Prepaid cards gouge you to access your own money

Mon Feb 13, 2012 3:36pm EST

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(Reuters) - Why should you pay to spend your own money? The newest generation of prepaid debit cards, which banks keep offering despite the growing chorus of advice to the unbanked against buying into them, often levy more fees than conventional credit cards. The latest indignities even include charges for adding money to your account.

There are myriad reasons people choose a prepaid debit card,

but they are all predicated on the hypothetical equation that the cards will save them money over traditional checking accounts with potential overdraft fees. Yet, with these cards, you don't build a credit history to increase your credit score; you don't avoid fees; and, you don't structure your finances so that you spend more wisely.

The only real beneficiaries of these cards are the institutions that issue them, because the fees add up with the same regularity as with bank accounts, and sometimes amount to more charges for the users than there would be with a traditional checking account.

Take the new Mango card, for example. While it gives you a paltry $20 one-time bonus for enrolling in direct deposit -- far less than what the issuing bank will save over time -- it charges you $2 per ATM withdrawal, $4.95 to deposit cash through a third party (direct deposit is free) and 50 cents for each balance inquiry.

To its credit, the Mango card is linked to your savings account and will reimburse the $5 monthly fee if you add at least $500 a month, which is a virtual wash when you consider the reload fee. And there's a big catch on the promised 6 percent yield on the savings feature: It's only for balances less than $5,000 and it's a teaser rate, so it won't last long. Have more than $5,000 on deposit? Then the rate is 0.10 percent.

Unlike the new fee-laden Approved Card, which has TV personality Suze Orman as a promoter and investor (link.reuters.com/jex56s),

the Mango card is being endorsed -- but not co-branded by -- comedian George Lopez. While Lopez may be a funny guy, the card and its fees are no laughing matter if you're serious about saving money.

Celebrity cards are rarely a good deal. In most cases, you'll pay more, so instead of running toward celebrities' financial products, we should be bolting away from them. Which brings to mind Russell Simmons's pre-paid Rush Card, also marketed under "Baby Phat," which advertises no "hidden fees."

The music mogul has promoted the card as a way to empower the black community with access to banking services. While the card doesn't hide its fees -- they are listed in the cardholder agreement (link.reuters.com/sex56s) -- they certainly add up and don't encourage net savings. The company will impose surcharges up to $14.95 just based on the design or logo on the card. You are allowed two free withdrawals per month, but after that the cost is $2.50 per transaction. There's no charge to add money, but if you need to replace your card or get express cash, it's $30 for each service. The basic plan costs $9.95 a month.

The obvious drawback to consumers of paying multiple fees for access to their money on these products came to the attention of the Florida Attorney General's office, which last year was investigating the claims of the Rushcard and other prepaid card companies. Perhaps more state attorneys general should start looking into bank practices on these prepaid cards to see if there is any predatory marketing going on; and work on regulating the message banks are sending. Maybe a consumer campaign on Twitter would be enough to put a stop to them.

Simmons, for his part, responded to the Florida probe by defending his product, saying: "third party research has shown that for many customers, the best prepaid card services offer significant savings compared to what they would pay in traditional bank checking accounts, with savings of up to 50 percent." (link.reuters.com/kex56s)

If there were no free checking accounts or debit cards available, that might be true. But we recently listed 10 options (link.reuters.com/wep95s), and you can go to a site like bankrate.com (link.reuters.com/mex56s) and find plenty more. Some 76 percent of credit unions (link.reuters.com/nex56s) offer free non-interest bearing checking accounts. You can still get socked with overdraft fees, though, so you have to be careful how you use them. You can also do a detailed calculation comparing bank fees and prepaid debit cards fees at the credit card-comparison site nerdwallet.com (link.reuters.com/pex56s).

Want to stick with banks? Then check out online banks. More than half of them offer free checking accounts with no maintenance fees, according to Moneyrates.com (link.reuters.com/qex56s),

which notes that "free checking is making a comeback."

If you really want to endorse what a celebrity is doing, just watch their shows or buy their books or music. Stay away from their financial services offerings. They are not only banking on their fame, they are overcharging you to subsidize their celebrity.

(Editing by Beth Pinsker Gladstone and Andrea Evans)

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Comments (4)
rewashednews wrote:
Just read your review on prepaid and what you wrote about Mango. With all due respect – you are dead wrong on your assessment of the Mango Card.

Mango don’t charge to reload – that is a fee from GreenDot or Western Union, the companies some customers choose to use when reloading their Mango card. Stating that Mango charges customers to reload their card is dead wrong.

Per the 6% APY – how is that a bad thing? Name one other prepaid card that does this? Name one bank that offers anything close to this? Sure it caps at 5K but that is still better than any other offer out there. I don’t get how you can knock a 6% rate. Furthermore, name a prepaid company that encourages their customers to save and gives them an incentive to save?

ATM fees – ever card charges an ATM fee. We are on the low side (see attached rate chart). We also advise our customers on ways to avoid ATM fees – the simple solution is to get cash back when making a purchase. There is no fee and you get the cash you need.

Direct deposit – how is giving a customer $20 paltry? Name another prepaid card that gives $20 dollars when signing up with direct deposit? We have way to encourage people to avoid a reloading fee that GreenDot and Western Union charge and we give our customers money as well and you find this bad????

Per balance question – Mango, stands for Money on the Go – gives you free balance inquires via text. We are also the only prepaid card that offers free customer service calls along with 24/7 customer service.

John, you write that we are expensive and don’t accurately write what fees we charge or how we educate our customers on how to avoid fees and you blast us for giving a 6% rate.

You should really retract the statements written about Mango as they are not correct.

Feb 13, 2012 4:16pm EST  --  Report as abuse
OuterLimits wrote:
The media completely misses the boat with their tirades against prepaid cards because rather than do ANY research they merely parrot the standard line and look at the same cards everyone else does.

There are a few cards with no or almost no fees. While ach transfers are free with any good card, The ach system takes 2-3 business days for a deposit to go through. You want to wait that long? So these none banks who also do not process the transactions (though Green Dot will be doing both internally soon enough)

There are 3 reasons people are unbanked.

One is access. In poorer neighborhoods where transportation is not always available how many bank branches are there? Now how many check cashers are there?

Two is that people have had bad experiences where a bank stacked transactions and created a mess for someone who is just getting by. That practice was common place yet banks were never called to task for it. It should have been charged as fraud. Regardless a few fees a month if necessary to avoid being defrauded by a bank is worth it to some people. Those people were able to pay those fees and move on.

Three is when other people get scammed by stacking more severely and are unable to pay the fees. One legitimate overdraft can easily be turned into a dozen by a real rotten bank who would say they have no control over the transaction timing – another lie. BTW how many outraged articles has Reuters run about stacking? Any? Back to three. Unable to pay those fees people are placed onto Chex or EWS etc sometimes the bank at their fancy calls it fraud (unny they don’t call the police though isn’t it?) Regardless those people are banned from banking for 5-7 years. There are only a handful of banks that will take someone who is banned in that way and some of them lie about it and close the account once their security looks at it and they over ride the branch manager leaving your money in limbo for 10 or more business days while they mail out a check. Banks that offer 2nd chance checking accounts have $10 a month fees with severe account restrictions like $100 a day spending limit. Try that on for size and see how it works.

Once someone has survived that long if they do some research (you know something Reuters should do) they find ways to keep their costs down to $0 with direct deposit and a card that has a free ATM policy with Allpoint or MoneyPass. Most good cards have that and little to no other fees.

Someone without direct deposit that can’t get an account because they are locked out now has to find the cheapest way to cash their check and put some of it on a card to buy things online etc. You may have checks being cut from a bank that you owe money to and they won’t cash your check. Citizens Bank for instance charges $7 for someone w/o an account their to cash a check of their customers. Walmart will cash the check and put all or some onto their card for $3 total. By only putting what you need on their card you avoid any ATM fees although they will have free MoneyPass ATMs this year. Any month with $1,000 in deposits and there is mo monthly fee for WalMart.

I haven’t seen a single media article about the MoneyManager Card, US Banks Acellapay Card or Convenient Cash Card , Regions Bank Now Card, or a few others that are good cards.

Green Dot can easily be used free of charge but the media always adds ATM fees in their tirades despite that because they want to make them seem more expensive than they are. Most of the problems reported on the net with Green Dot seems to come from loading problems with MoneyPaks. Well in a forum I frequent I tell people to get the Green Dot Mastercard which can be loaded via swipe at Radio Shack and a couple of the drug store chains as Mastercard Repower. The cash loads have fees for Visa or Mastercard as they are reverse credit transactions. How much does the store get hit by credit card fees 2%?
Well whats 2% of $500?? $10. Do the math. When the Feds mandate ach to work the same day as Check 21 does in between banks. Funny that 1 hour clearing time is often held back so guess what? Banks can get an overdraft in on someone.

Feb 13, 2012 6:47pm EST  --  Report as abuse
JenNBPCA wrote:
Contrary to the statements in this report, many experts on the underbanked including the Center for Financial Services Innovation (CFSI), the National Urban League, La Raza and the United States Government have all extolled the benefits of prepaid cards.

Any applicant can get a prepaid card to move them away from a cash-based lifestyle and onto a path to better financial security. Many consumers cannot qualify for a checking account because they have a record on ChexSystems or TeleCheck for mishandling accounts in the past. For those that do qualify for a bank account, prepaid cards are often more price competitive versus a basic checking account and offer additional benefits such as immediate access to funds, savings features and even rewards. They don’t allow costly overdrafts. Even with Reg E opt-in requirements for overdrawing debit card and ATM transactions, bank checking accounts still issue checks that can be presented against insufficient funds and be charged $35 whether the check is paid into overdraft or returned NSF. Some consumers just don’t want to work with a bank due to a bad experience in the past or a lack of branch locations in their neighborhood.

The cards also offer myriad consumer protections such as pass-through FDIC insurance and protection against lost or stolen cards. Consumers are smart, they know they have choices and they consistently chose the prepaid option as a smart way to manage their money on their terms. – Jennifer Tramontana, Network Branded prepaid Card Association (NBPCA)

Feb 14, 2012 6:14pm EST  --  Report as abuse
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