Charges for calls to customer support, reloading fees, fees for purchases, fees to withdraw money from ATM – did you know the if you have a pre-paid debt card you have to pay for every transaction associated with the card? The New York Times recently did an article examining these surprising fees in depth.

We’ve explained prepaid cards in depth, talked about them in a recent blog recent blog post. We’ve explained the reasons why people use prepaid cards – mostly because they have no relationship with a bank.

Increasingly, critics have come down on the fees involved in prepaid cards. I personally think it is ridiculous to have to pay to reload a card, buy things with your own money, and call customer support if there is an issue. The average monthly costs are steep – the New York Times calculated the price at $39 – $79 a month.

The biggest reason consumers are forced to use prepaid cards is because they have previously run into trouble with checking accounts and now have an entry in Chexsystems, preventing them from opening a regular checking account.

So let’s say you don’t have an entry in Chexsystems and you are considering using prepaid cards instead of a regular checking account. I actually considered doing this myself. The prepaid debit card folks say that their cards are a low cost alternative to regular checking accounts because of overdraft fees – and they may be right – if you’re in the habit of bouncing checks and incurring overdraft fees. In addition, some banks are now charging for online banking.

Naturally, the banking industry is defending the use of overdraft fees. I read this hilarious article in the Consumerist: How the Banking Industry Wants You to Think About Overdraft Fees:

The PR Rep: B of A, Chase and Wells all announced changes to their overdraft polices. While this is great publicity, how will banks make up the lost income from overdrafts?

Consumerist: This is like asking how a hospital can make up lost income after it’s been forced to stop selling the organs of the homeless population. If your current business model relies on exploiting certain groups—and overdraft fees come primarily from the poor and the young—then maybe you need to rethink your business model.

Or who knows, maybe they really want you to answer because they don’t have any idea how to make legitimate profits.

The major US banks are not currently offering prepaid cards and there are no known plans to enter the market. But they may be tempted if banking legislation gets even tough on overdraft fees. Prepaid card fees are big business: in 2008, for instance, customers loaded about $8.7 billion onto prepaid cards, a 125 percent increase over the previous year, according to the Mercator Advisory Group. The industry is expected to balloon to $119 billion by 2012, all of which means a great revenue stream for banks offering the cards.

Have you used a pre-paid card? Had overdraft fees? What has been your experience? Tell us by leaving a comment!

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