No foolin’: A bank card with 15 fees

It sounds like an April Fools joke: A prepaid debit card meant to help teens manage their money that includes 15 potential fees. Another card claiming “no hidden fees” that charges $1 every time you use it. And another that charges $1 to talk to a customer-service rep, and 50 cents to talk to a machine!

Those are some of the surprises we found in the wild world of prepaid debit cards, or as they're known in the industry, "general purpose reloadable cards." This type of plastic, a variant of prepaid gift cards, is gaining popularity particularly among folks without bank accounts or without standard checking accounts that would entitle them to bank debit cards. While these prepaid cards don’t charge interest like credit cards, their fees can add up fast. Here are some examples:

•The Wachovia Visa Buxx card is intended for teenagers to use in lieu of cash; as the Visa Buxx home page says, “it’s perfect for schoolbooks, everyday errands, travel, and life’s little emergencies.” And it appears that each of those emergencies has its own fee; in all there are 15 different potential fees.  Activating the card costs $12. Each time parents load money onto the card from their bank accounts, the card charges $2. Cash advances from ATMs are $2.50. ATM withdrawals with the card are limited to 2 every 30 days; after that, the card subtracts $1.50 per withdrawal. After more than 7 months of inactivity, the card charges $2. Overdrafts are $20 each. 

Visa Buxx cards are marketed by five other banks, none of which list as many fees. But some charge more for certain services. National City Bank charges a $15 annual fee; PAYjr, another Visa Buxx issuer, charges a monthly service fee of up to $4.95, and $10 to receive a paper statement. And to be fair, notes Curtis Arnold, founder of CardRatings.com, a comparison and ratings service for credit-card offers, the Visa Buxx overdraft fees at all the banks are not nearly as high as late fees or over limit fees of credit cards, which can run $39 per month.

•The Prepaid Visa RushCard, marketed by Unirush Financial Services, claims to have no hidden fees. True, its “convenience” fee isn’t hidden; it’s clearly listed among the other fees, including a $19.95 sign-up charge. But users of the card have to dig deep into the fine-print Terms and Conditions to discover that the convenience fee means you’re charged $1 each time you use the card. On the plus side, the RushCard caps the convenience fee at $10 a month.  And it doesn’t charge for services like phone inquiries. But you’d better use the card regularly, because after just three months of inactivity, you’ll be charged $1.95 a month.

Few alternatives

Michelle Jun, a staff attorney in Consumers Union’s West Coast Office in San Francisco, notes that for the “unbanked” or “underbanked"--people who don’t want or qualify for checking accounts--employing these cards may be less costly than using check-cashing services to cash their paychecks and money orders to pay their bills. And she acknowledges that for such consumers, there aren’t many alternatives. But consumers currently can’t compare terms and fees as they can with credit cards, because disclosure isn’t standardized. She supports requirement of “Schumer” boxes for each card, disclosing fees and other terms. (The Schumer box is named for the New York Senator Charles Schumer, who sponsored the law creating the standard disclosures.) 

Arnold of CardRatings.com agrees. “With these pre-paid cards, there are long pages of text and no uniform presentation to compare fees,” he says. “It’s frustrating for me as an expert. You can imagine how frustrating it is for non-experts.

Check this blog later for more on prepaid ploys...

-- Tobie Stanger

Comments

[Gavin Andresen]

So: why isn't competition squeezing out the fees? Are prepaid cards too new?

Are the people who buy them too naive to shop around?

Are the fees so well hidden people don't notice them?

Are MasterCard and Visa colluding to keep prices high?

Are there regulations preventing competitors from offering lower-cost cards?

Or... are the fees really high? What's the profit margin after the costs of production/fraud/etc on prepaid cards versus ordinary credit cards?

[Jeff]

There are fees, but the cards provide access to services people can't get with only cash, i.e. Internet shopping, hotel reservations etc. And these fees are less annually than many pay for checking accounts or to cash checks.

Something often overlooked about prepaid card fees is that the cards cost their intended users far less annually than bounced check fees or check cashing fees. There are studies showing that the vast majority of income banks make on checking accounts comes from a very small percentage of their checking customers.

These are the people with the least amount of money in the bank, but they provide banks the vast majority of checking account fee income. For many of these people, prepaid debit cards and payroll cards are typically far less expensive.

[Jeff]

And mine came with a document that included all the fees.

[Prepaid Debit Cards]

I have to agree with Jeff's comments above. I have used a prepaid debit card called Pr1macard since December when I was kicked out of my bank due to insufficient funds and some bounced checks.

My bank used to charge me a $20.00 'monthly cycle charge' for not maintaining a certain account balance?? Not to mention the $35.00 overdraft fee's.

I realize these where my fault, but my prepaid debit card only charges a $6.95 monthly account maintenance fee, and $1.75 on an ATM withdrawal.

I am also able to get my unemployment benefits direct deposited onto my card at no charge. Even when I do get a job, I will use the direct deposit feature to deposit my payroll.

[Randy]

The Rushcard saved my life. I was drowning in bank fees - maybe there are fewer bank fees, but they're all much higher.

[Charles]

"Michelle Jun, a staff attorney in Consumers Union’s West Coast Office in San Francisco, notes that for the “unbanked” or “underbanked"--people who don’t want or qualify for checking accounts--employing these cards may be less costly than using check-cashing services to cash their paychecks and money orders to pay their bills."

Let's get something straight here. Many people who are currently "unbanked" have had bank accounts in the past, and have been bitten with the outrageous fees banks charge.

When an unsophisticated person makes $500 a week, and needs to pay $400 in bills, the total out-of-pocket expense will be the check cashing fee (I dont' know what it is on your state, but usually varies 1%-4% depending on the location, let's assume 3% for argument sake) That's $15, plus let's say 4 money orders $1 each. The person's expense is $19, or 3.8% of the total check. Money orders are sent, and that's it. John Doe ends up with $81 on his pocket. If by any chance the check bounces, the check casher will most likely go after the maker of the check. Money orders will be honored because they are detached form the check cashing transactions.

Jane Does has a bank account, deposits her $500 check, so far so good. Writes 4 checks totaling $400. Let's assume again that the check is NSF. What will happen is that the bank will charge $29-or more, for each of the checks, $116 total in NSF, plus whatever the payees of those checks charge (if $25/each, another $100).
So Jane Doe, due to an unfortunate circumstance, is not only going to be late on her bills, but will also end up paying over $200 in check return fees.

Now, what where they saying about banks being cheap? There is a reason why check cashers exist: people don't want to be ripped off by abusive charges. The average consumer return fee is over $25 on most banks, whereas it is only $7 for most business checking accounts. Consumer are bitten over and over by the banking industry.

I'm just wondering why people keep making those uninformed statements, which are clearly biased and do not reflect the reality of the market.

By the way, John Doe still has $81 in his pocket, and Jane asked him if he could lend her some money because her bank ripped her off ;)

Have a good day everyone.

[Bob]

If you have direct deposit the Moneymanager card from Direct Benefits (Google MoneyManager Card) has one fee that you may run into for Billpay, 50 cents and that includes them mailing a check. Unlimited completely free ATM transactions at any of the 37,000 nationwide Allpoint Network locations separates this from any other prepaid card. No sign up fees, no monthly fees, no transaction fees, links to a savings account, no fees for speaking to customer service. FDIC insured through West Suburban Bank. Better than some bank accounts. Later this year they will enable cash reloads through Visa Readylink, there will most likely be a fee for that.

There are some other low fee cards out there but what's interesting to me is the media never writes about them instead recommending these rip off cards.

[Patricia]

With $500 in my account, BB&T charged NSF on a $600 check first so they could charge 3 more NSF fees on the $100, the $200 and the $8. drafts that came in at the same time RATHER than covering the lower drafts and charging one NSF. BB&T also charged 2 NSF fees for checks that were ACTUALLY covered because there were pre-authorizations that totalled more than WOULD BE covered when they processes. THEN, the next day BB&T charged ANOTHER NSF when the pre-authorized actually processed. Just another Madoff scheme named BB&T. I'm shopping for a debit card.

[nathan]

rush card ripped me off. use any different brand instead. look out for the mba also. it is such a screw you deal.

[Credit card offers]

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