A recent press release from the website Bankrate.com is entitled “Banrate.com Surveys Prepaid Cards, Finds Fees Galore.” Why fees on prepaid cards are so surprising that it is worth a press release is not clear.
This release is akin to saying that “Bankrate.com Surveys Movie Theaters, Finds Fees Galore.” If you go to the movies you pay a fee to get your ticket, then if you want popcorn, you pay a fee for that. If you get thirsty from the salt on the popcorn, you pay another fee for a cola. Candy, there’s another fee. On top of all of that, some places even charge you for parking.
No one would expect a movie theater to let people in for free. They wouldn’t expect a plumber to fix their pipes for free. And none of these detractors would do their own jobs for free, so why should prepaid be any different?
The average cost of a movie ticket was $7.93 in 2011, according to the National Association of Theater Owners. According to the Bankrate survey, two-thirds of the cards that it surveyed had an average monthly fee ranging from $2.50 to $9.95, and that says nothing about the average monthly fee most cardholders are paying.
Compared with a movie ticket, the price of prepaid card should seem a bit more reasonable. What causes the outcry, then?
The answer is that everyone compares prepaid cards to “free” checking. What no one is willing to admit, however, is that the “free” checking was not always free. Banks made free checking pay by charging overdraft fees to customers and interchange fees on debit purchases to merchants. They selectively cleared transactions in ways that frequently led to increased overdrafts. Once these two things were reduced by regulations, free checking started to disappear. Now, many accounts have minimum balance requirements or direct deposit requirements, much like many prepaid card programs.
The other thing that critics neglect to mention when making comparisons between “free” checking and prepaid cards is that many banks also have other ways to make money on those deposits. They can lend them out to mortgage and other types of borrowers. Banks also would do things like charge paper statement fees and foreign ATM fees. These all helped to defray the cost of “free” checking.
So bank accounts are kind of like television: they have another way to pay (commercials for TV, loans, overdrafts, and other fees for banks) for what they provide and so can offer a basic service for free. Prepaid cards are like going to the movies – you get no commercial interruptions, but it may seem like a higher cost to see the show. The question really comes down to choice and value.