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.
There's talk, however, that the new Consumer Financial Protection Bureau headed by Elizabeth Warren may call for public comments on how to increase fee disclosure by prepaid card issuers. It's unclear whether limiting fees would also be addressed.
Gail Hillebrand, a senior attorney with Consumers Union in San Francisco, says oversight of prepaid cards is sorely needed.
"What's going to happen if your teen loses a prepaid card or it's stolen?" she asks. "With a debit card, you have an absolute right to get that money back, but these products didn't exist when the Electronic Fund Transfer Act was written in the 1970s. This is a hole in the law."
There's another kind of prepaid card that has made its way to my home. It's a prepaid gift card, sent to my 12-year-old son, Alec, for his birthday. The card carries the Visa logo, so Alec could use it to make purchases virtually anywhere.
But if he doesn't spend the balance within a certain time period, he will lose $2.95 each month until the balance has been eaten up. Fees for other gift cards may be even higher.
Hillebrand says that for teenagers, there are better alternatives to prepaid cards. For emergencies and modest use, she suggests that an older teen apply for a credit card in his or her own name, with a low spending limit, as long as the teen can pay the full balance each month. She suggests that parents not cosign for the card; also, the teen will begin building that all-important record of good credit.
She also says it's best to get a card issued by a bank where your child has a checking or savings account.
After Jason and I talked about these options, he decided to open a checking account and fund it with the wages from his new part-time job. The bank will issue a debit card, in his name only, that will be tied to his checking account. This way, he can't spend more than the balance.
I've also given him a credit card — he's an additional user on my account — that he can hold in his wallet for roadside or other emergencies.
Carole Fleck is a senior editor at the AARP Bulletin.