Many government agencies turn to prepaid cards

Banks have largely been hoping that consumers who want to reduce debt would adopt prepaid cards as an alternative payment method. Instead, some of the foremost users of these accounts are government agencies.

Many financial institutions have set their sights on promoting prepaid cards in an effort to drive revenues lost to greater federal regulation, and many government agencies have adopted the accounts in an effort to reduce their operating costs, according to a report from Bloomberg Businessweek. By issuing funds for government programs like unemployment insurance and disability payments using prepaid cards, these agencies can save about 75 percent on distribution costs.

Prepaid cards are also becoming more popular in general, with purchases on them climbing to a value of $65 billion last year, up from $48 billion in 2009, the report said. Those purchases generated about $1 billion in transaction fees for financial institutions.

Prepaid cards may be a sound alternative to credit cards for those who are deeply in debt. In addition, seeking the help of companies that specialize in debt resolution can help troubled borrowers find an alternative to bankruptcy.