A Discussion of Pre-Paid Bank Cards in November 2012

They look like a credit card.

They work like a debit card.

But they’re not a loan

and they’re not tied to a bank account.

Reloadable prepaid debit cards, a relatively new financial product, are growing fast and attracting attention from federal regulators. [Federal Regulators, please look closely at these prepaid cards. Banks are taking advantage of the lack of regulation over them.]

You can use them anywhere you can use Visa, Mastercard or American Express. You can get cash from the ATM with them. You can even have your paycheck automatically deposited onto the card.[ Direct deposit paychecks into a prepaid bank card is not a safety measure for consumers. It is a great deal for the banks though who get full control of all of your assets.]

The big difference is that, unlike regular debit cards, prepaid cards are not tied to a checking account at a bank or credit union. [Sometimes this is true.]

And since you typically can’t spend more than you load onto a prepaid card, they’re attractive to people who have been burned by bank overdraft fees, said Greg McBride, a chartered financial analyst with Bankrate.com.

McBride said some people might prefer a simple, $5 monthly fee for a prepaid card rather than risk costly overdraft fees with a traditional debit card. [ One scam to cover an earlier scam by banks…. this is deplorable!!!]

“A lot of the prepaid cards have very transparent pricing. It’s easy to know what you are going to pay,” he said. “If you start overdrawing your (bank) account at $35 a pop, that changes the economics.” [ This is publicity and it doesn’t adequately address the consumer complaints about these prepaid cards in general.]

Last month Walmart and American Express launched Bluebird, a prepaid card aimed at customers who are fed up with fees and minimum balance rules for traditional checking accounts.

With Bluebird, “The only fees consumers will ever pay are clear, transparent and within their control, such as out of network ATM withdrawals for a consumer that does not have direct deposit,” Walmart said in a press release. [ Walmart doesn’t further describe what clear and transparent means.]

Prepaid cards also appeal to parents who want to arm their kids with a “training wheels” debit card and to travelers who don’t want to carry cash, said Bertrand Sosa, president of Rev Worldwide, the Austin, Texas, company that offers the Mango prepaid card.“Think of this as your new traveler’s check,” Sosa said in a phone interview. [Think of this as handing over money to a total stranger. This kind of talk is nothing but publicity. Students have complained more than any other group that they have been kept from paying their essential bills simply because banks like METABANK who provide these prepaid bank cards lock the card and keep the customer from having access to their own money.]

But users of prepaid cards are not afforded the same protections that credit and debit card users have under federal law, said Richard Cordray, director of the U.S. Consumer Financial Protection Bureau.

“That is especially troubling because the people who use prepaid cards are, in many instances, the most vulnerable among us,” Cordray said in a May speech announcing that his agency intends to establish rules for the prepaid card industry. [Let’s see this when it happens!!!!!]

Many prepaid card users do not have bank accounts and live paycheck-to-paycheck, he said. Yet, unlike debit and credit card users, they are not protected by federal laws that limit liability for fraudulent charges and provide “a framework for resolving errors and disputes” related to unauthorized use, Cordray said.

Cordray noted that prepaid cards can come with fees for loading and withdrawing funds, checking a balance or even calling customer service.

The Green Dot Visa [ This card was initially created by METABANK; I don’t know what bank manages it now] prepaid card on sale at Walgreens and other retailers costs $4.95 at the cash register (it’s free if ordered online). Then, if a customer doesn’t load at least $1,000 per month on the card or make 30 transactions during the month, a $5.95 monthly fee is assessed.

Withdrawals from ATMs in the nationwide MoneyPass network are free, but Green Dot charges $2.50 for out-of-network ATM transactions. Other fees include $4.95 to replace a lost or stolen card, $19.95 for expedited card delivery and up to $4.95 to reload the card at a retail counter.

Some prepaid cards — including Mango, Green Dot and Chase’s Liquid — are backed by banks or bank holding companies and offer customers the same Federal Deposit Insurance Corp. $250,000 protection on their balances if the financial institution fails. [Where is the written guarantee for consumers???]

But Cordray said there is no requirement that prepaid card issuers get FDIC insurance and that consumers “often have no way of knowing how the banks are treating their funds” to ensure their FDIC protection.

WalMart’s new Bluebird card does not have FDIC insurance, but the retailer says customers should take comfort in the fact that it’s backed by American Express. [This is how it was marketed to the corporate entity who then markets these cards to you.  No when the bank scams you, their customer, the perceived originator such as Master Card, VISA or American Express will tell you that they are not responsible…. those brand names mean absolutely nothing …. the bank that sells and manages the prepaid cards means everything to you as a potential customer.]

When shopping for a prepaid card, McBride said it’s important to evaluate ATM access and all the fees involved with using the card. Consumers should also lean toward cards with FDIC insurance, he said.

“You wouldn’t put your money in a bank that doesn’t have FDIC, would you?” he said.

For those who do not have bank accounts, prepaid cards can “serve as a good entry or re-entry point” to mainstream financial services, said T.L [However, I have only seen that the prepaid cards which are being marketed heavily to the “underbanked” and the most financially vulnerable among us only serves to make a bad situation even worse for those among us who are the most vulnerable. Banks have gotten “bailouts” but there is no one there to genuinely help those who need a bailout the most. Prepaid Bank Cards are great for banks, but not the solution for consumers who may be tempted by the misleading and glowing advertisements for these Pre-Paid Bank Cards. Only you can protect yourself given the current banking climate…. stay away from the Pre-Paid Bank Cards.]

But she [T.L.] said the savings accounts and individual retirement accounts [not prepaid bank cards] offered by banks and credit unions allow consumers to “move down the pathway to greater financial competency.”

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