Ask Karen Gibbs

Veteran business correspondent Karen Gibbs answers your personal money questions and addresses current topics that affect YOUR finances on a daily basis. Karen is the financial expert in your corner--no question is too basic or too small. Karen boils down the issues simply: here's what you need to know, and here's what you need to do. Send your money questions to AskKaren@mpt.org and post your comments below.

24

November

Prepaid Debit Cards: Are they worth it?

Karen Gibbs

Karen, in light of the RushCard debacle, would you revisit the topic of prepaid debit cards?

- Tiffany, Baltimore


Credit CardThanks for your request Tiffany.  The prepaid debit card industry has exploded over the past few years.  As of 2012, the prepaid debit industry had over $65 billion dollars in assets and saw nearly $100 billion in transactions.  40% of prepaid debit card holders earn less than $25,000 annually, and these cards are aggressively marketed to those, who for whatever reason, have no relationship with a traditional financial services institution.


Ironically, most prepaid debit cards are sponsored by banks but fronted by a popular celebrity.  The seductive pitch is that these debit cards are “cheaper” than banking with a bank, but in reality, these prepaid cards charge you a lot of money to access your own funds.


There are set up fees, monthly fees, authorization fees, maintenance fees, transaction fees, check balance fees, activity fees and yes, even a fee if you don’t use your card for 90 days!  The average debt card fee, according to the Federal Reserve Bank of Philadelphia, is $10-$12 per month.  The average annual cost in fees for an unbanked family is $2,400.


Contrast that cost to those of you local credit union or bank.  If you sign up for direct deposit, meaning your pay check goes directly to your bank electronically, most financial institutions will offer you free checking.   One Maryland bank is running a commercial offering free banking if you make just one transaction a month.
While these prepaid cards are sponsored by banks, your card may or may not be FDIC insured.  FDIC insurance covers your deposits up to $250,000 if the bank fails.  There are currently no provisions if you’re unable to access your money. Some prepaid debit cards are covered by consumer protection laws and regulations while some are not.  This is another example of laws not keeping pace with the growth of an industry.  In the wake of the RushCard fiasco, the Consumer Finance and Protection Bureau is prepared to do whatever is necessary to ensure card holders have access to their money and that those responsible are held accountable.

If you need to file a complaint, go to:  consumerfinance.gov or call toll free 855-411-2372.


If you are one of the card holders affected by the RushCard incident, take some steps to alleviate the consequences:
1. Stop direct deposit of your paycheck.  Request a paper check from your employer.
2. Don’t put all your eggs in one basket or all your cash in one account.  Establish an account with your credit union or local bank with ATM access.
3. Have an emergency stash of money at home; it can be a piggy bank, coffee can or another secret place for you to keep emergency cash.
4. If you’ve been charged late fees as a result of no access to your funds, call and negotiate a waiver of these late fees, citing all the publicity around the RushCard.
5. Study your statements for unauthorized purchased, double posting of transactions or automatic withdrawals.
6. Lobby your legislative representatives.  Fraud is easy with prepaid cards.  They exist in a grey area of regulation.  Demand that the right to access your money that applies to bank account holders apply to prepaid cards as well
7. If you still want a prepaid debit card, read all the fine print.  Be aware of and compare fees.  Also note that you may be giving up your right to sue and must instead participate in arbitration in the case of a dispute.

Best of luck!

- Karen

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