Prepaid Debit Card Reviews, Complaints, Etc

Author: Chris Warren

Report: African-American and Latino Credit Card Interest Rates Are Higher

A new report shows that African-Americans and Latinos pay higher interest rates on their credit card debt than white consumers. According to the research conducted by the National Association for the Advancement of Colored People (NAACP) and the think tank, Demos, Latinos pay an average annual percentage rate (APR) of 17.9 percent.

By contrast, African-Americans pay an APR of 17.7 percent while white credit card customers pay a 15.8 percent APR. Although the differences seem stark, the report’s authors caution that the gulf between interest rates paid by consumers of different races is within the study’s margin of error and could be statistically insignificant.

Higher African-American and Latino credit card interest rates are not the only topic addressed in the report, titled The Challenge of Credit Card Debt for the African-American Middle Class. More generally, the report looks at the use of credit cards as a so-called “plastic safety net,” used by families to pay for basic necessities not covered by paychecks. “We find that under difficult economic conditions many African-American families rely on credit cards to make ends meet or invest in their future – despite paying high interest rates and suffering more negative consequences of debt than other groups,” write the report’s authors.

Other findings in the report are a mixture of good and bad developments. On the positive side, African-Americans have less credit card debt than in 2008. Six years ago the average balance was $6,671, which is almost $1,000 higher than the $5,784 today. Less positive, however, are the credit scores of African-Americans. According to the report, only 42 percent of those surveyed reported having either “good” or “excellent” credit, compared to 74 percent of white households. Far more than other racial groups, African-Americans reported that errors on their credit report contributed to subpar credit scores.

African-Americans were also more likely to receive calls from bill collectors due to their debt. Over 70 percent of those surveyed reported being called by debt collectors, compared to just 50 percent of white households. As a result of its findings, the research paper’s authors suggest a number of policy changes for lawmakers to consider. In particular, the authors urge expanded federal regulations to address problems faced by middle class Americans of all races in the areas of medical debt, financial and bankruptcy regulations and the calculation and use of credit scores.

March 11, 2014
New Bank of America Checking Account To Compete With Prepaid Cards

A new Bank of America checking account will compete for the same customers who are increasingly turning to prepaid cards.

Announced in early March, Bank of America’s new “Safe Balance” account includes a $4.95 monthly fee that cannot be waived. Although the new accounts allow users to utilize online banking and automatic bill pay, customers cannot write paper checks. Importantly, though, the new Bank of America checking account does not charge customers unpopular and expensive overdraft fees. Instead of overdraft charges, those who opt to use Safe Balance simply won’t be able to make debit card purchases or pay bills online if there are insufficient funds in their account.

According to an article in the Charlotte Observer, this new checking account has been years in the making and is a reaction to customer input about the importance of avoiding the steep $35 fee Bank of America has traditionally charged for overdrafts. The new Safe Balance accounts, which will be rolled out in a handful of states immediately and nationwide in the coming months, are designed for bank customers who do not meet account balance minimums that eliminate monthly account fees. The bank will continue to offer two checking accounts that charge overdraft fees and have no monthly charge if customers maintain a high enough balance.

The introduction of the Safe Balance account is a way for Bank of America to boost revenue in a business environment that has seen increasing regulations and public scrutiny. For example, many banks have struggled with how to best replace revenue that once came from charges to debit card transactions. The impact of the federal Durbin Amendment and consumer outrage at high debit card fees has prompted many banks to look elsewhere to make up for lost revenue.

But this is also a way for Bank of America to vie for consumers who are ditching the traditional financial services offered by banks in favor of prepaid debit cards. Traditionally financial products of last resort, used mostly by consumers who couldn’t qualify for a traditional checking or credit card account, prepaid cards have exploded in popularity recently. Two recent reports – one by the Pew Charitable Trusts and another by ratings agency Fitch Ratings – have documented how improved prepaid card offerings are prompting millions of Americans to give them try. The Federal Reserve reports that prepaid card transactions grew by 33.5 percent annually between 2009 and 2012 and Fitch Ratings predicts their use is likely to continue to rise.

March 10, 2014
Las Vegas Casinos Accept Prepaid Cards

Las Vegas casinos now accept prepaid cards used by gamblers playing slot machines.

According to an article in the Las Vegas Review-Journal, the Nevada Gaming Commission, in February, voted unanimously in favor of a proposal to allow gamblers to utilize prepaid debit cards tied to individual casinos’ rewards programs. The decision, which takes effect immediately, does not impact credit and debit cards, which are still prohibited for use in casinos. The decision by Nevada regulators mirrors a similar ruling in New Jersey, where casinos in Atlantic City have been permitted to accept prepaid debit cards.

In pushing for the use of prepaid cards, Las Vegas casinos have touted what they insist are benefits for both the companies running the slots as well as customers. In a letter to the Nevada Gaming Commission, Station Casinos Chief Financial Officer, Marc Falcone, pointed out that casinos face steep costs when it comes to cash transactions. “We believe that it is time Nevada gaming companies get the benefits of electronic commerce that have been available to other industries for years,” he wrote.

Supporters of the change also argue that prepaid debit cards – unlike debit and credit cards – won’t contribute to problem gambling. In particular, supporters point to limits placed on how much money can be loaded into card accounts. According to the new rule, a gambler can load up to $2,000 per day, $4,500 per week and $10,000 per month onto a prepaid card. The most a player can have on a card at one time is $25,000. Another benefit raised by casinos is that the use of prepaid cards allows customers to avoid high in-casino ATM fees, which can be as steep as eight percent of a withdrawal.

Not everyone believes the use of prepaid cards in Vegas is a benefit to consumers. In his popular blog VitalVegas.com, Scott Roeben writes that the casinos are the big winners. “Let’s say it like it is. This is a way for casinos to get their hands on more of our cash, plain and simple.” If ATM fees are such a concern, he writes, then casinos should just lower them.

And Roeben insists that a forced trip to an ATM after a gambler has lost money is actually a good thing. “You have to step away from your table or slot machine, you have to find an ATM, you have to remember your password, and you have a withdrawal limit set by your bank,” he writes. “All these things serve as a reminder you just lost all the cash on you, and now you’re about to wager even more.”

March 6, 2014
Prepaid Card Popularity Continues To Rise

The meteoric rise in prepaid card popularity is continuing. According to a recent statement by Fitch Ratings, a Chicago-based rating agency, the use of prepaid cards is also likely to continue well into the future, fueled by changing consumer behaviors and banking industry dynamics that have made debit cards less appealing.

Fitch says the combined factors of the increasing popularity of gift cards and a desire by consumers to get away from traditional forms of payment – like credit cards and debit cards – in the aftermath of the recession helps explain the booming prepaid card popularity. According to data from the Federal Reserve, between 2009 and 2012 prepaid card transactions grew by 33.5 percent annually. The total number of prepaid transactions reached 3.1 billion in 2012, which was 1.8 billion more than just three years earlier.

Other factors beyond recession-shocked consumers are at work here, says Fitch. One element driving consumer acceptance of prepaid cards is an overall improvement in the quality of the cards available. Long geared only to people who could not get bank accounts or credit cards, prepaid cards earned a deserved reputation as fee-laden, consumer-unfriendly choices of last resort. But increasing interest on the part of mainstream U.S. consumers has led to large financial companies entering the market offering low-fee, easy-to-use cards.

As an example, Fitch cites the October 2012 launch of Bluebird, a card launched by American Express and Walmart. Recently, American Express reported that $2 billion has been loaded to Bluebird accounts since the card was first offered. In 2013, fully 39 percent of the money deposited to Bluebird accounts came via direct deposit.

Another factor in the rise of prepaid cards, says Fitch, are regulations that have made debit cards less appealing. In particular, the ratings agency notes that the Durbin Amendment, restricted the amount of money banks could charge for debit card transactions. With a large chunk of revenue off the table, banks have made changes to checking accounts, including introducing new fees and canceling rewards programs. The result, says Fitch, has been a continuing consumer shift to low-fee prepaid cards.

March 3, 2014
Coming Soon: Free FICO Scores For Discover Cardmembers

First it was cash back rewards and now it’s free FICO scores. In early February, Discover, the card that has become synonymous with cash back rewards, announced that it’s millions of cardmembers will soon see something new on their monthly account statement – free FICO scores. Discover is the first credit card company to include free FICO scores on cardmembers’ monthly statements, an initiative it began as a pilot program last November and will now expand to millions of its customers.

What is a FICO score? In essence, a FICO score is a numeric representation of a consumer’s credit worthiness. The number is calculated by three credit bureaus – Experian, TransUnion and Equifax. It is based on factors such as how promptly a person pays their credit card, mortgage and other bills, how long they’ve had credit and the types of credit used. Banks and other lenders review an individual’s FICO score in order to determine whether or not to extend credit and what interest rate to charge. The better a person’s FICO score, the lower the interest rate they’re likely to be charged when purchasing a house or car.

The free FICO scores on Discover cardmembers’ monthly statements will be based on information from the TransUnion credit bureau. According to Julie Loeger, Senior Vice President of Brand and Acquisition at Discover, the decision to expand distribution of free FICO scores is all about customer empowerment. “Knowing their scores can help our cardmembers achieve their personal goals and better prepare to reach life’s many major milestones.”

Besides providing credit scores to customers each month, Discover will also provide an explanation. “Beyond sharing the FICO score itself, we’re now taking one step further by providing consumers with the specific reasons their score is what it is,” says Loeger. “A knowledgeable consumer is a powerful one, and we’re happy to partner with FICO and TransUnion to give consumers the information they need to make smart financial decisions.”

February 14, 2014
Study: Consumer Debit Card Use Declines As Prepaid Grows

Consumer debit card use is on the wane in the United States. Increasingly taking the place of the old standby of debit cards is a mixture of alternatives, such as reloadable prepaid cards, check cashing services, short-term loans and even rent-to-own arrangements.

Those are some of the highlights of a new report issued by the Mercator Advisory Group. Titled, “Consumers and Debit 2013: A Shift to Alternative Payments,” the study is the result of a survey of over 3,000 U.S. consumers conducted last year. In total, the report found that consumer debit card use declines have been substantial over a relatively short period of time. In 2011, so-called debit card penetration in the U.S. was at 68 percent. By 2013 that number had decreased to 59 percent.

Instead of debit card usage, Mercator’s researchers found that consumers are relying on what have often been considered fringe financial services. For instance, largely forsaking the services provided by banks and credit unions, half of consumers surveyed said they were using check cashing, bill payment, money transfers, short-term loans and rent-to-own arrangements to take care of their financial needs. Furthermore, the report found that fully three-quarters of people surveyed who initiate money transfers do so not from banks but from supermarkets and discount and convenience stores.

The demographics of debit card users are also in the midst of a transformation. Young adults, for example, have gone from being more likely than average to use debit cards to less likely. In addition, the report found that debit card usage in households earning less than $75,000 is also decreasing, replaced instead by alternatives like prepaid cards.

Besides chronicling the decline in debit card usage, the Mercator report also offers up an explanation about what is driving it. In short, the authors of the report declare that the Durbin Amendment to the 2010 Dodd-Frank financial reform law is the culprit. Because of lost revenue resulting from changes in the law, banks have begun to charge debit account fees as a way to compensate. But those fees have motivated many consumers to seek out low or no-fee alternatives.

February 13, 2014