Grading the Prepaid Card Industry

Posted March 31, 2014, By the Annie E. Casey Foundation

We recent­ly sup­port­ed a new report from the Cen­ter for Finan­cial Ser­vices Inno­va­tion (CFSI) on pre­paid cred­it cards called The Pre­paid Indus­try Score­card: Assess­ing Qual­i­ty in the Pre­paid Indus­try With CFSI’s Com­pass Prin­ci­ples

It would be under­stand­able if you’re won­der­ing why. It’s not imme­di­ate­ly obvi­ous why improv­ing the qual­i­ty of pre­paid cards — which can be used to receive income, pay bills and make every­day pur­chas­es — is relat­ed to our mis­sion: build­ing brighter futures for chil­dren, fam­i­lies and communities.

But for chil­dren to suc­ceed, we need to strength­en the entire fam­i­ly. That means help­ing fam­i­lies save and grow their finances. The state of fam­i­ly finance in the Unit­ed States today is alarm­ing. Two in five Amer­i­cans report that mon­ey is the biggest cause of stress in their life. More than three-quar­ters of Amer­i­cans say they do not have enough sav­ings to cov­er six months of liv­ing expens­es, and more than one-quar­ter say they have no sav­ings at all. The fam­i­lies at the heart of Casey’s mis­sion are high­ly like­ly to be among these numbers.

With no sav­ings, fam­i­lies have lit­tle or no cush­ion. This makes them more like­ly to suf­fer seri­ous set­backs when con­front­ed with even minor chal­lenges. A car break­ing down can spi­ral into a lost job. A minor med­ical prob­lem can lead to sig­nif­i­cant debt.

Hav­ing access to, and using, high-qual­i­ty finan­cial ser­vices is a crit­i­cal com­po­nent of build­ing a finan­cial life that func­tions smooth­ly, enables fam­i­lies to weath­er the inevitable ups and downs of life and allows them to plan for the future. 

For mil­lions of Amer­i­cans, pre­paid cards help accom­plish these goals. At the same time, these cards are rel­a­tive­ly new as a finan­cial prod­uct, and they have room to improve. CFSI’s Pre­paid Indus­try Score­card assess­es the qual­i­ty of pre­paid cards through the lens of the Com­pass Prin­ci­ples, aspi­ra­tional guide­lines that affirm stan­dards of excel­lence in the design and deliv­ery of basic tools that peo­ple use to man­age their dai­ly finan­cial lives. 

Among the scorecard’s find­ings: The over­all qual­i­ty of pre­paid cards is high. They give con­sumers mul­ti­ple, con­ve­nient ways to per­form basic trans­ac­tions such as pay­ing bills, with­draw­ing funds and receiv­ing pay­checks from their employ­ers if they don’t have bank accounts.

But there is room for improve­ment. The cards have the poten­tial to become even more valu­able finan­cial tools if they pro­vide addi­tion­al fea­tures such as enabling card­hold­ers to save mon­ey, bud­get and access low-cost loans that meet the myr­i­ad needs of low-income con­sumers and fam­i­lies with­out exploit­ing them. 

This report is an impor­tant resource as the pre­paid card indus­try, and the use of these cards, con­tin­ues to grow. Peo­ple who are able to con­duct day-to-day finan­cial trans­ac­tions — such as going to the gro­cery store — with ease are more like­ly to achieve finan­cial sta­bil­i­ty for them­selves and their fam­i­lies in the long run. As the qual­i­ty of these and oth­er basic finan­cial tools improves, fam­i­lies will find them­selves in a much bet­ter posi­tion to build brighter futures for their children.

Check out the com­plete CFSI score­card.

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