The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

The personal credit card industry has come under intense government scrutiny for good reason.  Between Visa, MasterCard and American Express, Americans spend (or charge) over one trillion—that’s trillion with a “t”—dollars per year.  For years, merchants were forbidden by Visa, MasterCard and American Express from advocating for alternatives to credit payments.  For example, merchants are forbidden from offering (or advertising) discounts if you pay cash (although many do).

Forbidding such a choice helps to maintain higher credit card fees.  Yesterday’s settlement (see the Wall Street Journal story here or the New York Times story here) takes a big step toward creating a level playing field.  All you can really hope for: Visa (#1) and MasterCard (#2) agreed to eliminate restrictions that foreclosed a merchant’s ability to both forbid and advertise alternatives such as discounts for paying cash.

Conspicuously absent from the agreement was American Express.  Fighting American consumers and American law enforcement, “American” Express vowed to fight the proposed changes.  Why?  Simply put, they have the most to lose (they charge higher fees).  Attorney General Eric Holder, my former boss, was strident in his opposition to the company’s position:

Because American Express has refused to change its rules, consumers are being held hostage from receiving the expanded choices and lower prices that they deserve under our settlement… We cannot allow this to stand.

Well said, General.  AmEx, already notorious for charging 25% more in merchant fees than Visa or Mastercard, puts its greed on display.  CEO Kenneth Chenault of AmEx hypocritically calls the government’s case “anticompetitive,” omitting the glaring and obvious truth: AmEx’s standard agreement forbids its merchant clients from soliciting non-credit forms of payment.  Now that’s anticompetitive behavior.

The financial crisis we are still paying for taught us that enhanced corporate disclosure, transparency and consumer protection are more curative if served for breakfast and not for dessert.  Pushing Visa and MasterCard to provide more disclosure and fewer restrictions on merchants is surely a step in the right direction.  As to American Express, let’s hope they do the right thing instead of using our court system to delay justice hoping merely to enhance their own profits.

• Print
• Comments
• Trackbacks
• Share Link

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 5^th 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”)

_________________________________________

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 

• Print
• Comments
• Trackbacks
• Share Link