Consumer Alert: Prepaid cards can come with costly fees

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From consumers concerned about identity theft to parents looking to help their kids in college, prepaid cards are becoming more popular. But the cards can have drawbacks, and some consumer advocates say they should be better regulated.

Dennis and Dorothy Sveda thought using a prepaid card to shop online would be safer than a credit card until they disputed a transaction and the card wound up frozen, leaving them with no way to access their own cash.

"It's all in there, but we can't access it. We can't activate it," says Dennis Sveda.

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The Svedas aren't alone. Each year, thousands of consumers complain about their prepaid card companies, and access to cash is just one reason why.

Prepaid cards can also come with lots of fees: there are monthly service charges, fees for each transaction and even inactivity fees. But the ones that have consumer advocates the most upset are the overdraft fees. Under the law, they can be up to 25 percent of your card’s total balance.

The Consumer Financial Protection Bureau regulates prepaid cards. It recently set up a database so consumers can compare fees and other terms. But not all cards are in the database, and the CFPB never publicized it -- which makes some advocates question just how serious the government is about regulating the industry.

Experts say prepaid cards can be a good choice for some people, including college students -- especially if their parents are footing the bill. But consumers should pick one with low monthly fees and be wary of potentially costly overdraft protection.

MORE COVERAGE: KIYC: Issues with prepaid cards leave some customers with frozen funds 

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