Prepaid Debit Card Reviews, Complaints, Etc

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  • Green Dot Sues Sallie Mae Over Prepaid Deal

    Green Dot Sues Sallie Mae Over Prepaid Deal

    When the partnership between prepaid debit card issuer Green Dot Corporation and student loan giant Sallie Mae Corporation was first announced last August the superlatives were abundant. The roll out of the My Flex prepaid debit MasterCard by Sallie Mae – a product made possible by a partnership deal with Green Dot – was touted as a way for college students to quickly, cheaply and easily receive financial aid refunds. “Students deserve easy, secure and transparent choices that don’t cost them money to get their money,” enthused Sallie Mae senior vice president Kelly Christiano, in a press release announcing the card. “Sallie Mae is committed to providing financially responsible products that are transparent and easy to understand for students and schools.”

    The good feelings between Sallie Mae and Green Dot are long gone now. Indeed, according to a report in Courthouse News, Green Dot has sued its former partner for $90 million in New York County Supreme Court. According to the story, written by reporter Nick Divito, who quotes extensively from the Green Dot lawsuit, the two companies had been in negotiations since late 2011 to form a partnership that allowed students to receive financial aid refunds on reloadable prepaid debit cards issued by Green Dot. This option was intended to be a part of Sallie Mae’s Campus Solutions business.

    However, according to the lawsuit, Sallie Mae made the deal contingent upon Green Dot both abandoning any other initiatives aimed at the higher education industry as well as paying the bulk of the tab for the partnership itself. Sallie Mae, the report says, assured Green Dot that the upfront costs and exclusivity would be worth it because the partnership would yield sufficiently high returns.

    But according to the lawsuit, Sallie Mae was simply using its proposed partnership with Green Dot as a way to raise the value of its money-losing Campus Solutions business, which it subsequently sold for $50 million, a move that “blindsided” Green Dot. “Thus, Sallie Mae targeted Green Dot as a contractual partner to bundle its struggling business with Green Dot’s commercially attractive, well-known prepaid cards,” the lawsuit says.

    And now, Green Dot wants Sallie Mae to pony up for lost net profits and money wasted getting the My Flex prepaid card up and running. Green Dot seeks $90 million in damages for breach of contract. In summarizing its case, the Green Dot lawsuit reads more like a letter from a jilted lover than a dry court document. “This is a case about the largest provider of financial services to the higher education industry in the United States using and abusing a business partner for its own collateral goals, casting that business partner aside and brazenly disavowing its contractual obligations when those goals were realized.”

  • Risky New Bank Card Technology – Is Your Card At Risk?

    Risky New Bank Card Technology – Is Your Card At Risk?

    Though it may be convenient to pay with a wave of your credit or debit card, Consumer Report’s Andrea Rock says so-called contactless cards make your personal information vulnerable.  Whether you know it or not, your credit or debit cards might contain a tiny computer chip and radio antennae to transmit account information from your card, even when you’re not shopping.

    Thieves can steal your credit card information from only a few inches away using a card reader that sells for less than $100.  By simply transferring your account number, expiration date and security data to a computer and transferring it to blank cards, a counterfeit can be made of your card. Thieves can then make successful transactions using your “card” while it’s still in your wallet.

    So how do you know if your cards use this technology? Chase cards calls their contactless cards “Blink”, MasterCards uses “Pay Pass” to identify its contactless cards, and others simply have a symbol consisting of four curved lines like the one shown below.

    rfid

    An industry newsletter, The Nilson Report, says 35 million contactless chip cards are in circulation in the United States alone. The cards are touted as being convenient, but are vulnerable to skimming without ever leaving your wallet.

    The technology is active weather you know you have it or not. Shields of wallets marketed as RFID-blocking devices can make it more difficult for someone with an electromagnetic reader to read your cards, but they don’t entirely block transmission of card data. Another option is a protective sleeve made out of duct tape lined with aluminum foil. Tests show that it worked better than many of the ones you can buy, but even that didn’t block the signal completely. So while waiving your card is easy, making sure it’s secure is not. There’s not much you can do but ask your bank to replace the card with one that does not have this technology.

    Chase spokesman Paul Hartwick says the security codes on its contactless cards are designed to change with every transaction, as they are with most RFID-enabled cards, so that even if a card is counterfeited, it would work for only one fraudulent transaction.

    “If I put a reader next to a turnstile at Grand Central Terminal at rush hour, I could probably capture data from 5,000 cards that evening, and what you’re getting from each one is enough to initiate a transaction,” says Mark Rasch, a former Justice Department computer-crime prosecutor who serves as director of cybersecurity and privacy consulting at CSC, a business technology firm. “Moreover, repeatedly scanning a card that is lost, stolen or intercepted in the mail produces multiple security codes,” Paget says.

    The Smart Card Alliance, an industry group, maintains that contactless card technology deployed by American Express, Discover, MasterCard, and Visa is secure and that there have been no reports of consumers been victimized. American Express says its contactless cards do not reveal the card account number, and demonstrations supported this.

    According to Kevin Fu, a University of Massachusetts at Amherst assistant professor, the absence of a flood of fraud reports linked to the cards is not proof of their security. Because the contactless cards in circulation in the U.S. represent only 3.5 percent of the total debit and credit cards in use, they have not yet presented a big enough target to lure many crooks, especially when traditional magnetic stripe cards are so especially counterfeited.

    For more information, visit:

    http://www.consumerreports.org/cro/magazine-archive/2011/june/money/credit-card-fraud/rfid-credit-cards/index.htm

  • FDIC Insurance And Prepaid Debit Cards

    FDIC Insurance And Prepaid Debit Cards

    When you have a debit card tied to a traditional bank account and the bank goes out of business, the federal government guarantees you up to $250,000 of the money that you have in your account through mandatory FDIC insurance.

    “FDIC insurance is an important financial protection,” says Lauren Saunders, managing attorney of the National Consumer Law Center in Washington, D.C. “It ensures the safety of your money up to $250,000 if the bank fails.” So your bank could fail one day and a new bank could take over the next and the money in your bank account (up to $250,000) still would be available.

    “It’s completely seamless for the customer,” says Susan Weinstock, director of Pew’s Safe Checking in the Electronic Age Project. “The only difference for the customer is a different name on the door for the bank.”

    Unlike bank checking accounts, prepaid debit cards are not required to carry any mandatory deposit insurance, but the “vast majority” are offering voluntary FDIC insurance to customers, Weinstock says. Notable exceptions are some prepaid debit cards from American Express, including the American Express Target card, Weinstock says.

    So what happens if a company issuing a prepaid debit card without FDIC insurance goes out of business? How and when would customers get their money back? “It generally depends on state law. States have money transmitter laws and they vary a lot state to state,” Saunders says. “It’s not as robust and seamless as FDIC insurance, how much protection you have, and how that protection works varies.”

    A report from Pew Charitable Trusts titled “Imperfect Protection: Using Money Transmitter Laws to Insure Prepaid Cards” warns that “customers would be compensated with varying amounts of money, depending on the state in which they live, and some states’ residents may not be protected at all.”

    And prepaid debit card customers may have to wait months as creditors in the defunct company’s bankruptcy proceedings in order to receive any money back, according to Pew. “Without a streamlined process such as the one offered by the FDIC, a consumer would likely have to navigate the legal process in order to receive their funds. Cardholders would be unsecured creditors in a bankruptcy proceeding, and may have to wait several months for the case to be resolved before having access to the money on their cards, if they get access at all,” the Pew report states.

    That’s why it’s a good idea to check and see if your prepaid debit card provides voluntary FDIC insurance. And you may have to do some digging, according to Saunders. “Just because a card is issued by a FDIC member bank doesn’t necessarily mean the consumer has FDIC insurance,” Saunders says. “Just seeing the FDIC logo doesn’t guarantee it.”

    Saunders suggests looking for information on FDIC insurance in a cardholder agreement and on the prepaid debit card’s website. And Weinstock recommends registering a prepaid debit card because the name of the cardholder may be necessary to implement the FDIC insurance if needed. “If they don’t register the card, it may not necessarily be insured by the FDIC.”

  • FTC Charges Marketers with Deceiving Small Businesses

    FTC Charges Marketers with Deceiving Small Businesses

    The Federal Trade Commission has charged an operation that sells credit and debit card payment processing services to small businesses with violating federal law.  The FTC seeks to halt the allegedly illegal practices and return money to victims.

    The defendants are Merchant Services Direct, LLC (MSD), also doing business as Sphyra, Inc., Boost Commerce, Inc., Generation Y Investments, LLC., Kyle Lawson Dove; and Shane Patrick Hurley.  The Washington State Attorney General’s Office has simultaneously filed an action against these defendants in the Superior Court for Spokane County, Washington.

     

    According to the FTC’s complaint, MSD agents also dupe customers into leasing new card processing terminals for two to four years, by falsely claiming they are either free, or that their current “swipe” terminals are outdated or incompatible with its services.  Agents then persuade merchants to sign fine-print, binding contracts falsely labeled as applications they are told can be cancelled at any time.  Victims soon discover their new lease obligation after being billed while still owing thousands of dollars on their previous lease.

    Defendants also tout on various versions of their website “Guaranteed Lowest Rates,” claiming merchants could “save 30%” with “whole sale [sic] processing” or have “anywhere from 20% to 30% savings when switching to” MSD.  According to the FTC, there are no wholesale rates, as third parties process card payments, not MSD.  As alleged in the complaint, those who call MSD’s customer service department reach employees who either won’t help or promise to waive fees and issue refunds, but do not.  Customers who were promised they could cancel the “applications” they signed with no penalty are charged substantial cancellation fees, according to the FTC’s complaint.  Generally, only in response to complaints filed with the Better Business Bureau and state attorneys general have the defendants refunded money or waived fees.

    The Commission vote authorizing the staff to file the complaint was 4-0.  The complaint was filed in the U.S. District Court for the Eastern District of Washington.  In addition to filing the lawsuit, the FTC has sought a court order immediately halting the unlawful practices along with an order freezing the defendants’ assets and appointing a receiver over the corporate defendants.

    The FTC acknowledges the assistance of the Washington State Attorney General’s Office and the Better Business Bureau of Eastern Washington, North Idaho, and Montana.

    For more information, visit:  http://www.yumanewsnow.com/index.php/news/latest/3872-ftc-charges-marketers-with-deceiving-small-businesses-into-buying-credit-debit-card-processing-services-and-equipment

     

  • Prepaid Cards For Wisconsin Employees

    Prepaid Cards For Wisconsin Employees

    Earlier this summer there were a series of negative media stories about the practice some companies were embracing of paying employees using prepaid debit cards. A frequently cited story in The New York Times described how companies like McDonald’s, Walgreens and Wal-Mart were eschewing paper checks and direct deposit in favor of prepaid debit cards as the preferred method of compensating employees.

    Reactions to that story in particular – which featured minimum wage workers who expressed frustration over having to pay fees associated with prepaid debit cards in order to access money they earned – were largely critical of the practice. For their part, businesses have opted for prepaid debit cards over paper checks and direct deposit for a very simple reason: it saves them potentially thousands of dollars each year in payroll expenses. Still, the practice has raised enough of an outcry that New York Attorney General Eric Schneiderman opened up an investigation into 20 companies utilizing prepaid debit cards to pay their workers.

    Despite all of the recent bad press around utilizing prepaid debit cards to pay workers, more employers are getting into the act – and what makes it a little bit different is the fact that it’s no longer limited just to the private sector. Indeed, according to a recent report in the Wisconsin State Journal, employees at state agencies there can now be paid via a program called AccelaPay, a prepaid debit card issued by U.S. Bank. According to the story, written by Matthew DeFour, the prepaid debit card payment option is not compulsory, but is instead proposed as a an option for state employees who don’t have a traditional bank account. Explaining the offer, a Wisconsin state official said that it was “a safe, convenient and ‘green’ way to automatically receive and access their paycheck funds. AccelaPay is faster, safe and more secure than a paper check.”

    Nevertheless, according to Marty Beil, the executive director of the state employee union, employees did not ask for the option of receiving their salaries on prepaid debit cards and there is no concern that it will eventually become a requirement. As is the case with most prepaid debit cards, there is also concern about the fees. In the case of AccelaPay, it costs $0.50 for each balance inquiry and $2 for all ATM withdrawals outside the U.S. Bank network. No fees are charged for account inactivity or for making purchases or receiving cash back on purchases.

  • Swipe-Fee Rule Rejection Helps Merchants and Banks’ Cost

    Swipe-Fee Rule Rejection Helps Merchants and Banks’ Cost

    After winning a court ruling on claims they were over charged billions of dollars under and unlawful rate set by the Federal Reserve, retailers battling banks over debit-card transaction costs may soon benefit from lower fees.  In Washington, U.S. District Judge Richard Leon ruled on Tuesday that in setting the cap on debit card transaction fees at 21 cents, the Federal Reserve considered data it wasn’t allowed to use under the Dodd-Frank law and neglected to bolster competition in card networks.

    “The board’s final rule not only fails to carry out Congress’s intention; it effectively countermands it!” Leon wrote in his ruling.

    Before Federal Reserve regulations cut back on perks such as reward programs and free checking to soften the blow, Lenders collected about $16 billion annually from swipe fees.  Unless overturned, the decision will force regulators to revisit rules that bankers said would cost them 45% of their swipe-fee revenue.

    “In effect since October 2011, the Fed’s rule will stay in place until the central bank drafts new regulations or interim standards,” Leon said.

    Frank Keating, the president of the American Bankers Association, said the decision “will harm banks of all sizes and make it more difficult for institutions to serve their customers.”  “The price controls enacted as a result of the Durbin Amendment served one purpose – further lining the pockets of our nation’s big-box retailers at their own customers’ expense,” Keating said in a statement.  “It was – and still is – all about trying to help retailers increase profit margins while providing no real benefit to consumers.”

    Merchants previously paid banks an average of 44 cents per transaction.  The Fed first proposed cutting the sum to 12 cents before settling on 21 cents after bankers complained.

    “Tuesday’s ruling will lead to lower interchange rates for billions of debit card transactions each year,” said Durbin, who filed a brief in the case supporting the retailers.  “The Fed’s 2011 decision to bend to the lobbying by the big banks and card giants cost small business and consumers tens of billions of dollars and did not do enough to rein in the anti-competitive, anti-consumer practices of Visa and MasterCard”.

    Leon, who said the Fed rule raised costs for debit transactions under $12, said he was inclined to give the Fed “months, not years” to rewrite the rule.

    “The starkest, most powerful evidence of how absurd this rule was is that it resulted in a price increase,” Jeffrey Shinder, an attorney at Constantine Cannon LLP in New York who filed a brief for a group of retailers including 7-Eleven Inc. and Wendy’s Co.

    The case is NACS v. Board of Governors of the Federal Reserve System, 11-cv-02075, U.S. District Court, District of Columbia (Washington).

    For more information, visit:  http://www.bloomberg.com/news/2013-07-31/fed-s-debit-card-swipe-fee-limits-rejected-by-u-s-judge.html

     

Prepaid Debit Card Reviews, Complaints, Etc