Every week, it seems, I throw away a pile of new credit card offers. But an offer from American Express caught my attention. It's called PASS, and it's marketed as a prepaid charge card that parents give to teens as a "safer" alternative to cash.
I can load up to $2,500 on the card, and Jason, my 18-year-old, can use it with certain restrictions. For instance, it's not accepted at liquor stores or casinos. That wasn't something I tended to worry about, but nevertheless, American Express bills the card as a "pass to peace of mind" for parents, and a "path to financial responsibility" for teens.
What the fine print doesn't pass on are details of its fees. So I called American Express.
What I learned is that there's no activation fee but there will be a fee of $3.95 per month — about $48 per year — starting Oct. 1, regardless of whether the card is used. There's also a fee of $1.50 each time the card is used to get cash at an ATM.
Prepaid, reloadable cards like this one are becoming more popular every year. According to the industry research firm Mercator Advisory Group, money put onto these cards is likely to increase to $202 billion by 2013, nearly five times the estimated $42 billion loaded in 2010.
Many analysts believe the growth will be fueled in part by the marketing muscle of big banks entering a business that, to date, has been dominated by small financial institutions.
Up to now, the cards have largely appealed to people who don't have bank accounts, or don't have credit ratings good enough for traditional credit cards. But their uses are becoming more mainstream.
The IRS will offer refunds to some taxpayers on prepaid cards. Retailers increasingly put product rebates on them. And some parents are giving them to teenagers as first steps toward financial independence.
Loaded with fees
The rapid growth of prepaid, reloadable cards is no surprise to Ben Jackson, senior analyst at Mercator in Maynard, Mass. For one thing, parents like the idea of using them to monitor their teens' spending and teaching budgeting, he said.
But like the Amex PASS, these cards typically come with an array of fees, so it's important to get the details.
In an analysis of 19 prepaid cards by the nonprofit Consumers Union, 12 charged fees for activating cards, 16 charged monthly fees, 18 charged fees for checking the balances at ATMs, and all 19 charged fees for withdrawing cash from ATMs. Other fees were detailed in the report, released in September.
Prepaid cards have so far largely escaped federal regulatory scrutiny. As a result, issuers are not required to provide the wide protections that consumers expect with credit cards. Any protections are voluntary and can be changed by the issuer at any time.