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Originally published Saturday, February 15, 2014 at 8:03 PM

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Study: Prepaid debit cards becoming cheaper but lack protections

Prepaid-card disclosures involving fees and terms often are incomplete, hard to understand and hard to find, study finds.

Pittsburgh Post-Gazette

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Prepaid debit cards are becoming more affordable with increased competition resulting in fewer fees, but the booming market still lacks critical consumer protections, according to a new study by The Pew Charitable Trusts.

U.S. consumers loaded some $64 billion onto prepaid debit cards in 2012, more than double the amount in 2009, Pew said. The cards are available at many checkout counters and some big banks.

The new report, “Consumers Continue to Load Up on Prepaid Cards,” looked at changes since the Washington, D.C.-based nonprofit research group released its first study on the topic two years ago.

The reloadable cards — designed mainly for consumers who don’t have bank accounts — can be used wherever traditional debit cards are accepted: at the register, to make purchases online or to withdraw cash at ATMs. Many people use them while traveling instead of carrying cash or as a budgeting tool to limit spending.

As the cards have zoomed in popularity, issuers have been criticized for blind-siding users with fees. Costs vary but can include activation fees, monthly fees, plus ATM, transaction, reload, balance inquiry, statement and dormancy fees.

Although the industry has improved, it remains largely unregulated. That gives consumers few protections from faulty disclosures and leaves it up to the issuer whether to cover losses from fraud, Pew said.

“A lack of protections undermines prepaid cards as a safe and easy way to manage money,” said Susan Weinstock, director of Pew’s safe checking project.

One of the chief problems, the report found, is that prepaid cards are not covered by the federal laws that protect holders of traditional debit cards tied to checking accounts from loss of funds and liability for unauthorized transactions.

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