What happens when a consumer needs to pay bills, but doesn’t have a credit or debit card? A new and increasingly popular answer is prepaid debit cards. This new business is booming. The New York Times reported on October 5th that over $8.7 billion was loaded onto prepaid cards in 2008 alone. These cards offer the convenience of a debit/credit card without the credit check or bank account fees. Unfortunately, this is not the whole story. There is, quite often, a long list of fees including:
· Activation fees
· Convenience fees
· ATM withdrawal fees
· Balance Inquiry Fees
· Purchasing Fees
Keep in mind; this is by no means an exhaustive list of fees connected with most prepaid cards. I am not the first to raise the issue that some large companies may be taking advantage of their target markets: college students, and the uncreditworthy.
Of course the companies issuing the cards (small upstarts like Green Dot, Net Spend, and Account Now) have the right to a reasonable profit. We should also remember that without charging interest, fees will certainly be included in any of their schemes. My problem with the current system is that consumers are generally unaware of these fees which often end up considerably devaluing the money put on a card. This is a growing problem in the financial world and I think it’s time we found a solution.
Let’s look at an example:
This is a short sample of the fees that a consumer would incur with normal use of the MiCash prepaid MasterCard.
A deposit of $500
- $9.95 activation fee
- $17.50 (10 ATM withdrawals)
- $5 (5 ATM balance inquiries)
- $10 (20 purchases)
-$8 ($4 per month for “monthly maintenance”)
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Net Value: $449.50
A consumer using this card would have lost 10% of his or her initial payment just in fees by using this card normally for a two month period. Is this fair? Well, there certainly is precedent in the check cashing and pay-day loan industries for charging outrageous fees just for people to access their own money. However, even these questionable industries seem more willing to disclose fees than prepaid credit card companies.
Though prepaid cards may still be a better option than high interest credit cards or certain bank fees, many consumers rightfully feel that they are being charged fees without being made explicitly aware of them. The MiCash program in particular discloses the fees in the “terms and conditions” which are not directly posted on the application page – rather a user would have to follow a small link at the bottom of the application. This method of disclosing fees is perfectly legal, but is still deceiving. Nowhere on the application page does MasterCard mention any fees. In fact the only mention of fees is in reference to a lack of outrageous overdraft fees. However, it is clear in the fine print of the “terms and conditions” that overdraft or “negative balance” fees do indeed exist with the MiCash program.
We are not seeking an end to prepaid debit cards, nor are we seeking an end to all fees. All the common person is seeking is a fair representation of products, a clear warning that fees will be deducted from a prepaid card. Federal oversight should be the next step towards ensuring full and fair disclosure of fees. The industry is relatively new and has not been subject to a substantial amount of governmental review. Perhaps legislation will be the best way to guarantee disclosure. The card should warn customers that any initial deposit will actually have a lower net value. Hopefully, this clear warning will help assure that consumers are not tricked into allowing big banks and credit card companies to take their hard-earned money.
Assisted by: Zach Kady