In this tight economy, consumers have turned to prepaid debit cards instead of mounting debt on their credit cards. According to the Network Branded Prepaid Card Association, Americans spent about $37 billion on debit cards last year—doubling the amount from 2009. And now American Express is cashing in on the growing trend.
Late Monday, the financial institution introduced its American Express Prepaid Card. Unlike other prepaid debit cards that can be purchased in stores or banks, AmEx's card has a much simpler set of card and transaction fees. American Express will charge its prepaid card customers:
- A one-time $5 fee for purchasing the card at retail outlets later this year. (American Express currently offers the cards online at no cost.)
[UPDATE: According to American Express, this fee will be charged by Green Dot—a third-party company that provides an optional debit card reloading service called MoneyPak, available at retailers—and not by American Express itself. —Ed.]
- A $4.95 fee for reloading money to the card's account using a retailer. (Funds transferred via a bank's saving or checking account are free.)
- A $2 fee per ATM withdrawal, although consumers get one free withdrawal per month. (Bank network ATM fees may also apply.)
The AmEx prepaid debit card also comes with some of the same perks—24/7 roadside aid, purchase protection against damages and theft and emergency assistance while traveling—American Express offers with its traditional credit cards, including protections against unauthorized transactions and errors.
However, advocates at Consumers Union, publisher of Consumer Reports, say consumers should exercise caution. Even with fewer and simpler fees, AmEx's latest card—like all prepaid debit cards—remains exempt from federal consumer protection laws that apply to credit cards and bank account-linked debit cards.
Under current laws, for example, consumers with a bank-issued debit card have a clear right to be credited for fraudulent or erroneous charges within a short period of time. American Express' protection for prepaid debit card holders is by contract—voluntary and subject to change.
Still, with many banks scrapping debit card rewards programs, hiding fees, and finding new ways to clip you on credit cards, American Express' new debit card offering might be tempting payment option for consumers.
For more information about debit and credit card regulations, see New rules for your plastic on Consumer Reports Online Money section and Defend Your Dollars, a Consumers Union website focused on supporting reforms to the financial marketplace to curb bad practices by banks and lenders.
American Express rolling out first prepaid card [Associated Press via Google]
American Express Adds New Prepaid Card To Its Array Of Plastic [Dow Jones Newswire via Wall St. Journal]
AmEx Dodges Debit Fees With Prepaid Card [Bloomberg]
American Express Gives Consumers Fee Freedom with Revolutionary Prepaid Card [American Express]