03/01/2012 06:41 am ET Updated Apr 30, 2012

Prepaid Debit Cards: A Brief Guide to What Really Matters

They're called different names, come from many different sources, offer different options, and have very different cost structures, but prepaid debit cards are everywhere. Some government agencies are turning to them to solve budget shortfalls by reducing the costs for printing paper checks. Employers are turning to them too. Financial institutions, other issuers, and those lending their brand to these cards are ramping up their availability. And there are also some advocates and policy makers who see these cards as banking access tools.

More than $140 billion moves through prepaid debit cards every year in this country. Given the wide range of these products, from cards that lack basic consumer protections on one end to those with strong consumer protections on the other, consumers and regulators must find ways to navigate what really matters. I offer the following simple suggestion as a compass: Decent cards should have strong consumer protections and they should operate like basic checking accounts. Here's what I mean:

1. Prepaid debit cards should have strong consumer protections. For example, cards should:
  • Clearly disclose all fees
  • Have account-specific FDIC insurance and other consumer protections
  • Not link to predatory payday loans or include "gotcha" fees
2. Prepaid debit cards should offer the basic features of standard checking accounts. For example, cards should:
  • Allow consumers to add funds to their cards from multiple sources
  • Provide easy and reasonably-priced access to the funds

The full details about these basic principles are outlined in the Cities for Financial Empowerment (CFE) Coalitions' Principles for Prepaid Debit Cards. Drawing upon the experience of local governments engaged in financial empowerment programs and the disbursement of money to our residents, the CFE Coalition's principles describe what policymakers considering prepaid debit cards should focus on to get it right.