Prepaid Debit Card Reviews, Complaints, Etc

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Chase Liquid Adopts Disclosure Recommendations

Chase has adopted consumer-friendly disclosure recommendations for its Chase Liquid prepaid card. At the same time that the Pew Charitable Trusts unveiled detailed suggestions about the types of fees and other disclosures all prepaid debit card issuers should make available to consumers, Chase announced that it would do exactly what Pew advised.

The popular Chase Liquid prepaid card became the first product to follow Pew’s road map, which was released in hopes of making it easier for shoppers to choose between quickly multiplying prepaid card options. Although prepaid cards have seen a steady and sharp rise in popularity over the past few years, Pew notes that there are no legal or regulatory requirements that card issuers must follow when it comes to disclosures about fees, terms and conditions. Pew has also found that only 32 percent of consumers actually compare card terms before selecting one.

By quickly implementing Pew’s disclosure suggestions, Chase may very well be grabbing a competitive advantage in the increasingly cutthroat fight for prepaid card customers. It also doesn’t exactly hurt Chase’s reputation among lawmakers, including US Senator Mark Warner, who recently introduced legislation to compel financial institutions to more clearly disclose fees related to their prepaid cards. “I commend Pew for their work on this issue and Chase for being the first prepaid card provider to adopt the disclosure box for their cards, which I proposed making standard for the industry in my legislation,” says Warner.

The Chase Liquid disclosure form is attached to the packaging that comes with the physical card. The box includes information on a wide range of fees – although many don’t apply to Chase Liquid – including charges to get cash back from a purchase, a monthly account maintenance fee and the charge for calling a customer service telephone number.

For its part, Pew hopes that Chase is just the first of many prepaid card issuers to follow its disclosure recommendations. “Pew’s research shows that inconsistent disclosures make it difficult to understand the fees associated with each prepaid card,” says Susan Weinstock, director of Pew’s safe checking research. “Terms should be plainly stated so that consumers can make fully informed financial decisions. Chase is taking an important step toward making these cards more beneficial and we hope other providers will follow.”

March 12, 2014
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
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