Prepaid Debit Card Reviews, Complaints, Etc

Tag: prepaid cards

  • U.S. Government Urges Changes To Student Debit Cards

    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.

     

     

     

     

     

     

     

     

  • Prepaid Card Popularity Continues To Rise

    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.

     

     

     

     

     

     

     

     

     

     

     

     

  • Study: Consumer Debit Card Use Declines As Prepaid Grows

    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.

     

     

  • Pew: Best Prepaid Cards More Affordable Than Checking Accounts

    Pew: Best Prepaid Cards More Affordable Than Checking Accounts

    It’s a classic good news, bad news scenario. According to research issued last week by the Pew Charitable Trusts, the best prepaid cards available on the market are often a more affordable option than basic checking accounts. Still, while prepaid cardholders are generally in a far better position than they were when Pew’s last survey of prepaid cards was released two years ago, the organization’s researchers have no lack of recommendations about how various rules and regulations could improve things for consumers.

    The report, titled “Consumers Continue to Load Up on Prepaid Cards,” examined the disclosures and fee structures of 66 prepaid cards. In general, Pew found that as the market for prepaid cards has expanded – U.S. consumers loaded $64 billion onto prepaid debit cards in 2012, more than double the amount loaded in 2009 – it has also matured in a way that is beneficial to consumers. “More consumers are turning to prepaid cards as a convenient tool to control spending and fees,” says Susan Weinstock, who directs Pew’s safe checking research.

    In large part, that improvement is due to the fact that prepaid cardholders are now an attractive market for large financial institutions. Indeed, the 10 largest prepaid cards are now offered by banks compared to zero in 2012. As a result, the report finds the best prepaid cards are now often lower cost than checking accounts offered by large financial institutions.

    Other improvements for prepaid cardholders noted by the study’s authors include much better disclosure. For instance, nearly all of the cardholder agreements examined by Pew included language explicitly stating that customer funds would be covered by Federal Deposit Insurance Corporation (FDIC) insurance. Even when FDIC insurance was not included, some cardholder agreements explicitly said so. Another move in the right direction, according to Pew, is that prepaid cardholder agreements now increasingly include arbitration agreements that allow customers to settle disputes with prepaid card issuers via a private third party decision maker.

    But not everything is rosy for prepaid cardholders. Among the report’s other findings is that prepaid cards do not offer consumers the same limited liability projection that federal law mandates for checking accounts. Pew also has a laundry list of recommendations to improve prepaid cards, including the elimination of overdraft protection, protection from liability for unauthorized charges and federal insurance for fund losses due to the failure of a financial institution.

    “While prepaid cards offer many benefits to consumers, they are a relatively new product with little oversight,” says Weinstock. “A lack of protections undermines prepaid cards as a safe and easy way to manage money.”

     

     

     

  • For Prepaid Cards, Choose EMV Chip Cards, A Smart Card All Around

    For Prepaid Cards, Choose EMV Chip Cards, A Smart Card All Around

    By Curtis Arnold

    Besides the thieves themselves, the main culprit to emerge from the recent heist of personal information from over 100 million Target and Neiman Marcus shoppers isn’t human at all. Rather, the unlikely villain is a decades old piece of technology known simply as the magstripe, or magnetic stripe, that graces the backs of billions of credit, debit and prepaid debit cards carried by Americans in their pocketbooks and wallets everyday.

    But, there is an alternative on the way, the EMV chip card.

    In a way that not even the most well crafted editorials or investigative journalism series could have accomplished, the collective anger spawned by millions of consumers has focused a spotlight on the inability of magnetic stripe technology to safeguard the critical account and personal data it contains. “Basically, the magnetic strip contains all the data needed for credit card fraud,” says Lamar Bailey, Director of Security Research for Tripwire, a data security firm that works with companies like Visa, MasterCard and Safeway. “Unfortunately, these strips are very easy to read and duplicate and are a favorite target for a wide variety of financial fraud.”

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    As difficult as the lesson has been to learn, there is now a more widespread understanding of the need to quickly embrace so-called smart cards. Also known as EMV or chip and PIN cards, they have been the standard in Europe for years and offer far greater identity protection than magnetic strips. Introduced in the 1990s in Europe, these so-called EMV cards take their name from Europay/MasterCard/Visa. As Robert Siciliano, the CEO of IDTheftSecurity.com, explains it, EMV chip cards contain an embedded microchip that is authenticated using a personal identification number, or PIN. “When a customer uses a smart card to make a purchase, the card is placed into a PIN pad terminal or a modified swipe-card reader, which accesses the card’s microchip and verifies the card’s authenticity. The customer then enters a four digit PIN, which is checked against the PIN stored on the card.”

    This is another way of saying that smart cards are a tougher nut for identity thieves to crack – and a good explanation as to why global cyber criminals have set their sights on the U.S. It also means that, whenever possible, American consumers should choose a payment card that offers EMV chip protection. This is particularly true for the growing number of Americans who utilize prepaid debit cards.

    While it’s true that the prepaid debit card industry has been exploding recently – Mercator Advisory Groups reports that Americans loaded $192 billion onto prepaid cards in 2012 – the mainstreaming of a product once favored primarily by those who couldn’t get bank accounts or credit cards has not yet been accompanied by stronger consumer protections. For instance, if a credit card is lost or stolen, federal law limits consumer liability to just $50, although most major card issuers offer zero liability. Federal law also protects debit cards, although limiting liability depends on a consumer quickly reporting a card lost or stolen. By sharp contrast, prepaid debit cards do not have blanket protection. The terms and conditions vary depending on the card issuer, with some being quite good and others nonexistent.

    Because of that lack of protection, prepaid debit card users concerned about fraud can avoid having their accounts cleaned out by getting an EMV chip card. Unfortunately, these smart cards are not available everywhere – not even close. Some card issuers, such as the Members 1st Federal Credit Union, do offer EMV chip reloadable prepaid cards. But as is the case with most debit and credit cards, a smart card option is not yet available. “EMV has not been popular in the US because of the high cost of replacing all the credit card readers and millions of credit cards,” says Lamar Bailey of Tripwire.

    What can change that? For many credit and debit card issuers, the change is underway and expected to be complete by 2017. A combination of public pressure, regulation and simple self-interest could prompt the same move by prepaid card providers. “The technology in a magnetic stripe card has been hacked and decimated,” says Siciliano of IDTheftSecurity.com. “EMV for prepaid cards would bring them to the same security standard as credit and debit cards and more than likely open up a new market for card providers.”

    Photo Information below.

    Caption:  By 2017, look for embedded security chips to be present in all US credit and debit cards. (Photo credit: Wikipedia)

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    [button link=”#Comments” variation=”darkgrey”]We want your opinion! [/button] What do you think of the recent security breaches?  How safe do you feel your personal data is currently?  What are your main concerns about using credit, debit or prepaid cards?  We want to hear from you!  Just add in your thoughts in the Comments section below!
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  • Banks Sponsor Prepaid Debit Cards

    Banks Sponsor Prepaid Debit Cards

    The recent announcement about wireless carrier T-Mobile’s new prepaid debit card has highlighted the popularity of this still relatively new financial product among banks. According to a recent article in The Washington Post, banks are increasingly excited about the prospect of teaming up with retailers like T-Mobile to offer prepaid debit cards.

    The reason? Money, of course. “The cards are attractive because they are exempt from an amendment in Dodd-Frank that restricts the amount banks can earn from debit and credit card fees,” writes Post reporter, Danielle Douglas. It’s also a matter of simple popularity. Indeed, according to data compiled by the trade journal Nilson Report consumers made nearly 3 billion prepaid Visa and MasterCard transactions totaling almost $100 billion in 2012, a spike of 19 percent from the year before. With numbers like these, readers may continue to see more headlines like “Banks Sponsor Prepaid Debit Cards” over the next few years.

    But there’s also a symbiosis at work here. As Douglas explains in her article, prepaid cards issued by the likes of T-Mobile are only possible when they have a bank to handle card transactions and hold deposits – which they’re more than happy to do for a cut of the fee income. In the case of T-Mobile, Bancorp Bank is the sponsor of the wireless carrier’s new Visa prepaid debit card. In fact, Nilson Report estimates that Bancorp sponsors 25 percent of all prepaid cards.

    Still, as attractive as it may be, not all banks are cut out to do it. Banks have to be sophisticated enough to handle millions of transactions and well equipped to respond to government regulation. “There’s great demand for bank sponsors,” Karen Garrett of Stinson Leonard Street told The Washington Post. “But it’s not something to be done without an enormous investment into the infrastructure to manage the whole thing.”

    Nevertheless, it’s likely that more revenue-seeking banks will pursue sponsorship of prepaid debit cards in the future. A growth industry like prepaid debit cards is just too enticing to skip. “Payment transactions have been an area that banks have identified as a potential revenue stream,” Bankrate.com analyst Greg McBride told the Post. “They understand the risks.”

     

     

     

Prepaid Debit Card Reviews, Complaints, Etc