a debit card, a monthly 

statement, and full consumer protections. Ask to opt-out of “overdraft protection” 

if you are concerned about overdraft bank fees. 

• Find and read the fee schedule before you buy the card. 

• Your cost will vary widely depending on which card you pick. Try to figure out 

the costs for two months. 

Make a list of how you will use the card and compare the fees. 

3⁄4 Fees for making purchases 

3⁄4 Monthly fees 

3⁄4 Fee for depositing money 

Will you set up direct deposit? Do you meet the minimum amount if there 

is a requirement? 

3⁄4 Fee to make cash withdrawals 

3⁄4 Fee for bill pay (if you use it) 

3⁄4 Fees to check your balance 

3⁄4 Dormancy or inactivity fees 

3⁄4 Customer Service Fees 

• Keep track of your balance –you might face high fees for going over your card 

balance. 

• We strongly recommend signing up to receive a written statement in the mail to 

keep track of your money. 

• Do not use prepaid cards to purchase gas at the pump, for hotels or rental cars. If 

you do, you may find you will not have access to more funds than the purchase 

and for a long period of time. 

• See if your card has different fees to choosing signature instead of PIN, or 

selecting the “credit” option instead of choosing the “debit” option. 

• Don’t rely on a prepaid card to build a credit record. 

If you can, get a secured credit card, where you make a deposit and get a credit line of the 

same size. Be sure that credit card has only an annual fee and no additional monthly or 

other special fees.