The New York Times

THE CARD GAME

Prepaid, but Not Prepared for Debit Card Fees

By ANDREW MARTIN

Buying a prepaid debit card these days is just about as easy as picking up a bottle of shampoo or a candy bar.

Walk into a Wal-Mart or almost any major drugstore, and rows of plastic worth $25, $100 and even $500 beckon from kiosks alongside prepaid phone cards and gift cards for retailers.

“No Credit Check. Safer Than Cash. No Bank Account Needed,” says the Green Dot Visa Prepaid Card: Just pay at the register and the card is ready for A.T.M. withdrawals, store purchases and online shopping.  [GreenDot is METABANK. Their publicity sounds like a real solution, but it is nothing more than a gimmick to hook customers.]

For many people who do not have bank accounts, or cannot get a credit card, the appeal is irresistible, making the reloadable cards among the consumer banking industry’s fastest-growing products. But their convenience comes with a catch: fees, often hidden in the fine print. [ Yes, it is in the fine print where the banks explain how they retain the right to change the rules and explain what the real fees are. Consumers are given information in large print that has really no information in it that makes sense. I would urge all students to examine the techniques being used at this time. This is a scam of the American people. Pay with cash instead of using a prepaid bank card.]

The MiCash Prepaid MasterCard docks cardholders a $9.95 activation fee. Like many competitors, it then charges numerous recurring fees, including $1.75 for each A.T.M. withdrawal, $1 for each A.T.M. balance inquiry, 50 cents for each purchase, $4 for monthly maintenance, $2 for inactivity after 60 days and $1 for a call to customer service. [ Inactivity fee??? That is unreal.]

The Millennium Advantage Prepaid MasterCard goes further, listing an application fee of up to $99. The Silver Prepaid MasterCard advertises that it does not charge for overdrafts as many debit cards do, but it gives itself the option of charging a $25 shortage fee if customers exceed their balance.[ The banks are creating all of the rules that govern these accounts. The banks can agree on the rules among themselves. They are giving workshops to other banks. The consumer has been left out of this dialogue. It will be for consumers then to find solutions elsewhere.]

“It’s a very expensive way to bank,” said Jean Ann Fox, director of financial services at the Consumer Federation of America.

A cottage industry only 10 years ago, reloadable prepaid cards have tapped into the vast pool of about 80 million consumers who have little or no access to bank accounts. The market includes college students who do not want to carry around wads of cash and consumers who do not want to type their credit card number into the Internet. [ METABANK a subprime lender bank is the major source and provider for these reloadable prepaid cards. The cards do not serve consumers in the way that they are intended because of the way METABANK chooses to treat their customers. METABANK is offering training programs to other banks and they have paid huge amounts to a DC Lobbyist to promote these reloadable prepaid bank cards. The way that METABANK uses these cards is how they scam the consumer who has given up all control ofd their own money. Incompetent or Unscrupulous, which does METABANK become for consumers? Probably both, but METABANK always pushes blame off onto the consumer. This is a no-win situation.]

More typically, it comprises low-income people and immigrants who have fewer financial options than other Americans. Often, they turn to these cards because they cannot open a bank account, or they become fed up with the costs of check-cashing stores or overdraft fees on checking accounts. [ Fewer financial options translates to taking advantage of the most vulnerable in our society and to keeping them in that category of being low-income. Success for these consumers simply cannot happen with our current banking practices. This practice of greediness by METABANK and other banks like it are what has ruined the economy not only in the USA, but on a global scale.]

Industry officials say the cards are a good deal because users can avoid the fees charged on low-balance bank accounts and at check-cashing stores. [ People who are new to banking should be allowed to open and maintain a low balance savings account so that they will be able to learn how to save. The fees that are charged for these accounts were created by the banking industry themselves as they sought ways to push consumers into gimmicks that are far more lucrative for the banks.]

“If you look at these products today compared to even a checking account, many consumers have found that they can be far less expensive,” said Gary Palmer, chairman of the Network Branded Prepaid Card Association.[Gary Palmer wants you to use the PREPAID BANK CARD. This is how he makes his money. It is not a consumer friendly product. Avoid using the PREPAID BANK CARD]

But even as the industry expands, many prepaid cards continue to charge fees — including for purchases and paying bills — that can quickly accumulate. [ Ok, so the bank holds and gets interest free use of your money and then charges you to use the card. This is inexcusable usury and graft.]

Like many workers, Tyrell Blocker, 20, of Brooklyn, could ill afford the surprise when he took such a card last week to a Pay-O-Matic Financial Services store in Manhattan after a bank turned him down for an account because he lacked one of two required pieces of identification.

As soon as the cash from his paycheck landed on his card, he noticed fees accumulating. Mr. Blocker returned to Pay-O-Matic to complain and only then was provided a detailed list of more than two dozen fees, he said. [Because he could make an onsite visit, he got that list, but METABANK is an online service. The fees are hidden in the fine print on a second or third page. The large print that promises wonderful things to the consumer are basically negated in all that is in the fine print.]

“I need every last dime I got; I’ve got a newborn,” Mr. Blocker said. A spokesman for Pay-O-Matic said the card was fairly new and the firm was working to make the fees more transparent.[I don’t believe this. I believe that the bank retains the right to change the rules without notice. Read the fine print.]

Little Regulatory Scrutiny [ This is a real problem. The banks are setting up all of the rules and there is nothing at all in place to stop them.]

Because it is a relatively new industry, prepaid cards have not undergone the Congressional and regulatory scrutiny of credit and debit cards.

In the spring, lawmakers restricted interest rate increases and hidden fees on credit cards, and regulators are now examining stricter rules on overdraft fees on checking accounts.

Even gift cards, which expire when the money runs out, will soon be subject to new rules limiting monthly fees and expiration dates.[ Gift cards have an expiration date even if money is on the card. The bank then just keeps your money for themselves. Actually, banks are hoping that you will forget about how much money is left on the card.]

Congress has asked regulators to determine if prepaid cards warrant the same protections extended to debit and credit cards.

[Congress, we need your help with this issue. Consumers need to be protected from these PREPAID CARDS. Other solutions need to be found for the underserved in the banking industry.]

The industry’s trade association says such measures are unnecessary and would make cards more expensive.

But consumer advocates say the lack of regulation means that prepaid card users can continue to be blindsided by hidden fees, and have few legal protections to recover their money if a card is lost or a charge disputed.[And METABANK has pushed this abuse to beyond any imaginable limit.]

Mike Henry, who owns a small print shop in California, had not been able to recover $50 stuck on his Only 1 Visa prepaid card after it stopped working. [ This is serious!!!!!]  

[Charging customers to call the bank to correct an error or problem has been reported by many people. This is why you need to bank locally.]

He gave up after numerous calls to customer service — at 95 cents each — went unresolved. Only 1, meanwhile, continued to send daily updates of his balance as it was eaten away by monthly fees. His account was finally whittled to zero.

“For the last six months, I turn on my computer and check my e-mail and get slapped in the face,” he said.

Only 1 officials said they regretted his inconvenience and were refunding Mr. Henry’s money.

Among the beneficiaries of these cards are Visa, MasterCard and Discover, which receive about a nickel to 20 cents each time a credit or debit card emblazoned with their logo is swiped.[Interesting bit of factual information.]

While the companies do not disclose income from prepaid cards, their efforts to add tens of millions of users represents a potentially significant source of new revenue. [Yes, banks need you to give them interest free loans. Banks need your money. The design of the PREPAID CARD is to make a profit for the bank and not a good idea for consumers. Many, many consumers have complained about the lack of appropriate customer service with these cards. The cards have an anonymous aspect to them which the banks use to their advantage. METABANK has pushed the negative aspects for the consumer to excess and then does training for other banks. These PREPAID CARDS are on sale everywhere now and that income from them goes out of the consumer’s hands and right into the bank’s coffer’s. These PREPAID CARD are not a good idea for consumers.]

Financial firms that issue the cards are often little-known companies with names like Green Dot, NetSpend and AccountNow.[ These three companies are operated by METABANK, and they are not locally owned or managed so you will not be creating jobs for your area by using METABANK’s services. Bank locally.]

Since they get money upfront from the consumer, there is relatively little risk with prepaid debit cards, compared with credit cards and other loan-making products.[ The low risk is for the company who provides the card and the bank that is making big profits using your money interest free. They are not low-risk for consumers; that would be in the publicity for the cards, but these PREPAID CARDS are nothing but a way to create misery for the consumer.]

Given the number of people who have little or no relationship with a bank, both in the United States and abroad, the financial industry is betting on a boom. [ However from the consumer’s perspective, these PREPAID BANK CARDS are not the way to learn about saving and budgeting; the PREPAID CARDS were not designed to serve the consumer, only to make more profits for the banks and partner companies using their cards. Don’t enter the banking industry as a consumer by getting a PREPAID BANK CARD.]

In 2008, for instance, customers loaded about $8.7 billion onto prepaid cards, a 125 percent increase over the previous year, according to the Mercator Advisory Group. The industry is expected to balloon to $119 billion by 2012, Mercator predicts.

“Every year we’ve seen big growth,” said Steve Streit, the founder of Green Dot, now one of the largest reloadable prepaid card companies. “There’s a part of me that believes we are just at the entry ramp to growth right now.”

The cards are part of a larger universe of plastic that includes prepaid phone cards and gift cards, payroll cards and government benefit cards. [Do not buy these kinds of cards. They are as big of a scam as any PREPAID CARD. Give gifts of cash instead.]

Industry officials are particularly excited about the explosive growth from government agencies and companies as they replace paper checks with prepaid cards to save money.[These would mean that our elected officials have been bought out by the banking industry. This is why you are not seeing any significant improvement in the economy. An alliance of our elected officials who themselves may have made a profit from these banks appears to have taken place without our input or consent. Please write letters of complaint.]

Social Security payments are now offered on prepaid cards to retirees without bank accounts, and many states do the same with welfare payments. Wal-Mart recently said it would pay employees only on prepaid cards if they did not have a bank account for direct deposit.[Do not attach a direct deposit to a PREPAID DEBIT CARD]

These fees tend to be lower than those on commercial prepaid cards. But critics question why there are any fees at all, particularly when the recipients do not have a choice. [The consumer’s money is tied up in that card where the financial institution, like METABANK has full use of the cards. Many complaints from consumers indicate that banks like METABANK will not let them access their own money. That is because METABANK is using that money for an investment so they can make money.]

“To me, it’s a terrible thing to give people their pay on a card that has fees on it,” said Linda Sherry, director of national priorities for Consumer Action.[ So true!!!]

Reloadable prepaid cards hardly existed a decade ago. Then, as credit cards surged and the Internet bubble lifted the economy, a handful of companies noticed an untapped market in teenagers who wanted to shop on the Internet, but were not eligible for credit cards. But it soon became clear that the larger market for prepaid cards was people who do not use banks and the uncreditworthy. [Targeting teenagers and college students to market these PREPAID CARDS to them is simply immoral.]

In the years since, dozens of companies and banks have latched on, some offering celebrity branding to lure customers. Johnny Cash, Usher, Carmen Electra and the football player Vince Young have all had their name attached to a prepaid card, and the hip-hop impresario Russell Simmons continues to back the RushCard, mainly to African-Americans, as a “better alternative” than banks and credit cards. [The targeted market is being scammed with promises and allusions given to them by these banks that the cards are better than having a savings account. Credit Cards have their own issues.]

But these efforts are not without controversy.

Mr. Simmons, for example, has batted down repeated criticism that his card saps money from low-income users. [They do sap money from low-income users though. They were first designed with low-income users in mind]

His Pay-as-You-Go card has come under scrutiny for charging a $19.99 activation fee deducted from the cash first loaded onto the card; a $1 convenience fee for the first 10 purchases every month; and a fee of $1 for every bill paid with the card. [Remember that the consumer has just handed over their own money to the financial institution to hold and to use interest free. Given that truth, why then are further fees attached to these cards?]

Fees Are Declining

Industry officials say fees have been declining, especially after Wal-Mart this year trimmed fees on the MoneyCard Prepaid card it sells, which prompted several other issuers to cut prices too. They add that consumer complaints are rare and that surveys indicate the vast majority of customers like the cards.

An industry-sponsored study by Bretton Woods, a bank advisory firm, said that cards like Green Dot, Wal-Mart and NetSpend are cheaper than a checking account, whose annual cost can be as high as $353, assuming six overdraft charges, compared with $207 for a direct-deposit prepaid card.

[The complaints have been mostly in the way money is held on the cards so that consumers’ can’t access their own money. Overdraft Fees have been outrageous and need to be dealt with as a separate issue from how banks like METABANK have used the PREPAID BANK CARDS to scam their customer base.]

Yet in many instances, even the lowest-fee prepaid cards can cost more if consumers are able to avoid bank overdraft fees. That should get easier after several large banks announced recently they would let customers decline overdraft protection.

While most major banks charge $10 or less a month for a low-balance checking account, a survey of two dozen prepaid cards released in August by the Consumers Union, the publisher of Consumer Reports, found that the cheapest, the Wal-Mart Money Card, cost $16.59 in the first month and $21.54 in the second. [This is just to use the card. The card sellers hold your money on the card and then charge you fees  for using the card. Why not pay cash?]

By contrast, the most expensive card, the Millennium Advantage card, cost $115.05 in the first month, because of a $99 application fee, and $27.95 the second month, the survey, compiled by Michelle Jun, a lawyer for Consumers Union, showed.

And the actual fees charged can be confusing. A spokesman for the Millennium Advantage card said that while it lists the $99 fee, the company charges only up to $30. A spokesman for the Silver card said that it does not actually charge the $25 shortage fee shown in its fine print, and is working to remove it from company documents.

“How are consumers supposed to keep the fees straight if the companies can’t?” said Michael McCauley, a spokesman for Consumers Union.

In the meantime, bewildered by opaque terms and often dodgy customer service, many consumers are fending for themselves.

Damon Saxton, 34, said he had given up on prepaid cards and hoped to return to a bank, if they will have him. Mr. Saxton began using a prepaid card after being barred from getting a bank account for cashing a check from an eBay sale without realizing it was fake. [ One problem leads to another, but always the consumer bears the brunt of responsibility when there is nothing in place to protect the consumer.]

But Mr. Saxton, who lives in Florida, said that the two years he used his Vision Premier Prepaid Visa Card were marred by petty fees and horrible customer service. [ Yes, the horrible customer service. This is because the PREPAID BANK CARD isn’t designed to serve customers. It is designed to maximize bank’s profits with a cut for the partner company.]

Mr. Saxton said that when he punched the wrong code into an A.T.M., the bank charged him $2.95 for a declined A.T.M. transaction. When he called to complain, he said, they charged him an additional $1.95. [This is similar to what others have experienced with using these PREPAID CARDS.]When someone got hold of his card number and racked up several hundred dollars in shortage fees, Vision Premier covered the fees with Mr. Saxton’s tax return, which was directly deposited onto the card, he said.

A spokesman for the Vision Premier said Mr. Saxton’s experience was not the norm. The company eventually refunded the fees. [ However, far too many consumers are still complaining about misuse and abuse by the Banks and their partner companies for which they have no recourse.]

“I wasted countless hours dealing with this problem, not to mention the stress,” Mr. Saxton said. “I think the whole business is based around nickel and diming.”

http://www.nytimes.com/2009/10/06/your-money/06prepay.html?pagewanted=all