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Paying with plastic

If you don’t like banks, or if banks don’t like you, you may be walking around with a prepaid card in your pocket bearing the logo of Visa, MasterCard or American Express.

A prepaid card is a convenience for the “unbanked,” and it’s safer than carrying a wad of cash.

If you don’t trust your teenagers with a real credit or debit card, you also might give them prepaid plastic to buy their pizza. The card can be a short leash for the semi-responsible.

Prepaid cards have their uses — but watch out for the fees.

Here’s the deal: You load up a prepaid card with money. That can be done at a cashier’s stand at a store or bank, through paycheck direct deposit or by electronic transfer. Details vary by the card. Then the cards work just like credit or debit cards — until the money runs out.

That said, prepaid cards lack some of the legal fraud protections that come with real bank debit and credit cards. They also come with a strange array of charges that vary widely and make them confusing — and sometimes expensive.

So, buyers had better be careful. All in all, the typical Joe or Jane would be better off with a free checking account (there are still plenty out there) and a debit or credit card.

But prepaid cards are an option for people on banking’s blacklist. They can’t open a bank account because they fouled up their last one. There is no credit check to get a prepaid card.

Prepaid cards let parents limit teenagers’ spending. Others worried about overspending sometimes put their vacation budget on a prepaid card. When the card stops working, it’s time to head home.

People who use only debit cards sometimes take a prepaid card when traveling overseas to places notorious for swiping Americans’ card data. They won’t come home to find their checking account emptied.

Some people just don’t like banks — even though banks lurk behind the cards. A prepaid card lets them buy things and pay bills over the Internet.

Consumers Union recently rated cards for security, convenience and fees. For people without bank accounts, the top choice is the Bluebird card through Walmart, followed by Chase Liquid, Green Dot Prepaid Visa, Halogen Reloadable Card through Kmart and American Express Serve. Among banks with St. Louis branches, Regions Now and U.S. Bank Contour cards also scored well.

For people with bank accounts, Consumers Union thinks Chase Liquid and Green Dot Prepaid are the best, although the other cards above are also rated highly.

The good news is that fees are coming down, thanks to competition in the prepaid business. The bad news is that the fees aren’t obvious when picking a card off a rack in a convenience store.

Some charge for every transaction and to load money on the card. Some have a monthly charge. Some charge “inactivity” fees for people who don’t use it often. Some charge for calling customer service or checking balances at an ATM. Some offer networks of free ATMs, while others charge for each ATM use.

Most are covered by insurance from the Federal Deposit Insurance Corp. if the bank backing the card fails. Some aren’t.

Some let you deposit a check by taking a photo of it on a mobile device. Some have online bill pay services like those banks offer.

Prepaid cards are not covered by the federal law limiting the loss to customers from theft or fraud. But a survey by Bankrate.com last year found that 89 percent of prepaid cards promise the same protection bank customers get. Only 2 percent offered no protection at all.

To get protection, however, customers have to register the card online.

“You should absolutely register the card online,” says Christina Tetreault, staff attorney at Consumers Union, the nonprofit publisher of Consumer Reports magazine.

The last year produced a horror story for more than 400,000 prepaid users. The RushCard, founded by hip-hop mogul Russell Simmons, stopped working last October after a botched software upgrade. The outage lasted more than a week, and some customers were reporting problems three weeks later.

“People missed rent payments and had the power shut off,” said Claes Bell, an analyst at Bankrate.

That sort of mess wouldn’t happen with a bank credit or debit card, he noted.

“These are not as highly regulated as banks,” Bell said.

In shopping for a prepaid card, first decide how you’ll use it, Tetreault said. If you use it often and at ATMs, you don’t want a transaction fee and you want a big free ATM network.

If you don’t have a checking account, you may want a card that lets you pay bills online. Will you have your paycheck deposited to the card? Many cards waive some fees if you do. Is there a convenient place to load money on the card?

It’s best to shop for a card online, she says, rather than reading the fine print in a store aisle. Cardhub.com has a useful ranking tool, and Consumers Union’s rankings are available at Consumerreports.org.

Shopping should get easier a few months from now. The Consumer Financial Protection Bureau is finishing up new regulations for the prepaid industry.

The bureau is expected to require fraud protections equaling those of credit and debit cards. It’s also expected to require cards to spell out their fees in a format easier for consumers to understand.

It would set limits for companies that let consumers overdraft their prepaid cards, and charge fees on the overdraft. Card companies also would have to put account statements online for free. Many now charge for them.