By Kristina Peterson
Of DOW JONES NEWSWIRES
WASHINGTON -(Dow Jones)- An industry-backed study of prepaid card fees released Thursday argues that reloadable cards are a cheaper alternative to traditional low-balance bank checking accounts.
Pre-paid cards have come under scrutiny in Congress as it considers creating an agency to monitor consumer financial protection.
The study limits its focus to comparing the costs of four prepaid card programs to the five biggest bank checking account programs. A consumer with a low-balance checking account would expect to pay $200 to $350 annually, which includes the costs of overdraft charges, ATM fees and minimum account balances, according to the survey by management advisory firm Bretton Woods, Inc.
By contrast, a prepaid card user may pay between $108 and $320. The study was commissioned by the Network Branded Prepaid Card Association, an industry group.
Bretton Woods Chief Executive Michael Flores said the four prepaid cards used in the study represent "significant market share." But because there is no centralized database of prepaid card market data, he could not quantify what percentage of prepaid users rely on the selected cards from Wal-Mart Stores Inc. (WMT), Green Dot, Net Spend and Account Now.
Prepaid cards are a growing industry that proponents say can serve as a budgeting tool and help communities that many banks do not serve.
"For people migrating to the banking system, this serves a significant purpose," Flores said.
The study compared fees based on the assumption that the average user would have six overdraft fees per year - charges that drive up the cost of checking accounts. Traditional bank accounts charge a median fee of $27 per overdraft, according to a Federal Deposit Insurance Corporation survey. However, according to the FDIC, 74% of consumers have no overdrafts annually.
Several cards not included in the study show much higher fees. The Millennium Advantage Prepaid MasterCard, a product of Mastercard Inc. (MA), charges up to $99 for an activation fee. The MiCash Master Card charges $8.95 for each international remittance, $4 to make a bank teller withdrawal and $1 to check a balance. Flores said such cards do exist and they must disclose such fees "clearly and prominently" to consumers.
But Michelle Jun, a staff attorney with Consumers Union, said clear, obvious disclosure of fees is rare. She noted it can be hard to effectively evaluate prepaid cards' cost effectiveness because of the wide variation in their fee structures.
"You can't even do close to an apples to apples comparison," Jun said.
Thursday's study was released at a time of renewed attention to regulation of the small but growing industry. The proposed Consumer Financial Protection Agency may gain oversight of prepaid card issuers. This week the U.S. Chamber of Commerce sent a letter to Rep. Barney Frank, D-Mass., objecting to the cards' inclusion in the proposed agency, which the chamber said could broaden government oversight to many non-financial institutions.
The U.S. Federal Reserve is also currently reviewing its role in monitoring prepaid cards under the new credit card laws. Also, the Treasury Department could choose to issue new regulations to try and tamp down money laundering usages with the cards.
In 2007, users made $4.8 billion in transactions using prepaid cards, according to The Nilson Report.
-By Kristina Peterson, Dow Jones Newswires; 202-862-6619; kristina.peterson@dowjones.com