Prepaid Debit Cards "a Rip Off"

[jas2587]

November 26, 2009. By Heidi Turner

Buffalo, NY: Although prepaid debit cards may seem like a fantastic idea for people with poor credit, consumers are learning that the fees can be exorbitant. Shirley S. says she used a Green Dot debit card for a few months, until she realized she was paying too much in fees and closed the account.

Shirley has had bad credit since college, when she got a college loan. She thought the prepaid debit card would be a good way to improve her credit.

"I went to Rite Aid to get the card," Shirley says. "I think it was about five dollars to activate it and you have to call the company and they activate it for you. After that, I used it for a while, but I didn't really know what charges I was paying. I just found I kept reloading it and reloading it. I think I paid a lot in fees thoughat least $100."

In fact, according to greendotonline.com, Shirley would have been charged a fee of up to $4.95 every time she reloaded the card at a retail location. She would also have been charged a monthly fee of $5.95, unless she made at least 30 purchase transactions per month or loaded $1000 on the card every month.

Every time Shirley loaded $20 onto her card, she had only $15.05 to spend. When the monthly fee was subtracted, she would be left with $9.10 on her card.

What's more, Shirley recalls that when she was using the card, the fees she was paying were higher than they are now.

"I would phone customer service and ask about the fees," Shirley says. "One time, the man I spoke with said they were lowering the [monthly] fee to $5.95 because so many people were using the card. I think at one point it was almost $10 a month.

"I thought the fees were too high. I kept reloading the card, but every time I did, they took money from me. I think I had that card for about six months and it wore me out so I closed the account. I wouldn't go back to it.

"I think these cards are a rip-off. Its like they cheat from people who can't get credit. There needs to be regulations on these fees. I guess these cards can be good and help people to be eligible to buy goods and services, but they shouldn't cheat people."




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Cindy

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[jas2587]

Debit Card Overdraft Fees - An Update

First the good newsmaybeon November 12, the Federal Reserve announced that new rules governing the seemingly rampant application of overdraft fees linked to debit card use would be initiated. Now the bad newsmaybethe rules dont come into effect until next summerJuly 1st, 2010 apparently.

The development of these rules is a direct result of loud consumer reaction to the banks deceptive and abusive consumer lending practices.

Of course the argument that the rules will provide any real benefit at all has just begun. More on that in a minute.

So what protection will the new rules offer you? Heres the scoopstraight from the Federal Reserve website:

The final rules would prohibit financial institutions from charging consumers fees for paying overdrafts on automated teller machine (ATM) and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions.

Before opting in, the consumer must be provided a notice that explains the financial institutions overdraft services, including the fees associated with the service, and the consumers choices. The final rules, along with a model opt-in notice, are issued under Regulation E, which implements the Electronic Fund Transfer Act.

Presumably, this means you really do need to read the fine print when you get your bank cards. And the blurbage on the website goes on to state that if you choose not to opt for automatic overdraft protection you will not be penalized. The site states:

To ensure that consumers have a meaningful choice, the final rules prohibit financial institutions from discriminating against consumers who do not opt in. The final rules require institutions to provide consumers who do not opt in with the same account terms, conditions, and features (including pricing) that they provide to consumers who do opt in. For consumers who do not opt in, the institution would be prohibited from charging overdraft fees for any overdrafts it pays on ATM and one-time debit card transactions.

Now, overdraft fees will continue to be charged against checks that bounceso these rules presumably only relate to debit cardsand only to certain types of transactionsgotta read the fine printwhen it comes out.

Some parties are arguing that these rules will not benefit the consumer in the long run because most community banks will simply opt out of overdraft protection to avoid paying the costs and penalties of complying with the rule. The argument goes something like it will reduce access to credit just when it is needed most.

Of course all possible outcomes are hypothetical at this point. For my money, Id be willing to bet most banks wont opt out. According to an article in the New York Times, federal officials believe that the banks hauled in somewhere between $25 billion to $38 billion a year in overdraft fees, including fees for checks and electronic transactions not covered by the new rules. Even if those numbers are reduced by 75 percent the revenue is still pretty substantial.

Cha Ching

Cindy

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