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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
Target Speeds Move to EMV Cards

Target has vowed to do what it can to speed the US’s transition to more secure payment card technology.

In testimony before the Senate Judiciary Committee, Target Chief Financial Officer, John Mulligan, said that one of the company’s responses to the massive data breach that impacted tens of millions of its customers in late 2013 would be to equip all 1,800 of its U.S. stores with card readers able to process EMV card transactions by the beginning of 2015. The new timeline announced by Mulligan is over six months earlier than Target’s previously stated goal for implementing smart card technology in its stores. EMV cards, also known as smart cards, are considered far more difficult for hackers to compromise than the magnetic stripe technology currently used by most credit and debit cards.

Additionally, Mulligan told lawmakers that Target’s own REDcards will also transition entirely to EMV technology. “Updating payment card technology and strengthening protections for American consumers is a shared responsibility and requires a collective and coordinated response,” Mulligan said. “On behalf of Target, I am committing that we will be an active part of that solution.”

Target is undoubtedly motivated to speed up its move to EMV technology by the avalanche of negative attention and subsequent hit to its profits caused by the data theft. Still, most security experts believe it’s the right move. EMV technology is a far tougher nut for data thieves to crack than magnetic strip technology, which has long been the security norm in the U.S. Because EMV cards contain a microchip that must be authenticated with a personal identification number – hence the technology’s other name, chip and PIN – they are far less vulnerable to identity fraudsters than magnetic swipes.

In countries around Europe and throughout the globe, the fact that EMV cards are standard has reduced the amount of identity theft significantly. The replacement of magnetic strip technology with EMVs certainly won’t end data theft altogether. As Mulligan noted in his Senate testimony, Target cannot force the whole country to embrace EMVs. It will require broad support from other retailers and card issuers for all U.S. consumers to get the benefit of the elevated protection offered by EMV cards.

March 4, 2014
U.S. Government Urges Changes To Student Debit Cards

Debit cards and prepaid debit cards available to college students have plenty of room for improvement. That is the overriding conclusion of a recent report issued by the U.S. Government Accountability Office, or GAO, the investigative arm of the U.S. Congress.

The GAO opted to scrutinize student debit cards because the number of universities and colleges that have entered into agreements with financial companies to provide these products has been on the rise recently. According to the GAO report, 852 schools, or about 11 percent of all U.S. universities and colleges, have inked deals to provide debit and prepaid debit cards to students.

Not only have the number of agreements to provide student debit cards been on the rise recently, the GAO says that most of the cards currently available are used by schools to disburse financial aid and other funds. Some schools also utilize student debit cards as a form of identification.

Government investigators cited a number of specific areas where cards could be more student-friendly, including in the realm of fees. Although the GAO discovered that fees associated with student debit and prepaid debit cards were comparable with other available products, there were some exceptions. In particular, some student debit cards levied a fee on students who made purchases using a personal identification number (PIN) instead of a signature. This is a fee most mainstream cards don’t impose, note the report’s authors.

The GAO report also noted the potential problem of fee-free ATM access for the users of student debit cards. Although officials at nine of the schools surveyed by the GAO didn’t highlight any problems with the availability of fee-free campus ATMs, the report says that the lack of any specific guidelines regarding their availability could be problematic. Currently, the Department of Education requires that students receiving federal financial aid via a college card have “convenient access” to ATMs that do not charge fees, although there is no exact definition of what constitutes convenient.

The other major finding by the GAO regarded whether or not schools were encouraging students to obtain a card from a particular provider. In some cases, colleges have been pushing certain student debit cards rather than providing objective information about various products. The GAO report speculates that this may be due to financial incentives schools receive based on how many students sign up. The report also found that contracts between the financial institutions providing student debit cards and the schools were not publicly available.

To counteract what it sees in the current arrangement between schools and debit and prepaid debit card providers, the GAO has several specific recommendations. To improve transparency, it suggests that Congress require that agreements between schools and financial institutions be filed with the Consumer Financial Protection Bureau (CPFB) and be made available to the public. Additionally, the GAO urges the Department of Education to ensure that any school utilizing student debit cards to deliver federal financial aid make available objective information about payment options available to students. Additionally, the GAO suggests the Department of Education better define what “convenient access” to fee-free ATMs means.

March 3, 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