Good advice from Charlotte Stallings on My Fox Houston about reloadable prepaid cards:
Many in the payment industry have complained that fees for payment cards or for checking accounts are difficult to figure out. So much so that respectable institutions like Bretton Woods and Consumers Union have published contradictory conclusions about which products are the least or the most expensive, while looking at pretty much the same set of products.
I have been arguing that fees are usually fairly explicit and can be found on websites or on paper agreements sent by mail to account holders. Evidently, the current action by the State of Florida against a number of prepaid card providers shows that there is still some improvement to be made in the quality of disclosures. Nevertheless, the most important factor in the impact of fees tends to be forgotten: how will people actually use the product?
That’s why we have introduced recently an interactive fee calculator on the iBankUP website. The calculator allows people to specify how they intend to use our payment service.
We ask 7 questions to our visitors:
Once a visitor to the site has answered the seven questions, a simple press on the “Calculate” button will produce the total sum of fees that the user would incur during an entire year. Of course, we also show how much fees some of our competitors would have charged based on the same behavior.
You can try the calculator by clicking here.
We also explain the math behind the calculator in an accompanying document.
We sure hope that others in the industry will do the same and publish their own calculators for all to see.
During tough economic times, many of us can get dangerously close to the bottom of our checking accounts several times a year. As checks may not clear in the order we write them, sometimes our balance will even go negative by accident. This is the dreaded overdraft.
Many years ago, banks invented a curious form of protection against overdrafts: you are permitted to overdraft, so that you don’t get embarrassed by a bounced check or a decline of your debit card in the shop, but you are charged a fee for this tolerance. The overdraft protection fee punishes you for having gone negative on your balance, while you find some money to get back into positive territory.
In all fairness, banks are giving you a temporary credit while your balance is negative and they deserve to be compensated for it. But $38 Billion during a single year? That’s $126 for every single of the 300 Million Americans, including newborns and the millions without a bank account.
According to economic research firm Moebs Services, here are the yearly revenues from overdraft fees collected by US banks since 2005:
| 2011 | $38.0B | estimate |
| 2010 | $35.4B | estimate |
| 2009 | $37.1B | actual |
| 2008 | $35.4B | actual |
| 2007 | $34.1B | actual |
| 2006 | $31.5B | actual |
| 2005 | $29.7B | actual |
In 2010, under congressional and public pressure, banks and credit unions started changing the terms of checking accounts to ask for voluntary opt-in to overdraft protections instead of making it a systematic feature. That year, revenues from overdraft fees fell slightly back to their 2008 level.
In 2011, they are resuming their steady rise.
Not all of us overdraft our accounts. But those who do, tend to do it repeatedly. You don’t want to be part of the club of “frequent overdrafters”; this dubious distinction is costing hundreds of dollars per year.
Unfortunately, the people hurt the most by these fees are the ones who can least afford them.
The Consumer Finance Protection Bureau, which starts operating this summer, will certainly try to protect you against these overdraft protection fees and other abusive clauses hidden in bank disclosure statements that average 111 pages in length according to a report by the Pew Charitable Trust.
This is quite a long shot though. With steadily increasing revenues in the tens of billions, banks will not be tamed easily.
So, what are you to do to protect yourself? Oddly enough, don’t opt for overdraft protection: this is when the fees kick in. You could choose prepaid accounts that cannot overdraft and never charge an overdraft fee. Some of us in the financial industry are adhering to these simple “do no harm” rules, but we obviously need to do a better job of making our products known.
Below is an excellent video created by Bank 2.0 author Brett King.
This is exactly what we are seeing at Plastyc: strivers provide the core of the growth among the under-banked, not fresh immigrants.
Their motivations for being prepaid card accountholders?
Visa estimates that strivers are about 48MM in the US. A majority of them is Caucasian, 30% African American, and 7% Hispanics.
Read the article by Zachary Ehrlich in MyBankTracker
On December 16, the Board of Governors of the Federal Reserve System met and proposed a way to implement the debit card interchange fee and routing provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The Board has requested comment before February 22, 2011, on their proposed rule that would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions.
Here is a copy of the comment I have sent to the Board:
Secretary,
Board of Governors of the Federal Reserve System,
20th Street and Constitution Avenue NW
Washington DC 20551
RE: Comments to Docket 1404 – Debit Card Interchange Fee and Routing
I am the CEO of Plastyc Inc., a company devoted to delivering financial services to the tens of millions of under-banked Americans.
We provide re-loadable prepaid card services in partnership with banks with less than $10B in assets.
Therefore, we are not impacted by the proposed regulations and can comment with the benefit of a position of neutrality.
We are particularly concerned by the un-intended negative consequences which are likely to impact the un-banked, under-banked and low income Americans. Below is a summary of such concerns, and suggestions on how to address them:
| Issue | Why will under-banked and low-income consumers be negatively impacted |
Suggested corrective action |
| Exclusion of fixed costs from the fee evaluation method, and delayed evaluation of fraud adjustment provisions | As fixed costs to support risk management teams, charge-back processes and customer disputes support are excluded, issuers will charge for them through other service fees. Well-off consumers will afford first-class support provided by US-based teams, while second-rate support off-shored to foreign countries will be provided to lower-income consumers. |
|
| Merchants will be able to dictate the PIN versus signature based user identification method | Under-banked and low-income consumers are highly concerned by the security of their limited funds and will feel threatened if a particular method of lesser security or lesser consumer liability limitation is imposed by merchants in certain settings. | Keep the choice of identification method in the hands of the consumer |
| Exclusion of banks with less than $10B in assets combined with allowing merchants to set card acceptance threshold rules | Consumers carrying the “wrong” cards, i.e. cards issued by smaller banks, risk being declined by large merchants wanting to favor cards from larger banks. | Explicitly prevent merchants from using the identity of their customers’ issuing banks to adjust their routing choices or to enforce card acceptance thresholds. |
I remain at your disposal for any further input you may require.
Very Respectfully Yours,
Patrice Peyret
