Today, the Federal Trade Commission (“FTC”) sued one of the biggest prepaid card providers, NetSpend. The complaint alleges that NetSpend violated sections of the Federal Trade Commission Act, a law prohibiting unfair or deceptive acts or practices.

The FTC’s allegations include:

prepaid-cardsIf these allegations are true, the practical effect on consumers may have been profound.  That’s because prepaid cards are used by a large number of consumers who cannot get or choose not to have a bank account. For consumers who rely on a prepaid card alone for a transaction account, there is nowhere else to go if they cannot access wages or other funds deposited to the card. Affected consumers may have struggled to get food or medicine.

We think that prepaid cards can be a great tool for managing money. Prepaid cards can be used to make purchases, pay bills and withdraw cash at ATMs. We have been rating prepaid cards since 2013. The NetSpend cards in our ratings consistently got lower scores, and are not recommended.

The allegations against NetSpend underscore that strong regulation and oversight of prepaid providers are necessary. We’re glad that the Consumer Financial Protection Bureau has issued strong final rules for prepaid cards. (The rules are effective October 2017.) We will continue to keep our eyes on prepaid cards, and on this case.

We’d like to hear from you. Have you used a prepaid card? Tell us about it in the comments.