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 at a number of 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 and as a budgeting tool to limit how much they or their children spend.
As the cards have zoomed in popularity, issuers have been criticized for blindsiding users with a bevy of fees. Costs vary but can include activation fees and monthly fees, plus ATM, transaction, reload, balance inquiry, statement and dormancy fees, among others.
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 fraudulent transactions, Pew said.
"While prepaid cards offer many benefits to consumers, they are a relatively new product with little oversight," said Susan Weinstock, director of Pew's safe checking project.