ShareThisThe marketers of prepaid debit cards got some unwanted attention last month when the Kardashian sisters pulled the "Kardashian Kard" off store shelves.
Known for their reality TV show documenting the sisters' lavish tastes and shopping sprees, the Kardashians had been roundly criticized for marketing a product that encouraged young people to spend.
When the card was launched in late October, Suze Orman, who hosts a financial advice show on cable TV, wrote on her Facebook page: "This is one of the most ridiculous things I have ever heard -- from one over shopper to create lots of others -- are you kidding me!"
Consumer advocates have ripped prepaid debit cards -- marketed as an easy, sensible alternative to traditional bank accounts -- for their costs, fees and sometime confusing terms.
The Kardashian Kard came with hefty fees, including $59.95 to set up the account, a $7.95 monthly fee and a $2 per item charge when paying bills. There were also $2.50 fees for every ATM withdrawal and $1.50 for every call to the service center.
Staunch critic Consumers Union, the nonprofit publisher of Consumer Reports, applauded the Kardashians' decision to pull the pricey card. The organization used the news to say that prepaid cards need better regulation to protect customers.
"The newly authorized Consumer Financial Protection Bureau should make reining in abusive prepaid card practices a top priority," Consumers Union policy counsel Pam Banks said.
But financial experts say that prepaid cards can work when used responsibly.
In September, in an updated report and analysis on prepaid cards, Consumers Union said prepaid credit and debit cards pose "dangers" and "traps." Consumers will risk losing money until these cards have the same protections as traditional bank debit cards and credit cards, the report said.
"Our two main concerns always have been that they have very high and confusing fees and they don't carry that protection," Consumers Union attorney Suzanne Martindale said.
Fees are possible for initiation and activation, monthly use, cash withdrawal, balance inquiry, bill payment and adding money.
While the now-defunct Kardashian Kard ostensibly was marketed to consumers 18 and older, "a parent could purchase the card and set it up by putting it in a child's name," Martindale said. "... We don't think it's smart that a teen's first financial product should come with some high fees and be so expensive."
But in the right hands, prepaid debit cards can be useful.
Laura Cullen, a member of the California Society of Certified Public Accountants, said advantages include convenience and not having to charge to a credit card.
But consumers need to take precautions. For example, prepaid cards shouldn't be used at gas stations. "They put a hold on funds to make sure they get their payment and (the hold) doesn't always come off quickly," Cullen said. The customer could overdraw the card and pay costly fees for doing so.
Boston bankruptcy lawyer Theodore Connolly instead recommends "opening and funding a checking account that includes an ATM card at your local community bank or credit union and opting out of overdraft protection." Connolly co-wrote the book "The Road Out of Debt: Bankruptcy and Other Solutions to your Financial Problems."
Sakina Spruell Cole, who hosts a personal finance show on BET.com, said people who can't qualify for a traditional bank credit card should not get a prepaid card.
She recommends getting a secured credit card, which allows the cardholder to build a credit history.
"Now you can build good credit, so five or six months later, you can apply for a traditional credit card," Spruell Cole said. "Prepaid debit cards are not reporting to the credit bureaus, so you're not building a credit history whatsoever."
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