Think Twice Before Going Pre-Paid, Government Warns

By Justin Schamotta Staff Writer 27 January 2010

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Avoid high charges when you go pre-paid...

Extreme Cred pre-paid card

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AS pre-paid cards become increasingly popular in the UK, the government is warning those claiming benefits that having their entitlements credited to the cards may be costing them more than they realise.

Prepaid cards are a relatively new concept in the UK, although they are well-established in the US. The basic idea is that users can load their own cash on the card and then use it as they would a standard debit or credit card.

Government Warning

In an internal e-mail, the Department for Work and Pensions warned that the charges incurred by using the cards might render them unsuitable vehicles on which to receive state benefits. It also said that many consumers weren't fully aware of the costs involved in using them.

These typically include an initial card purchase cost, a monthly fee, charges to credit the card with money and charges to make purchases with the cards.

According to the BBC's Money Box programme, one benefit office received nearly 100 requests from people wishing to have their benefits paid directly on to the cards.

It found that when the employees at Clyde and Fife Benefits Delivery Centre contacted the customers prior to carrying out their requests, many were not aware of the charges.

The DWP has voiced its concerns over one company which cold called customers to try and get them to use the cards. The company in question, Go: Money Solutions, has since changed its sales practices. It also no longer uses the sales company apparently behind many of the reported problems.

Fees and Charges

Pre-paid cards are aimed at consumers who are unable to apply for a current account with a debit card at a bank either because they are too young or because they have a poor credit rating.

The pre-paid cards are particularly attractive in that they allow people who do not qualify for a debit card to buy things over the internet or telephone.

But some have pointed out that the high charges associated with the cards make them too expensive to be of use.

For example, the Extreme Cred Prepaid card requires an initial payment of £8.95 to get hold of. After that, there are fees associated with the methods of top-up.

At a PayPoint location, the charge ranges from 85p for crediting your card with up to £20 and up to a 3% charge of top-ups between £200.01 and £500. Online, there's a fee of 3% by direct debit or credit card.

The Bread prepaid card meanwhile costs a flat £10. Whilst Bread doesn't charge a monthly maintenance fee they do charge purchase transaction fees of 2% and withdrawing money from a Bread card at an ATM will also cost you £1.50.

Mike Dailly, the principal solicitor of Glasgow's Govan Law Centre told BBC reporters that he was concerned about the fees charged by these cards.

However he added: "I would accept that we do have problem with basic bank accounts not being available enough and not being promoted enough for people on low incomes.".

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