Watch Out for Payday Providers’ Prepaid Cards


We support reforms to the financial marketplace that protect consumers from unscrupulous banks and lenders.

By Consumers Union on Wednesday, July 15th, 2015

Gotcha fees and harmful practices make payday prepaid cards a bad deal for consumers


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Prepaid cards provided by payday lenders for their customers to receive the proceeds of a payday loan are dangerous traps for consumers a new report from the National Consumer Law Center (NCLC) says.

Most widely available prepaid cards cannot be used to secure a payday loan, but there are some prepaid cards that allow payday lenders to take advance authorization to debit the card on the consumer’s payday. Why this is problematic is that if you don’t have enough money on payday to cover the debit, you overdraft, generating fees that can drive folks deeper in debt. Some of the fees NCLC found are just outrageous, such as a $14.95 fee for a declined electronic (ACH) payment. The report notes that an overdraft of a payday provider’s prepaid card can drive the cost of a $300 payday loan from 390% APR to 520% APR. By way of comparison, the APR of a credit card is often under 30%, and the average credit card APR is a shade under 15%, according to

Prepaid cards can be a great way to control spending, but not when combined with payday loans. We advise folks to avoid payday loans. If you do that, the issue identified in the NCLC report is unlikely to affect you. (Note: our prepaid card ratings did not include prepaid cards from payday loan providers, and we oppose any kind of linked credit for prepaid cards, especially overdraft, but one of the brands we reviewed, NetSpend, reportedly earned at least $50 million last year from overdraft fees, according to the NCLC report.)

Have you used a prepaid card? We want to hear about. Share your prepaid card story here.

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