This has got to be the most laughable report I have seen.  The Gerson Lehman Group recently released a study that claims that prepaid cards are more cost effective than a checking account.  They compare a checking account, at $300-$400 in annual fees to a prepaid card with $150-$250 per year in fees.  I am guessing they chose a specific financial scenario that made the cards look more beneficial.

The other big things they left out:

A checking account builds a credit history, prepaid cards not so much
A checking account, you know, allows you to write checks
There are many many checking accounts that have NO fees
Checking accounts are safer and include FDIC backing
Inability to reject unauthorized charges on prepaid debit cards

But don’t just listen to me, read Consumers Union’s assessment of prepaid card.

Looks like JetBlue wins the award for worst gift card ever. One customer won a contest by American Express that allowed her to buy a $100 JetBlue gift card for $70. The reality of using the card however was a huge pain. She spent over 2 hours on the phone trying to redeem the card, dealt with an number of clueless JetBlue customer service reps that couldn’t figure out how to apply the card, and was ultimately charged $15 for using the card over the phone. Where else exactly was she supposed to use the card as they don’t allow you to use them online. This reminds me of a conciliatory $25 United Airlines gift certificate we were given after long delayed flight that could only actually be used at the airport. Thanks for nothing.

Ok, this is sort of a good idea. An entrepreneur is working to create gift cards that have a customer selected expiration date. After that date, the remainder balance on the card is donated to a charity, minus (and here’s the hitch) a percentage of the remainder that the issuer gets to keep. Pretty smart way to get customers to be happy about losing their gift card breakage.

It seems that banks aren’t the only ones out to screw customers with the small details. This news story reports that many stores will gladly cancel a lost gift card but they won’t replace a lost gift card without the original receipt. I have never heard of anyone saving a gift card receipt.

As this Forbes article indicates, fees on bank gift cards are far from dead. While this will change somewhat when the new gift card laws take effect in 2010, banks seem to be trying to wring as much out of their gift card customers as they can right now. Worst offender? Bank of America’s gift card doesn’t have any dormancy fees; the card simply becomes worthless after 9 months and can get you an overdraft fee.

Enjoy it while you can BofA.

As reported in this story, and increasing trend is to give consumers gift cards instead of rebate checks for mail-in rebates. The retailer wins twice because (a) only about 40% of mail-in rebates are ever mailed in, and (b) most people don’t use up the full value of their gift cards; normally 10% of the value on gift cards is left on the table.

An interesting article in the New York Times examines (reloadable) prepaid cards and their fees. Issuers of these cards tout them as an alternative to bank accounts and credit cards, especially for those who are unable to get either. Prepaid cards, it turns out, have even higher fees than non-reloadable open-loop gift cards. In one example, the MiCash Prepaid Mastercard has the following impressive roster of fees:

$9.95: Activation
$1.75: ATM withdrawl
$1.00: ATM balance inquiry
$0.50: Per purchase
$4.00: Monthly maintenance
$2.00: Inactivity per month after 60 days
$1.00: Call to customer service

The industry claims that these cards are cheaper than checking accounts. Many banks offer low balance checking accounts for less than $10. By contrast, even the cheapest prepaid card averaged over $20 per months in fees.

Here is a recent Consumers Union report on prepaid cards.

Vendors that issue reloadable prepaid cards are crying foul over the legislation that will create the new Consumer Financial Protection Agency. They claim that it will make it impossible for anyone but banks to issue the cards. At the heart of their argument is their claim that they help millions of consumers that don’t use the banking system or are using these cards are a budgetary tool.

This is a load of crap. We’ve reported before how these type of cards have the highest fees, have very little fraud protection, and don’t help customers build credit. While this legislation may be a little wide in its unintended consequences, it is time someone stepped in to set this industry right.