More than 25 percent of U.S. households do not have traditional bank accounts or hold such accounts but use alternative financial services anyway, says the FDIC.
More people are using general-purpose reloadable prepaid cards as an alternative to a checking account, with the Center for Financial Services Information reporting a 28.5 percent increase in revenue tied to these cards to $1.6 billion in 2012 from the prior year. The Mercator Advisory Group says more than $64 billion was loaded onto prepaid cards in 2012.
Christina Tetreault, staff attorney at Consumers Union, says prepaids have gained in popularity because many consumers hit hard by the financial crisis do not qualify for credit cards and bank accounts; but innovations that have made these products more versatile than traditional bank accounts also have played a role. She notes that the costs of banking-style services for the underserved have been reduced thanks to the cards, but consumer protections are necessary. "We'd like to see mandatory FDIC insurance for all prepaid card accounts and the same protections against fraud and loss that apply to debit and credit cards," Tetreault says.