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    Can You Explain Prepaid Reloadable General Spending Cards to Members?

    If not, it’s high time to learn! From Walmart to Walgreens, and Western Union to H&R Block, your members are exposed to many types of prepaid cards as they go about their everyday business. Yet members and credit union executives alike are generally unable to distinguish between gift cards, travel cards and prepaid reloadable general spending cards. Part of the confusion is due to the familiar network brand (e.g., MasterCard® and Visa®) that can appear on each of them. Another confusing aspect is that they can all be used to pay for purchases. In fact, the primary distinction between these types of prepaid cards is the number of times that they can be reloaded with money. Prepaid reloadable general spending cards can be loaded over and over again, and are designed for repetitive use as an entrée to (or replacement for) a traditional checking account.

    The Center for Financial Services Innovation (CFSI) recently released a guide to prepaid cards for nonprofit organizations. Designed to provide an understanding of prepaid cards and potential benefits, the Nonprofit’s Guide to Prepaid Cards describes how these cards work in terms of features and fee structures, and compared to other transactional products such as checking accounts with debit cards, check-cashing establishments, and credit cards. The guide then goes on to describe a continuum of ways in which nonprofits can become involved with prepaid cards.

    Whether or not your credit union is interested in offering members a prepaid reloadable general spending card, it behooves you to – at a minimum – be willing and able to inform and educate members through your financial literacy and counseling programs. Content should include information about how prepaid cards work, how fees are structured, and how to compare offerings for the purpose of enabling members to make well-informed decisions about these oftentimes complicated products. In addition, member service representatives should know how the most common prepaid card products compare to transactional products offered by your credit union. If your credit union offers its own prepaid card product, credit union staff should be able to instruct members about how to maximize benefits and minimize fees.

    Interestingly, while CFSI has championed prepaid cards as a beneficial product for unbanked and underbanked consumers, its own research suggests that “prepaid cards seem to especially appeal to and work well for consumers who have direct deposit, previous experience with account-based products, a stable income and housing situation, and comfort using the Internet.” In fact, the target market for prepaid reloadable general spending cards may be evolving. What was once touted as a perfect product for immigrant markets may now be more suited to mainstream consumers in this era of new frugality. The fact that prepaid cards are very difficult to overdraft may be a major selling point for people who don’t balance their checking accounts.

    The bottom line? Download and read the Nonprofit’s Guide to Prepaid Cards. I believe you will consider it time well-spent since it can help you help your members understand prepaid card products as they become more prevalent in our financial services marketplace.

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