More and more people are using prepaid cards, yet it is a highly unregulated industry. According to the Pew Charitable Trusts’ 2014 report Why Americans Use Prepaid Cards, about $65 billions was loaded onto prepaid cards in 2012 – more than double the amount loaded in 2009.
Widely used by un/underbanked populations, prepaid cards are often used as an alternative to checking accounts. Most people who use prepaid cards are trying to gain control over their finances. The Pew Charitable Trusts’ report found that three of the top reasons people use prepaid cards are to:
- Avoid credit card debt
- Avoid spending more money than they have
- Avoid overdrafts
However, the majority of prepaid cards – specifically GPR, or “General Purpose Reloadable” cards â€“ are not meeting the needs of the people who use them. Many prepaid cards have the wrong ingredients: a long list of predatory fees, barriers to accessing account information, and credit features, which many people are specifically trying to avoid when they buy a prepaid card. Instead of being a tool that helps families become financially secure, prepaid cards are often a costly trap that strips wealth from communities.
According to data from the Family Assets Count, 16% of Chicago families do not have a savings or checking account â€“ twice the national rate. With so many Chicago households not using traditional bank accounts, it is critical for prepaid cards to be a safe and affordable alternative. Because of the high prevalence of un/underbanked families in Chicago and the high usage of prepaid cards in this population, Bank On Chicago decided to create recommendations for what a safe prepaid card would look like.
This spring, IABG worked with Bank On Chicago community partners to collect feedback about prepaid cards. We hosted discussions with partners and collected nearly 100 surveys from Chicagoans who use these products. Based on this feedback, we developed a list of the right ingredients for prepaid cards. IABG sent a letter to City Treasurer Kurt Summers today with those recommendations, which include:
Create an affordable, transparent and safe prepaid card by providing:
- Free ATM withdrawals
- No overdraft or credit features
- No point of transaction fees, monthly maintenance fees, or inactivity fees
- Standard, accessible, and easy to understand disclosures
Provide convenient and free access to account information by offering:
- Free customer service
- Free access to account balances
- Free paper statements
- Free online & mobile transactions
Help people become financially stable by offering a linked savings account. According to the Pew Charitable Trusts, 2 in 3 prepaid card users would welcome a savings feature. Savings are critical, as they can help people weather financial emergencies like a car repair, medical emergencies, or job loss.
Bank On Chicago is a local coalition of government agencies, financial institutions and community organizations dedicated to improving the financial futures of unbanked and underbanked families in Chicago.