As prepaid cards' popularity rises, better be wary of fees

 

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New types of prepaid cards are rolling out at a brisk clip, and plenty of people will sign up despite the fees.

In general, prepaid cards are gaining popularity. And some, like American Express, are going after young professionals, said Beverly Harzog, credit card expert for Credit.com.

The marketing push is to offer a piece of plastic that's an alternative to a traditional checking account — and plastic that generally can't be overdrawn.

These little cards have picked up celebrity sizzle, too. Hip-hop mogul Russell Simmons has his RushCard and BabyPhat card. CNBC's Suze Orman launched the Approved Card this year.

Totally outrageous fees created so much bad press for the Kardashian Kard that it lasted a New York minute in 2010.

More than 7 million consumers use prepaid cards. About $57 billion was loaded onto the cards last year. The industry's name for them is "general purpose reloadable" cards — and it's an area expected to grow rapidly.

People register their cards and may place more money on the card via direct deposit.

•JPMorgan Chase has a new card called Liquid that is being tested in about 200 branches.

•Comerica Bank is running a pilot program for a prepaid card that it plans to roll out later this year, according to spokeswoman Kathy Pitton.

The Comerica prepaid card is FDIC-insured and covered under Visa's Zero Liability protection. You pay $5.95 upfront and then $3.95 a month. You can trigger other fees — such as $2.50 if you load the card with money online via a credit card or debit card. But it has no fees for transferring money from Comerica deposit accounts, loading the card at a Comerica banking center and making withdrawals or inquiries at Comerica ATMs. The first two calls to customer service are free each month. Other calls after that are $2.

Some consumer experts say increased competition could bring more reasonable fees into the picture. Yet the trick will be shopping around and digging deep into the fine print.

The Consumer Financial Protection Bureau has warned that consumers may not see all the fees until they've bought some cards off the shelf. Some disclosure is iffy — and the bureau would like more regulation.

Best bet now: Research the cards online and elsewhere before selecting one.

Fees associated with some prepaid cards can resemble a minefield, according to John Ulzheimer, president of consumer education at SmartCredit.com in Atlanta.

If a cardholder takes too many wrong steps with certain reloadable prepaid cards, monthly fees could be more than $30, Ulzheimer said.

What kind of fees?

The Prepaid Visa RushCard charges $3.95 just to activate its RushCard.

But here's something weird: The pink BabyPhat design or the purple KLS card cost $14.95 for that one-time activation fee — $11 more than another Rush card.

Being fashionable costs you more money yet again.

Overall, consumers need to be aware of potential monthly fees on a prepaid card, a fee for withdrawing money from an ATM, a fee for a direct deposit onto your card, or a fee for talking to customer service.

The Suze Orman card costs $3 to get and then $3 a month with the first month waived. Direct deposit is free.

But it has only one free call per month to live customer service, said Greg McBride, senior financial analyst for Bankrate.com. After that, it's $2 a call.