Thinking Inside the Box: Improving Consumer Outcomes ...policylinkcontent.s3.amazonaws.com/ThinkingInsideTheBox_CFSI_0.… · THINKING INSIDE THE BOX: IMPROVING CONSUMER OUTCOMES

March 2012

By: David Newville, Policy Manager, CFSI

© 2012, Center for Financial Services Innovation

Thinking Inside the Box: Improving Consumer Outcomes Through Better Fee Disclosure for Prepaid Cards

www.cfsinnovation.com

THINKING INSIDE THE BOX: IMPROVING CONSUMER OUTCOMES THROUGH BETTER FEE DISCLOSURE FOR PREPAID CARDS 2

Acknowledgements

CFSI would like to thank Melissa Koide for her many important and strategic contributions to this paper and all the work behind it over the last several months.

Thanks also goes to Angela Damiano for the extensive amount of research that she conducted on current prepaid card industry disclosure practices over the summer of 2011 as a Summer Associate for the CFSI’s Policy Team. Meredith Husband, CFSI’s Policy Intern, also deserves thanks for research and technical assistance in the production of the fee boxes and this paper.

Maris Bish is the lead designer of the all the model fee boxes featured in this work and is also CFSI’s Specialist, Marketing and Communication.


Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Prepaid Cards and Consumer Protections . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Considerations for Designing a Fee Box . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Simple, Clear, and Straightforward Language . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Format and Visual Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Tradeoff between Simplicity and Comprehensiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Pure Disclosure Versus Encouraging Financial Capability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Disclosing Services That Are Free, as Well as Those with a Cost . . . . . . . . . . . . . . . . . . . . . . . . 13

Putting Consumer Usage in Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Encouraging Consumers to Compare Different Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Clear and Consistent Placement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Updating and Beyond Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Current Prepaid Card Fee Disclosure Practices . . . . . . . . . . . . . . . . . . . . . 18Numbers and Types of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

How and Where Fees Were Disclosed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Disclosure of Third-Party Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Disclosure of FDIC Pass-Through Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Current Best Practices Beyond Fee Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Appendix A: Comprehensive Prepaid Fee Box . . . . . . . . . . . . . . . . . . . . . . 27

Appendix B: Current Fee Disclosure Practices . . . . . . . . . . . . . . . . . . . . . . 28

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table of Contents


Executive Summary

Increasingly, underserved Americans are turning to prepaid cards to meet their basic financial services needs. Functioning much like electronic banks accounts without checks, general purpose reloadable, or GPR, prepaid cards can be used make purchases, pay bills, access cash, monitor one’s finances, budget, save, and more. But prepaid cards have a significant weakness—their consumer protections do not serve current and prospective users well. Their fee disclosures in particular need improvement.

Companies typically disclose their fees in a list or box, but their design, content, and location vary widely and could be more consumer-friendly. Card users need to be able to more easily determine the true cost of a prepaid card and compare different products before deciding which to purchase. To help consumers make informed choices, prepaid cards should be offered with a well-designed fee box.

The Center for Financial Services Innovation (CFSI), which has been following the development of prepaid cards since 2004, has designed a model fee disclosure box based on research on current fee disclosure practices for GPR prepaid cards, best practices in disclosure for a variety of financial and nonfinancial products, and data on current prepaid card fees. The key principles identified through this research and behind the design of this model fee box are described below. The Model Fee Disclosure Box also below shows how these recommendations could work in practice.

The Consumer Financial Protection Bureau (CFPB) should use CFSI’s model fee disclosure box, or a similar one that adheres to the major principles and recommendations, to call for comments and expand the dialogue among stakeholders about designing and implementing

a fee box for prepaid cards. In addition, extensive consumer testing should be conducted on any potential model fee boxes to vet their effectiveness and research on consumer use of prepaid cards should continue.

Lastly, industry should not wait for the CFPB to take action before improving its fee disclosure practices. Companies should adopt CFSI’s model fee disclosure box for their own products, or at least create boxes that meet all the major recommendations. Until further testing and research are conducted, there may be multiple different ways to design an effective fee box. Companies should do some of this testing as well on their fee box designs to evaluate their effectiveness and help identify further best practices. Taking these steps will ultimately benefit consumers and industry alike as well as increase the potential of prepaid cards to help consumers achieve greater financial stability and prosperity.

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Model Fee Disclosure Box


RECOMMENDATIONS FOR A MODEL FEE DISCLOSURE BOX

Simple, Clear, and Straightforward Language

Disclosures for financial products are typically written at a reading level well above what most Americans can comprehend; About half of the adult population in the United States reads at or below an eighth-grade education level. When disclosures use terms that consumers do not understand, they tend to ignore them.

• Language to describe fees should be free of industry jargon and acronyms, and neither overly technical nor vague. • Because of the diverse number of ways that consumers can use prepaid cards, companies should have the flexibility to customize the names of individual fees (in simple, clear language), but categories of fees should be standardized to help consumers compare cards.

Format and Visual Design

Thoughtful design and formatting can make it easier for consumers to understand disclosures and more likely to read them in the first place. Terms and conditions often go unread because of their dense legal language, long narrative format, and small font.

• Organizing information into clearly defined lists or tables with categories and plenty of white space could improve comprehension.• The total number of categories should be manageable, and companies should limit the number of fees in each category to two or three at the most.

The Tradeoff between Simplicity and Comprehensiveness

All fees should be disclosed, but trying to accomplish everything within the box can reduce effectiveness, distracting consumers from what’s most important or resulting in information overload.

• CFSI recommends limiting the total number of fees in the box but not the overall number of fees a company can charge.• The summary box should contain the most common fees consumers pay and should be the most prominent. It should also contain a disclaimer stating that other fees may apply and can be found in the terms and conditions.• All other less common fees should be clearly disclosed in a larger version of the fee box at the top of the terms and conditions for the card.

Executive Summary


Executive Summary

Pure Disclosure Versus Encouraging Financial Capability

Promoting certain types of behaviors, such as financial capability, through choice architecture can have a positive impact on people’s lives.

• To encourage lower-cost use of prepaid cards, the fee box should highlight free services as well as those with costs. • To give consumers a fuller picture of total costs, the fee box could show a “Typical Use” column indicating the median number of times a consumer incurs each fee in a month or year. • Alternatively, to encourage comparison by price, an additional column could list the average or median fee across the industry for each individual fee.

Clear and Consistent Placement

The most effective disclosure document is useless if consumers cannot find it before having to make a purchase decision.

• Fee boxes for prepaid cards sold in a retail environment can be placed directly on the packaging. • Check cashers, small-dollar lenders, and banks should be required to present a copy of their fee box before customers purchase a card.• All prepaid companies should display their fee boxes prominently on their websites.


Prepaid Cards and Consumer Protections

Increasingly, underbanked Americans are using prepaid cards to meet their basic financial services needs. Functioning much like electronic bank accounts without checks, general purpose reloadable, or GPR, prepaid cards can be used to make purchases, pay bills, access cash, monitor one’s finances, budget, save, and more. Consumers choose prepaid cards for their convenience, accessibility, immediate liquidity, simplicity and transparency, value, and built-in discipline.1 But prepaid cards have a significant weakness—their consumer protections and disclosures do not serve current users well. Without improvement, prepaid cards are unlikely to appeal to a broader group of consumers.

The Center for Financial Services Innovation (CFSI), which has been following the development of prepaid cards since 2004, recognizes the potential of prepaid cards to meet the transactional needs (and possibly other broader financial needs) of underserved consumers. Because prepaid cards are still relatively new, and because of their growing use as full-fledged transaction accounts, now is a good time to look seriously at the consumer protections associated with GPR prepaid card accounts.

In 2011, after extensive research and consultation with a wide variety of stakeholders, CFSI outlined three major recommendations for improving consumer protections for GPR prepaid card accounts:

1) Mandate FDIC pass-through insurance

2) Extend Regulation E as applied to payroll cards

3) Require a standardized fee disclosure box2

These measures would improve the quality of prepaid card accounts and their value to consumers without restricting access or hindering innovation. This would attract more consumers to prepaid cards and encourage them to use the cards as true transaction accounts rather than temporary electronic payment mechanisms. By applying these measures to all GPR prepaid card accounts, regulators such as the Consumer Financial Protection Bureau (CFPB) and the Federal Deposit Insurance Corporation (FDIC), would benefit consumers and the industry alike.

Improving fee disclosure in particular is very important. A recent study of low-income households in Los Angeles found that one-third of households who closed their bank accounts did so because of unexpected or unclear fees.3 It is likely that low-income consumers have similar experiences with prepaid cards. Card users need to be able to more easily determine the true cost of a prepaid product and compare different products before deciding which to purchase. A well-designed fee box can help them make informed choices.

The process for implementing the first two recommendations is fairly straightforward, since both are related to existing regulations for bank accounts. The third recommendation, while not without precedent, has no direct counterpart in the financial services industry.4 The purpose of this paper is to begin examining exactly what the prepaid card fee disclosure box should look like and start building the framework for a box under future regulations.


CFSI has designed a model fee disclosure box based on research on current fee disclosure practices in the GPR prepaid card account marketplace, best practices in disclosure for a variety of financial and nonfinancial products, and data on the types of prepaid card fees consumers most frequently pay. The rationale for the box, the process behind its development, and other issues for consideration before the CFPB decides on a standard box design are discussed below. The

paper begins with an analysis of the major principles and considerations to incorporate into the design of a fee disclosure box for prepaid cards. This includes a description of CFSI’s model fee box along with variations to consider, depending on particular consumer needs that are identified in the marketplace and policy goals. Finally, a detailed overview of current fee disclosure practices in the industry that informed the development of the model fee disclosure box is provided.

Prepaid Cards and Consumer Protections


Considerations for Designing a Fee Box

While most prepaid companies have taken at least some steps to make it easier for consumers to find and understand the fees associated with their products, an examination of current prepaid fee disclosure practices clearly shows a need for improvement in the industry overall. Because there are typically many fees and disclosure practices vary widely, it is difficult for consumers to compare products before purchasing one.

In designing and introducing a model fee disclosure box, CFSI aims to greatly advance the conversation about improving fee disclosure for prepaid cards. However, all stakeholders ultimately have a role to play. Before adopting a model fee disclosure box, the CFPB should conduct robust consumer and industry research and carefully analyze the costs and benefits of specific aspects of its design. Industry representatives, consumer advocates, nonprofit practitioners, regulators, researchers, and other major stakeholders should vet and vigorously discuss the model fee disclosure box. Any proposed fee box should be rigorously consumer tested before implementation to ensure its effectiveness.

Industry also has an important role to play outside the regulatory process. Instead of simply advising regulators and waiting for regulations that are still years away, they should begin working on improved prepaid fee disclosures for their products now and seeking to create new best practices for the industry. This can provide immediate benefits to their customers as well as additional insights for the CFPB’s rulemaking work.

This process for improving fee disclosure for prepaid cards begins below with several

major principles that have directly informed the development and design of CFSI’s model fee box, as well as a description of how they could be applied to the ultimate design of a model prepaid fee box required by the CFPB.

Simple, Clear, and Straightforward LanguageThe language used in fee disclosures has a major influence on their effectiveness. If consumers do not understand which activities and services generate fees, they cannot estimate what it would cost them to use a particular prepaid product. While about half of the adult population in the United States reads at or below an eighth-grade education level, the typical credit card disclosure is written at between 10th- and 12th-grade levels. In addition, some sections and concepts in these disclosures require reading levels as high as the “15th grade,” or three years of college.5 Prepaid cards may be less complex than credit cards, but their users tend to have lower education levels than the average adult, reinforcing the need for simple, clear, and straightforward language.

Language to describe fees should be free of industry jargon and acronyms and not overly technical. In researching current prepaid fee disclosure practices, CFSI noted several examples of language that consumers might find confusing—such as “load” or “reload” fees and “POS signature” or “POS pin” fees. These terms are particularly confusing when used without context or explanation, especially for underbanked consumers who are often not as familiar with prepaid or banking products and their terminology. According to a comprehension test of mortgage broker disclosure forms, consumers tend to ignore terms they do not understand.6



CFSI’s recommended model fee box below (Prepaid Fee Box 1) uses simple and straightforward terms to describe fees, such as “Cash Back at a Store,” but also groups fees into easily understood usage categories, such as “Add Money” and “Get Cash.”

Overly vague language is also a problem where the exact meaning is not clear or more than one meaning could be plausible. This is a common problem with disclosures for many different types of financial products. In tests of credit card disclosures, for example, some consumers incorrectly assumed that “default rate” meant the standard or normal rate, like the default setting for a computer. In reality, some credit card companies were using

“default rate” to describe the new APR that

would apply if a consumer exceeded his or her credit limit or failed to make at least a minimum payment on time. As a result, regulations were changed to require that a more accurate term,

“penalty rate,” be used instead.7

Although vagueness was not especially common among the prepaid cards CFSI examined, it did occur. For example, disclosures mentioned a “special research and documentation fee” and a “cancellation” or “closing fee.” It was not clear whether the

“cancellation” or “closing fee” was charged simply for closing an account or instead for customers to receive any funds left over in an account before closing it. Nor was it clear, if the latter, what the means for obtaining these remaining funds was for customers (e.g., a check via mail, cash in person, an electronic transfer to another account, etc.). Prepaid card companies should try to be as specific, simple, and clear as possible and test their disclosures on consumers to identify any problematic areas.

It is reasonable to wonder whether the names for certain types of fees should simply be standardized across the prepaid card industry, as has been done for other financial products, such as credit cards. For now, however, CFSI believes that solution is not optimal for GPR prepaid card accounts. Although there are many types of fees across the prepaid industry, very few are charged by the majority of companies. This most likely reflects the diverse population of consumers using prepaid cards in equally diverse ways. Rushing to standardize the names for fees across all prepaid cards and numerous customer segments could ultimately do more harm to consumers than good. The exception might be for any basic fees, such as most ATM fees, where there is evidence and consensus that a particular name for a fee is clearest to

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Prepaid Fee Box 1



consumers. But typically, in these cases most of industry is already using this terminology voluntarily, so the benefits of mandating it through regulation may be marginal.

Instead, CFSI believes that while fee categories, such as those in the model fee box, should be standardized and mandated, prepaid card companies should be able to choose names for the individual fees under those categories, based on the needs of their particular customers. Mandating the fee categories instead of individual fees will create enough standardization to allow easy comparison among products, while also giving companies the flexibility to customize their products to their own customers. While leaving room for flexibility, the CFPB should monitor companies’ fee language and require them to make improvements if it is not simple, clear, and straightforward. If this strategy is found to be ineffective in practice, or if over time greater standardization occurs in prepaid card usage across the industry, the CFPB could consider standardizing individual fee names.

Format and Visual DesignThoughtful design and formatting can make it easier for consumers to understand disclosures and more likely to read them in the first place. Terms and conditions, although important, often go unread because of their dense legal language, long narrative format, and small font. Simply organizing information into clearly defined lists or tables, with headings, for example, could improve comprehension and appearance. According to the Federal Reserve, consumers had difficulty reading and understanding disclosures for home equity lines of credit that appeared in a narrative format. They preferred disclosures in a tabular format and demonstrated greater comprehension after reading them.8

Most prepaid card companies at the very least put fees into lists, and several organize fees by categories in boxes or tables. However, many fee schedules lack organization or contain too much information or too little. Even those that are fairly well organized and informative don’t lend themselves to comparison with other cards, because formats and fees differ.

CFSI’s model fee box (see Prepaid Fee Box 1 above) is designed to address the shortcomings of some fee boxes and facilitate comparisons. The model fee box is organized by the most common major categories of consumer usage: Total Cost of Setup, Add Money, Get Cash, Spend Money, Information, and Caution. These general categories seem fairly consistent across all major GPR prepaid card accounts that CFSI examined. While this box would enable consumers to better compare cards, it also gives companies the opportunity to choose which fees to include in each category that are most relevant to their particular customers.

In the model fee box, each major category is clearly indicated in a separate row, and there are two distinct columns labeled Fee Type and Amount. Plenty of white space is included between the columns and rows to make the fee box visually appealing and readable. Font sizes are large enough to read comfortably, and the font choices, shading, and line structure would be effective in either black and white or color.

The model box contains 14 fees. Fourteen is not a magic number or hard limit, but rather was reached in examining the most common fees and trying not to include more than two or three fees in each category in the interest of simplicity. While most prepaid card companies charge more fees than this, including a greater number in the box



could limit comprehension and would also be difficult to accommodate on the product packaging. This may mean that not all prepaid card fees would be disclosed in the fee box, but there are options for addressing this as discussed in the next section.

CFSI believes that each company’s fee box should include the specific fees that its customers most frequently pay, appropriately categorized. Although the model box contains some of the most common fees consumers pay, it is important to remember that fees vary widely among companies, and the data CFSI examined does not represent the entire GPR market. Additional research on consumer usage of prepaid cards and the types and frequency of which they incur fees is needed.9

The Tradeoff between Simplicity and ComprehensivenessIn addition to language, design, and formatting, the amount of information included in the fee box should strike the right balance between simplicity and comprehensiveness. Trying to accomplish everything within the box can be counterproductive, reducing the box’s overall effectiveness. The Federal Reserve has found that including too much information in disclosures can distract consumers from what’s most important or result in information overload.10 Psychological research has discovered that people typically remember only about seven pieces of information at a time.11 This is partially why CFSI’s model fee box is limited to six categories.

One solution is simply to limit the number and types of fees that can be charged to a reasonable number that can fit in a fee box without overwhelming consumers. Legislation introduced in 2010 and reintroduced in 2011

by U.S. Senator Robert Menendez proposed limiting fees for prepaid cards.12 While this would certainly make it easier to disclose fees, it would mean that prepaid cards would be more homogeneous, perhaps failing to meet the needs of certain underbanked consumers. CFSI’s research on current prepaid fee disclosure practices found that a wide variety of fees are charged by prepaid companies, with only a few types of fees charged by most companies. This seems to indicate the diversity of uses for the cards and types of consumers using them. Limiting the types and number of fees could also dampen the incentives of prepaid companies to innovate because they could not charge fees to cover the costs for any new features or services.

Another alternative is to limit the overall number of fees, but not the types. Regulators could limit the total number of fees any prepaid company could charge to, say, 14, so they could all fit easily into the fee box, but each company could choose which 14 fees to charge and categorize them within the box. This technique would force simplicity while providing each company the flexibility to charge appropriately for the services their customers use. Of course, certain fees related to prepaid cards reflect hard costs that must be recouped, but the services for which the fees are charged are infrequently used, such as paper statement requests and foreign transaction fees. Including such fees in the box would take up precious space and might be distracting, but omitting them would leave companies having to offer these services for free, and potentially at considerable cost, when consumers do use them.

CFSI’s recommendation is to limit the total number of fees in the box but not the types or number of fees companies could charge overall. The box would simply have to contain



a list of the fees most frequently incurred by consumers. Any other fees would have to be clearly disclosed in the terms and conditions for the card—ideally not in a narrative format or list, as is standard practice now, but in a larger version of the fee box. This supplemental box would contain not only comprehensive fee information but also additional non-fee-related information that would be helpful to consumers, such as usage limits for the product and descriptions of additional features and services available via the card. For consumers seeking specific or comprehensive fee information, this would be more helpful than is currently typical (see Comprehensive Prepaid Fee Box in the Appendix A). The smaller, summary fee box would contain a disclaimer stating that other fees may apply and can be found in the terms and conditions (See Prepaid Fee Box 1). In research on disclosures for home equity lines of credit, the Federal Reserve has found that if consumers see a fee section, they will assume it is comprehensive unless otherwise noted.13

The CFPB’s supervision would help ensure that prepaid cards list the most common fees in the smaller, most prominent fee box. Each company would be allowed to list the fees their particular customers most frequently incur in their own fee box. The CFPB should also monitor for fees that may be infrequently incurred by most consumers, such as overdraft fees, but that can be costly for a minority of consumers, particularly if this minority is deemed financially vulnerable. Any fees of this nature should be disclosed in the summary fee box as well, despite their infrequency, because of their disproportionate potential for harm. By monitoring trends through data collection, the CFPB could ensure that the fee boxes are accurate and remain current. The frequency with which companies would be required

to update the fee information in their boxes would also have to be reasonable and take into account the costs and time required to change and distribute the boxes on product packaging or other printed copies.

Pure Disclosure Versus Encouraging Financial CapabilityTraditionally, the goal of disclosure has been to be neutral and objective. But achieving true neutrality is difficult if not impossible in practice, and more recent research in behavioral economics has demonstrated that promoting certain types of behaviors, such as financial capability, through choice architecture can have a positive impact on people’s lives. CFSI’s recommended model prepaid card fee box is designed largely as a straightforward means of disclosure, but it could be modified in many different ways to encourage consumers not only to choose lower-cost products but to use them in lower-cost ways as well. A few examples are described below.

Disclosing Services That Are Free, as Well as Those with a CostOne small, subtle but important way that CFSI’s model fee box summary already encourages lower-cost use of prepaid cards is simply by highlighting free services alongside those with costs. Since the box is organized by general categories of use, seeing the variety of different ways to use the card for a general activity and the different costs side by side, in each row, can encourage consumers to use the free or cheaper means. This also applies when consumers are comparing similar services among different prepaid products.

For example, a consumer who typically loads cash onto a card at a cost may decide to sign up for direct deposit instead if the fee box



notes that it is free. Alternatively, a consumer who prefers to load cash onto a card or who does not have access to direct deposit may compare the cost of depositing cash among several different cards and choose the card with the lowest cost. Providing all the most relevant fee information in one place in an easy-to-understand manner could promote better financial outcomes for consumers. The downside is that there is limited space in the box, and including free services could mean the exclusion of other types of fees. But the benefits could outweigh the costs, and the concept merits testing.

Putting Consumer Usage in ContextAnother way the fee box summary could promote better financial outcomes is by helping to show the costs of using a card as part of a pattern of usage. This would give consumers a fuller picture of the total cost of using a particular product. A key finding from the field of behavioral economics is that consumers tend to be overconfident when estimating the likelihood of positive

events but underestimate the likelihood of negative events.14 Payday loans reflect this behavior. Consumers often greatly underestimate the amount of time necessary to pay off a two-week payday loan, and thus greatly underestimate the loan’s total cost. For prepaid cards, this may mean that consumers underestimate the likelihood that they will engage in certain behaviors or the frequency of those behaviors and then incur the fees that come with it, such as overdraft, store decline, or replacement card fees. In an experiment involving the impact of disclosures on payday loan customers, those who received information on the typical amount of time it actually took consumers to repay a payday loan were less likely than a control group to borrow in the future.15

One way to apply these findings to the model fee box summary is to add a column that includes the typical use or median number of times a consumer incurs each of the listed fees in a month or a year (see Prepaid Fee Box 2). This would give consumers a better idea of the likelihood and frequency of incurring certain fees, and thus provide a better understanding of the total cost of using a prepaid card in general as well as helping a consumer analyze a particular product. This type of feature might be particularly helpful for consumers who frequently incur fees listed in the “Caution” section of the box. Such fees, including card decline, inactivity, or replacement card fees, tend to arise unexpectedly, and consumers often do not take them into account when assessing the total cost of using a prepaid product.

Such information would have to be accurate and up to date to be effective. Companies could draw on usage data for their own products to make it customized to the consumers they serve, and the CFPB could

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Prepaid Fee Box 2



confirm that the data is accurate and up to date through the supervision process. An independent organization could also be used to calculate these numbers. Despite the potential benefits of adding this information to the fee box, the added costs and complexity would have to be weighed. This type of disclosure would also have to be consumer tested to ensure its effectiveness.

It is not clear whether the issue addressed by this additional disclosure is widespread enough to merit consideration of a policy intervention of this scale and nature. Additional research is needed to determine the scope of the problem. However, if it is identified as a prominent issue, this could be an effective remedy.

Encouraging Consumers to Compare Different ProductsAnother barrier for consumers in reaping the full benefits of disclosure for financial products is that many of them do not comparison shop. In examining how

consumers use APR to evaluate mortgage loan offers, the Federal Reserve discovered that about half of study participants contacted only one lender when shopping for a loan. APR by itself is a very limited disclosure tool, but without even comparable options, the APR for a single loan provides even less of the important and relevant information a consumer needs to make an informed purchase decision. If many consumers fail to compare products when shopping for something as large and important as a mortgage, consumers may also be unlikely to compare products when shopping for a less permanent and lower-stakes financial product like a prepaid card. Of course, a mortgage is a much more complex financial product acquired under unique circumstances, so further research should be conducted to determine if this is truly the case for prepaid cards as well, and if so to what extent.

Looking at only one prepaid card fee box before making a purchasing decision can give a consumer a sense of the cost of using that product, but the consumer will have no idea if that particular product best meets their needs at the lowest cost without any point of comparison. One way to encourage comparison among different products even if consumers examine only one fee box is to add a column to the box listing the average or median fee across the industry for each individual fee (see Prepaid Fee Box 3). This would give consumers some context for evaluating a particular card’s fees in comparison with those for other similar products in the industry. If the fees of most interest to a consumer are high for a particular product, it may encourage them to do some comparison shopping and help them find a product that better meet their needs at a lower cost. Again, to be effective and truly helpful, these numbers would have to

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Prepaid Fee Box 3



be accurate and up to date. They would have to be representative of the entire industry and compiled by a third party, such as the CFPB. The compliance costs for industry to provide this information would also have to be considered and be kept as low as possible for this to be feasible.

This addition is not unlike the “percent of daily value” measure used in nutrition facts labeling (See Figure 1). Of seven nutrition facts label formats evaluated, “percent of daily value” was found to be most effective.16 This measure provides some context and helps consumers roughly gauge how much of a particular nutrient belongs in their daily diet. Simply providing numeric measures of the amount of particular nutrients is less effective because it is harder for consumers to then put these amounts in any useful

context. The analogy to prepaid card fees is far from perfect, and measures like these have limitations as well, but the larger point about the potential benefits of putting disclosed information into a larger context to facilitate comparison is important. As with the consumer usage column described above, the benefits of adding information to the box would have to be weighed against the cost of the additional complexity and would have to be consumer tested. In this case as well, it is currently not clear whether the lack of comparison shopping is a big enough issue in the prepaid market to make a step like this a priority. Further research is needed first.

Clear and Consistent PlacementThe placement of the fee box is as important as the language, design, and content, but it is often overlooked. The most effective disclosure document is useless if consumers do not see it or cannot find it when attempting to make a purchase decision. Unlike disclosures for other types of financial products, such as mortgages and credit cards, the prepaid card fee box cannot simply be included with other financial paperwork or mailings, because prepaid cards are sold through a variety of different channels (e.g., retail, online, check casher, bank, etc.) where you do not typically receive this type of paperwork before having to make a purchase decision.

Fee boxes for prepaid cards sold in a retail environment can be placed directly on the packaging, as nutrition labels are. They would most likely fit only on the back, but a sticker or logo could be placed the front explaining where to find detailed fee information. Check cashers or small-dollar lenders that sell prepaid cards, and banks as well, should be required to present a copy of their fee box before customers purchase a card, and should perhaps clearly display poster-sized

Figure 1



copies for different products in their stores and branches. Fee boxes should be required to be included in direct mail solicitations for prepaid cards as well.

All prepaid companies should have their fee boxes prominently placed on their websites where they are easy to find, especially if their cards can be purchased online. The larger, more comprehensive fee box should also be easily accessible online. As smartphones become increasingly useful for acquiring information about financial products like prepaid cards, and eventually for opening and managing accounts, companies and regulators also need to consider how to effectively display the fee box on these devices.17

Updating and Beyond DisclosureDisclosures are important and extremely useful tools for helping make sure consumers have access to the information that they need to make prudent financial decisions. They are not and should not be the only tools available, though, to help consumers choose and effectively use the financial products and services that work best for them. Both industry and regulators like the CFPB have a role to play. Using advances in technology and the latest insights in financial capability, prepaid companies can provide additional tools to help consumers better understand their products and lower the costs of using them.18

For example, some prepaid card companies, such as Plastyc and Unirush, already offer interactive fee calculators on their websites. This allows consumers to better estimate the cost of using a specific prepaid product in a customized manner and in some cases to compare costs among different prepaid cards. Prepaid card companies could also provide additional customized and targeted fee information using email or text messages. Some companies already offer the option to receive text messages for transaction alerts

or balance inquiries. These services should be more widely available, along with other types of customizable alerts for a variety of fees and account changes. Companies should also explore using text messages and emails to provide targeted and timely information to help consumers avoid fees in the first place.

CFSI is engaged in an initiative, the Compass Principles, to promote quality practices and many others throughout the financial services industry and is designing a guide to such practices like these for prepaid cards. To truly help consumers get the most value out of financial products and services such as prepaid cards, providers will need to do more than simply offer basic consumer protections such as a fee box. The Compass Principles aim to encourage this and provide direction on how to do so in a way that benefits both consumers and providers.19

Regulators, such as the CFPB, should encourage industry to provide additional tools to consumers by researching and testing which practices are most effective at providing information and producing positive behavior changes. The CFPB could include additional consumer-friendly information and tools on understanding fees and choosing prepaid cards on their website, similar to what the Federal Reserve has done for credit cards, mortgages, and other financial products. Partnering with private organizations to develop some of these tools could help increase visibility for the tools and reach more consumers. Lastly, the CFPB should revisit and evaluate fee disclosure practices and regulations on a regular basis and update them as needed to reflect changes in the industry and the latest relevant research findings from the field.


Current Prepaid Card Fee Disclosure Practices

To inform the design of the model fee box, CFSI examined 36 GPR prepaid card programs from 28 companies.20 Best practices that were found inform the design of the model fee box and prominent shortcomings are addressed by it. Overall, disclosure practices seemed to be in line with and in some cases better than those for similar financial products, such as bank accounts.21 However, several areas for improvement were identified.

Unlike other recent examinations of the prepaid card industry, this research does not focus on the amounts of fees or critiques of specific types of fees. Rather the goal is to determine how many and what types of fees are being charged, and how they are being disclosed.

CFSI chose the companies and prepaid card programs to examine based on their prominence in the market. We also sought to gain a representative sample of programs using different distribution methods and targeting all the major consumer segments.

The companies were identified using CFSI’s extensive knowledge of the GPR prepaid card industry, research by Consumers Union, information from the National Branded Prepaid Card Association, and internet searches. The research was conducted mainly online by examining the websites of prepaid card companies. The data was collected over three months, from June to August 2011. For each program, CFSI sought to determine what fees were charged, what services were offered for free, where and how each fee and free service were disclosed, when the company noted a fee would be charged but the amount was not disclosed, and what limits were imposed on the card.

Numbers and Types of FeesThe types and number of fees charged varies widely. CFSI found 42 types of fees that fell into seven general categories: setup, deposit, usage, information, caution, closing, and international fees.22 Each card carried from one to 30 fees, with a median of 15 fees (see Figure 2).

NUMBER OF FEES CHARGED BY GPR CARD COMPANIES

Number of Fees

≤ 50

1

2

3

4

5

6

7

8

9

6 to 10 11 to 15 16 to 20 21 to 25 26 to 30

Num

ber

of C

ompa

nies

Median15.5

Figure 2



These findings are consistent with what is generally known about the evolution of fee structures and consumer use of prepaid cards. Consumers originally used prepaid cards in an a la carte manner or to only perform very specific and limited functions, such as to make an online purchase. The fee models correspondingly were set up so consumers only would have to pay for the services they used, which resulted in prepaid cards having many fees overall. Today, more and more consumers are using prepaid cards as account substitutes, using a much wider range of services. As a result, some programs now charge a regular monthly fee to cover the cost of multiple services, while charging fewer individual fees. The fee disclosure research confirms this point as well, finding that programs that charged monthly fees typically, but not always, charged fewer fees in total than those that did not and instead offered the traditional a la carte fee structure.

Just because a card has more fees, however, does not mean that its users pay more in fees than users of cards with a smaller number of fees. Some of the 42 types of fees detailed below, such as paper statement fees, are seldom actually paid by consumers. They are disclosed to cover an infrequent but high-cost service. Certain types of bank accounts, although often thought to be free, actually have similar fee structures, imposing many fees that most consumers rarely pay. The types of fees that bank accounts charge do not entirely overlap with those that prepaid cards charge, but research has found that at least among larger banks the total number of

fees charged are similar to those for prepaid cards and include many fees that consumers rarely pay. Many consumers perceive the accounts as free, but technically they are not, and some consumers’ usage patterns can prove very expensive.23

GPR prepaid cards do not appear to follow a standardized pricing schedule. Despite the numerous types of fees across the industry and the large number of fees charged on average by individual card programs, there was little overlap in the types of fees charged by different cards. Only one type, ATM fees, was disclosed by every card CFSI examined, and only six types were listed by 75 percent or more of the card programs examined (see Figure 3).

MOST COMMONLY DISCLOSED FEES

% OF CARDS

1. Out-of-network ATM 100

2. FX conversion 94

3. Replacement card 83

4. Balance inquiry at an ATM 81

5. Monthly fees 78

6. Paper statement 75

7. International: out-of-network ATM 72

8. Expedited delivery of replacement card 67

9. Activation 64

10. Get cash from a teller 64

11. ATM decline 61

12. Check payment 58

13. Live customer service 56

14. Get remaining funds when closing account 53

15. Point-of-sale PIN transaction 44

Figure 3



This is also consistent with what is generally known about the GPR prepaid card account marketplace. Prepaid card users, like other underbanked consumers, are a diverse population with a variety of financial services needs that do not always overlap. Different programs typically focus on different consumer segments (youth, immigrants, government benefit recipients, unions, etc.) or distribution channels (online, retail, check-cashing stores, etc.) where the needs and uses of the products vary greatly. As a result, the types of fees charged vary as well.24 In addition, some programs differentiate themselves by having the lowest or fewest fees and the simplest fee structures.

Figure 3 shows the 15 most commonly disclosed fees, along with the percentage of cards that carry them.25 Again, it is important to note that this list and the research described in this section focuses purely on fees charged and disclosed by prepaid card companies, not the fees consumers actually incur nor the frequency with which they are incurred. For example, while the foreign currency conversion fee is disclosed by 94 percent of card companies examined, consumer usage research and anecdotal evidence indicate that very few consumers ever pay these fees. Additionally, fees for replacement cards, the third most commonly disclosed fee, as well as paper statements, the sixth most common, are also infrequently incurred. As a result, this list of fees might be more useful for understanding the costs behind providing some of these services and features than for seeing what it costs consumers to use the cards.

These points highlight both the difficulty behind designing an effective fee disclosure box and the need to focus on the fees that consumers actually pay. Although we have some insight into these fees from consumer usage research and anecdotal evidence, it is far from comprehensive, and the fees consumers pay can vary dramatically with usage. Additional research is needed, and research will have to be updated regularly to keep up with changes in the marketplace. As a result, the fees listed in the model fee disclosure box are not in perfect alignment with what all customers pay on all prepaid cards, and will not be appropriate for every prepaid product. But they are a good starting point.

How and Where Fees Were DisclosedCFSI found four locations where fees were disclosed: in a designated “fee box” or list of fees, in the terms and conditions, under the frequently asked questions section of a company’s website, or elsewhere on the website. All of the card companies had some type of fee box or list, but there was room for improvement overall. Their designs and formats varied widely. Some divided fees into different sections or categories, while others simply listed fees in no apparent order. On average, companies listed 85 percent of their fees in a fee box. Six cards disclosed 100 percent of their fees in a fee box (see Figure 4 below). Generally, fees disclosed in the boxes were those consumers were most likely to incur. Among the reasons that certain fees may have been excluded from the boxes was that they were fees not frequently incurred



by consumers and were listed elsewhere, or the box was too small for all the fees because it was designed to be placed on product packaging in a retail environment.

In addition to recommending that fees be disclosed in a fee box, CFSI also recommends that these fee boxes be prominently displayed on the websites of prepaid providers, so consumers can easily locate them. Sixty-four percent of companies had a fee box on their

website, usually where it was easy to find but sometimes in less prominent places, such as the terms and conditions section or under the frequently asked questions (see Figure 5 below).

CFSI found that most card providers describe fees in simple, clear, and straightforward language. However, in some cases the fee description for a specific service varied significantly among card companies, making it difficult for consumers to make

LOCATION OF FEE BOX

61%

25%

6%

6% 3%

Its own webpage

In Terms & Conditions (T&C)

In Frequently Asked Questions (FAQ)

FAQ & T&C

Webpage and T&C

Figure 5

PERCENT OF FEES CARD PROGRAMS DISCLOSED IN A BOX

Percent of Fees Disclosed

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%0

1

2

3

4

5

6

7

8

Num

ber

of C

ard

Prog

ram

s

Mean85%

Figure 4



comparisons. Some language used to describe fees was technical (e.g., “POS decline” fee) or overly vague (e.g., “special research and documentation” fee), which could be confusing to some consumers and could use improvement.

Disclosure of Third-Party FeesOne common practice among prepaid card companies that is particularly confusing for consumers is to call a service “free” even though a customer using the service will incur a third-party fee. For example, cash reloads typically incur a fee from a third party, as do some ATM transactions and text messaging, such as fees for mobile alerts. Only about half of the card companies disclosed the third-party fee for cash reloads.26 Fourteen percent disclosed both that a third-party fee applied and its actual amount. Two companies disclosed the names of third parties for cash reloads, but not the fact that they charged

fees or the amounts. These companies listed only their own fee policy, which was not to charge for cash reloads (see Figure 6). Understandably, consumers would be confused.

Prepaid card programs do not control third-party fees, which usually are charged to cover hard costs in the delivery channel, not unlike the ATM fees most banks charge for out-of-network cardholders. The amount of these fees varies depending on which third party provides the service, which helps explain why so few prepaid companies disclose the actual amounts of third-party load fees. But more programs should at least flag for consumers that certain services might incur a third-party fee. Cash reloads and ATM usages are among the most commonly used prepaid card services, making this a crucial area for improvement in standard industry disclosure practices.

THIRD-PARTY CASH RELOAD DISCLOSURES IN THE FEE BOX

Disclosed the fee

Disclosed there will be a fee

No disclosure of third parties

Disclosed third parties but listed as free44%

36%

6%14%

Figure 6



Disclosure of FDIC Pass-Through InsuranceOne of CFSI’s recommendations to strengthen consumer protections for GPR prepaid card accounts is to require that all of them have FDIC or National Credit Uion Administration (NCUA) pass-through insurance.27 CFSI also recommends requiring disclosure of FDIC or NCUA pass-through insurance, on websites, product packaging in retail outlets, and marketing and promotional materials, so consumers are clearly aware of this protection.

Even though it is not currently required by law, most prepaid card programs do already offer FDIC insurance in one form or another. Of the 36 prepaid card programs that CFSI examined, 17 clearly disclosed that they offered pass-through insurance; they explicitly stated that the cards were insured up to $250,000 or the maximum amount provided by the FDIC. Another 15 stated that they were FDIC insured but did not disclose for how much they were insured. In practice, these cards may offer full pass-through insurance as well, but it was not clear from their disclosures. Three cards stated only that the card issuer was an FDIC-insured institution, but said nothing about whether funds on the cards were insured. These cards could also offer insurance in some form, but the disclosures did not clarify this. One program did not offer FDIC insurance.

Current Best Practices Beyond Fee DisclosureIn addition to disclosing fees, three prepaid card companies offer additional tools on their websites to help consumers better understand the cost of using their products. Unirush and Plastyc both have fee calculators that consumers can use to find out what fees they will incur based on their planned monthly use of their card.28 Unirush shows consumers which of its two plans, Monthly and Pay-As-You-Go, is better suited for them, and Plastyc compares the monthly cost for a consumer to use their card, a Rush Card, an AccountNow Card, and a checking account. Tools like these that are customizable to an individual’s behavior and provide detailed and targeted information can be even more effective than well-crafted disclosures at helping consumers understand the total cost of using a specific prepaid card product for them. AccountNow also offers a chart that compares the costs of different services among various prepaid card programs with its own29—but the chart is not customizable for individuals as the Unirush and Plastyc fee calculators are. More companies should offer tools like these beyond just the fee box, and new innovations should be explored as technology advances and further insights into consumer behavior are gained.


Next Steps

Consumers must be able to easily determine the costs associated with a prepaid card and to compare products before making a purchase decision. Current fee disclosure practices could be improved to meet this goal, and a very effective way to do so is to require a standardized fee disclosure box for all prepaid cards.

The CFPB should use CFSI’s model fee disclosure box or a similar one that adheres to the major principles and recommendations described above to call for comments and expand the dialogue among stakeholders about designing and implementing a fee box for prepaid cards. The CFPB should also host an industry convening to discuss these topics and potential additional steps beyond disclosure that both industry and regulators can take to improve consumer understanding and use of these products. In addition, extensive consumer testing is needed to vet the effectiveness of any potential model fee boxes, as is additional research on consumer use of prepaid cards.

Industry should not wait for the CFPB to take action before improving fee disclosure practices. Companies should adopt CFSI’s model fee disclosure box for their own products and possibly test it to evaluate its effectiveness. They should introduce new innovations as well to promote financial capability and improve the quality of their prepaid cards in other ways using resources such as CFSI’s Compass Principles Initiative.

After the fee box has been finalized, it should be mandated in a way that allows industry some flexibility to add on to it or customize it for their customers. Additionally, there should be plenty of advance notice for prepaid card companies to implement the fee box and any future changes or revisions. The fee box or aspects of it could even be voluntary at first or for a certain period of time while the CFPB assesses its impact on both industry and consumers, and tweaks its implementation as necessary. Taking these steps will ultimately improve outcomes for consumers and industry alike, without decreasing access or innovation for these important financial products in the future.


1 Sarah Gordon, Jennifer Romich, and Eric Waithaka, “A Tool for Getting By or Getting Ahead? Consumers’ Views on Prepaid Cards,” CFSI (April 2009), http://cfsinnovation.com/node/330566.

2 For more information on CFSI’s prepaid consumer protection policy recommendations, please see David Newville and Melissa Koide, “Prepaid Cards and Consumer Protections,” CFSI (July 2011), http://cfsinnovation.com/content/prepaid-cards-and-consumer-protections.

3 The Pew Health Group, “Slipping Behind: Low-Income Los Angeles Households Drift Further from the Financial Mainstream,” Pew Safe Banking Opportunities Project (October 2011), http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Safe_Banking_Opportunities_Project/Slipping%20Behind.pdf.

4 The Truth in Lending Act requires all credit cards to summarize their major costs in a standardized form called the Schumer Box.

5 United States Government Accountability Office, Credit Cards: Increased Complexity in Rates and Fees Heightens Need for More Effective Disclosures to Consumers, Report to the Ranking Minority Member, Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, U.S. Senate, GAO-06-929, September 2006.

6 Macro International, Inc., Summary of Findings: Consumer Testing of Mortgage Broker Disclosures. Submitted to the Board of Governors of the Federal Reserve System, July 10, 2008.

7 Jeanne M. Hogarth and Ellen A. Merry, “Designing Disclosures to Inform Consumer Financial Decisionmaking: Lessons Learned from Consumer Testing,” Federal Reserve Bulletin 97 (August 2011).

8 ICF Macro, Summary of Findings: Design and Testing of Truth in Lending Disclosures for Home Equity Lines of Credit, Report submitted to the Board of Governors of the Federal Reserve System, July 16, 2009.

9 CFSI is currently engaged in a research partnership with the Payment Cards Center at the Philadelphia Federal Reserve and MetaBank to better understand consumer use of prepaid cards. Using extensive amounts of transaction data over several years from multiple different prepaid card programs overseen by Meta Bank, the Payment Cards Center is conducting a detailed analysis of how consumer are using these products, including an examination of the fees they are paying. This study is still in progress, but preliminary findings have partially informed CFSI’s prepaid fee disclosure work (see the link below). However, the fee analysis completed thus far has been more focused on payroll prepaid cards than the GPR prepaid card accounts that are the subject of this paper. Additional forthcoming analysis will include more information about GPR prepaid cards which will be highly relevant for future work on prepaid fee disclosure. For more information on the Payment Cards Center analysis please see, www.fdic.gov/about/comein/HuntDec11.pdf.

10 Hogarth and Merry, “Designing Disclosures to Inform Consumer Financial Decisionmaking,” 3.

11 Omri Ben-Shahar and Carl E. Schneider, “The Failure of Mandated Disclosure,” (draft, University of Michigan Law School Empirical Legal Studies Center, 2010).

12 The Prepaid Card Consumer Protection Act of 2011, S. 2030, Senate, 112th Cong., 1st sess., 2011, http://thomas.loc.gov/cgi-bin/query/z?c112:S.2030:.

13 ICF Macro, Summary of Findings: Design and Testing of Truth in Lending Disclosures for Home Equity Lines of Credit, Report submitted to the Board of Governors of the Federal Reserve System, July 16, 2009.

14 Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions about Health, Wealth, and Happiness (New York, 2009).

15 Marianne Bertrand and Adair Morse, “Information Disclosure, Cognitive Biases, and Payday Borrowing,” (working paper, February 2011).

16 Alan S. Levy, Sara B. Fein, and Raymond E. Schucker, “Performance Characteristics of Seven Nutrition Label Formats,” Journal of Public Policy & Marketing 15 (1996):1.

17 For more information about the potential for mobile and prepaid cards, please see Kate Marshall, Bart Narter, and Rob Levy, “Reaching Underbanked Consumers Through Mobile Services,” CFSI (August 2011), http://cfsinnovation.com/content/reaching-underbanked-consumers-through-mobile-services.

Endnotes


Endnotes

18 For more information on financial capability, see Joshua Sledge, Jennifer Tescher, and Sarah Gordon, “From Financial Education to Financial Capability: Opportunities for Innovation,” CFSI (March 2010), http://cfsinnovation.com/node/440486.

19 For more information on the Compass Principles please visit the website at http://www.compassprinciples.com.

20 For a full list of all the prepaid card companies examined for this project, see Figure 7 in Appendix B.

21 The Pew Health Group, “Hidden Risks: The Case for Safe and Transparent Checking Accounts,” Safe Checking in the Electronic Age Project (April 2011),http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Safe_Checking_in_the_Electronic_Age/Pew_Report_HiddenRisks.pdf

22 For a full list of all disclosed prepaid card fees found for this project, see Figure 9 in Appendix B.

23 Building on research done by the Pew Health Group’s Safe Checking in the Electronic Age Project on checking accounts, CFSI examined the total number of fees charged by 10 of the largest banks in the country for a basic checking account. CFSI found that most of the accounts had at least 22 fees associated with them, and that for some of the accounts it was difficult to determine the exact total number of fees because the disclosures were so complicated and lengthy.

24 Deposit fees are one example of how varied the types of services can be for one general financial activity. CFSI found six different ways to deposit funds into a GPR prepaid card account (often each with its own fee): direct deposit, cash, check/money order, online transfer from bank account, debit card, and transfer from another prepaid card. Different consumers segments tend to use different means for performing the same general financial activities, such as depositing money in their accounts. With the advent of new technologies, such as more sophisticated mobile phones and online tools, the number of options will most likely increase. In the case of deposits, some banks have introduced remote deposit capture, and a few prepaid card companies are now considering this service.

25 For a complete list of all fees by the frequency of their disclosure, please see Figure 9 in Appendix B.

26 CFSI also found additional services that could involve third-party fees and require improved disclosure, but these services are less likely to be used by most customers. They include bank teller fees, ACH transfer fees, and check cashing fees (to convert a check to cash before loading in certain instances).

27 Funds deposited or loaded onto GPR prepaid cards accounts are held at a depository, but because their account structure differs from that of traditional bank accounts, they may or may not be insured for the maximum amount available through the FDIC and NCUA. In 2008, the FDIC published voluntary guidelines that prepaid card companies can take to ensure that each individual card account holder is eligible for full FDIC insurance, also known as “pass-through” insurance. For more information on FDIC pass-through insurance and CFSI’s prepaid consumer protection policy recommendations, see Newville and Koide, “Prepaid Cards and Consumer Protections.”

28 Unirush’s fee calculator: http://www.rushcard.com/howitworks/pickyourplan.aspx. Plastyc’s fee calculator: http://www.ibankup.com/Splash.aspx/FeeCalculator.

29 AccountNow’s comparison chart: http://www.accountnow.com/services/.


Appendix A: Comprehensive Prepaid Fee Box

-


Appendix B: Current Fee Disclosure Practices

PREPAID CARDS ANALYZED BY CFSI

Account Now Classic Net Spend Pay-As-You-Go

Account Now Gold nFinanSe

Advent Get It Card Plastyc Upside Life Plan

American Express Reach

Bank Freedom ReadyCARD MasterCard

BB&T ReadyCARD Visa

BuyRIGHT READYDebit Control

Capital One READYDebit Platinum

Deluxe READYDebit Select

Espree Silver

Exact Unirush Monthly Plan

Green Dot Unirush Pay-As-You-Go

H&R Block Emerald Card Univision

Insight Monthly Vision Preferred

Insight Pay-As-You Go Vision Premier

Mango WalMart Money Card

mPower Western Union MoneyWise

Net Spend Fee Advantage Wired Plastic


LIST OF ALL FEES AND SERVICES FOUND ON CARDS ANALYZED BY CFSI

Activation Fees Activation Monthly fee Second card

Deposit Fees Direct deposit Cash Bank account Debit/credit/check/money order Transfer between card

Usage Fees Point of sale with a signature Point of sale with a PIN Point of sale cash back In-network ATM Out-of-network ATM Cash from a bank teller On-line bill pay Transfer from card to bank account Check payment

Information Fees Online balance/account info Automated phone service Live customer service Balance inquiry at an ATM Online statements Paper statements

Penalty Fees Overdraft Replacement card Expedited delivery of replacement card ATM decline Point of sale decline Balance inquiry at an ATM decline Check decline

Closing Fees Get remaining funds at account closure Dormancy

International Fees FX conversion Point of sale with a signature Point of sale with a PIN In-network ATM Out-of-network ATM Cash from a bank teller Balance inquiry at an ATM ATM decline Point of sale decline

Additional Fees – Rare Plan change On-line bill pay enrollment On-line bill pay expedited service On-line bill pay stop payment Money order Special research and documentation

Appendix B


Appendix B

DISCLOSED FEES # OF CARDS % OF CARDS AVERAGE FEE

1. Out-of-network ATM 36 100% $2.12

2. FX conversion 34 94% $0.02

3. Replacement card 30 83% $7.64

4. Balance inquiry at an ATM 29 81% $0.84

5. Monthly fees 28 78% $6.82

6. Paper statement 27 75% $3.00

7. International: out-of-network ATM 26 72% $3.59

8. Expedited delivery of replacement card 24 67% $28.74

9. Activation 23 64% $8.85

10. Get cash from a teller 23 64% $6.76

11. ATM decline 22 61% $1.10

12. Check payment 21 58% $4.69

13. Live customer service 20 56% $2.16

14. Get remaining funds when closing account 19 53% $17.34

15. Point of sale PIN transaction 16 44% $0.99

16. On-line bill pay 16 44% $1.05

17. Second card 15 42% $6.25

18. Overdraft 14 39% $19.98

19. Transfer from card to bank account 13 36% $3.98

20. Automated phone customer service 12 33% $0.54

21. International: point of sale PIN transaction 12 33% $0.94

22. International: balance inquiry at an ATM 12 33% $1.31

23. Point of sale decline 10 28% $1.15

24. International: ATM decline 10 28% $1.66

25. Transfer between cards 9 25% $2.68

26. Check decline 9 25% $7.75

27. Dormancy 9 25% $5.30

28. International: point of sale sig. transaction 9 25% $0.78

29. On-line bill pay stop payment 8 22% $15.70

30. Load card from bank account 7 19% $3.48

31. Point of sale sig. transaction 7 19% $0.78

32. International: get cash from a teller 7 19% $6.40

33. Load card with cash 6 17% $1.54

34. Load card by debit, credit, check, or money order 6 17% $7.78

35. International: point of sale decline 6 17% $1.52

36. Balance inquiry at an ATM decline 5 14% $0.96

37. Special research and documentation 5 14% $37.50

38. Money order payment 3 8% $1.00

39. Point of sale cash back 2 6% $1.00

40. Plan change 2 6% $1.99

41. On-line bill pay enrollment 2 6% $2.00

42. On-line bill pay expedited service 2 6% $9.95

LIST OF DISCLOSED FEES ON CARDS ANALYZED BY CFSI, RANKED BY FREQUENCY OF DISCLOSURE


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About CFSI:The Center for Financial Services Innovation (CFSI) is the nation’s leading authority on financial services for underserved consumers. Through insights gained by producing original research; promoting cross sector collaboration; advising organizations and companies by offering specialized consulting services; shaping public policy; and investing in nonprofit organizations and start-ups, CFSI delivers a deeply interconnected suite of services benefiting underserved consumers. Since 2004, CFSI has worked with leaders and innovators in the business, government and nonprofit sectors to transform the financial services landscape. For more on CFSI, go to www.cfsinnovation.com.

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