April 2014 - Posts - Dollar Stretcher Guest Blogger
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April 2014 - Posts

  • Straightforward Prepaid Card Fee Disclosure Will Benefit Consumers and Boost Industry

    by Curtis Arnold

    There’s no lack of evidence these days about prepaid cards quickly making their way into the financial mainstream. Respected organizations like the Pew Charitable Trusts and Fitch Ratings have recently released studies documenting both the explosive growth of prepaid cards and some of the reasons to explain that rise – reasons that include a reduction in fees that now make prepaid cards increasingly attractive compared to traditional banking products, especially checking accounts.

    While these developments are welcome news, especially to the millions of unbanked or under-banked Americans, the prepaid card industry is missing a huge opportunity by not making the disclosure of fees easily accessible and simple to understand for consumers. According to Shane Tripcony, my partner at BestPrepaidDebitCards.com, “We have spent a lot of time reviewing prepaid cards terms pages, and I am happy to say that the fee information has gotten easier to find and read over the past year, so it does seem like the industry is heading in the right direction.”

    There are a host of reasons why making information about things like monthly account charges and the cost to add or withdraw money is very much in the industry’s self-interest. For one thing, doing so begins to erase the well-deserved predatory reputation prepaid cards have earned in the past. Long the last resort for consumers who couldn’t open checking or credit card accounts, prepaid cards were not only layered with steep fees, those fees were very hard for consumers to locate and understand.

    Besides addressing this image problem, an industry-wide commitment to present fees in a prominent place and in a format that is easy to navigate would also forestall any need for legislation. Earlier this year, Virginia Senator Mark Warner introduced a bill that would require prepaid card issuers to adopt standardized fee disclosure. While Warner’s proposal seems like a straightforward and common sense approach, legislation always carries with it the risk of unintended consequences. Proactively and voluntarily making simple fee disclosure an industry norm would avoid any unforeseen problems in the future.

    Already, some prepaid card issuers are seeing the wisdom in this. Not long ago, Chase Liquid adopted the disclosure suggestions formulated by Pew. It was a move that quickly won plaudits from consumer advocates like Pew as well as Senator Warner. It wouldn’t be a surprise if consumers, too, rewarded Chase for voluntary opting to be more transparent.

    Of course, if avoiding potential legislation and regulations while also improving the standing of prepaid cards in the public’s eye isn’t enough, there’s yet another reason for companies to go ahead and make it simple and easy to evaluate fees. It’s the right thing to do.

  • Are Prepaid Cards Making Checking Accounts Obsolete?

    by Curtis Arnold

    If you grew up in the 1970s, 80s or even 90s, you’ll remember hard it could be to have a private phone call. Plenty of households had just one phone with a cord, which made it nearly impossible to avoid eavesdropping siblings and parents. Of course, we all know what happened to landlines when cell phone technology became mainstream: Even a couple of years ago more than half of American homes had already ditched them, a number that has certainly increased by now.

    A similar extinction awaits traditional checking accounts. Why? The same sort of disruption that pulled the cord on millions of landlines is already underway in the world of personal finance, thanks to the rapid emergence and improvement of prepaid debit cards. The numbers alone show that checking accounts have already begun their walk into history. Indeed, between 2009 and 2012, prepaid card transactions grew at an annual rate of over 33 percent, with the total number of transactions reaching 3.1 billion in 2012 alone. Fitch Ratings recently declared that the rise of prepaid card transactions is likely to continue.

    There are a number of reasons to believe that Fitch is right and all of those reasons are very bad news for checking accounts. In part, the reason prepaid debit cards will make checking accounts obsolete is because the accounts themselves have become less and less attractive. Long gone are the days when checking accounts could be counted on to be gratis. In fact, 41 percent of banks say they will not offer free checking this year, an uptick of 8 percent since just last year. To be fair, banks are choosing to add fees in response to federal legislation that reduced what they could charge for regular debit card transactions and left a big hole in their revenue.

    But an even bigger reason the days of checking accounts are numbered is significant improvements in prepaid debit cards themselves. Long the last resort of people who couldn’t obtain bank accounts or credit cards – the so-called “unbanked” – prepaid debit cards were layered with outrageous fees. Some prepaid cards are still very bad deals (especially those with celebrity names on them) but the influx of cards from large financial institutions like American Express have vastly improved the consumer friendliness of these products. In fact, earlier this month the Pew Charitable Trusts released a study that found that many prepaid cards are more affordable than checking accounts.

    Besides the fact that checking accounts can no longer be counted on to be free, prepaid cards increasingly offer other features consumers find attractive. Since you can only spend money that’s already in a prepaid account, it’s impossible to either bust your budget or incur hefty overdraft charges. According to Shane Tripcony of BestPrepaidDebitCards.com, "The most common statement I get from current prepaid cardholders is their appreciation for that fact that they no longer get hit by overdraft fees with their card. It keeps their spending in check and does not allow for unplanned-for expenses. Some prepaid debit cards allow users to tap into a fee-free nationwide ATM network and others permit cardholders to write checks. "The bill paying and check writing capabilities without the threat of overdraft charges is what really helps prepaid cardholders," said Tripcony.

    Wireless provider T-Mobile can see the writing on the wall for checking accounts. In January the communications company jumped into financial services with the launch of Mobile Money a combination prepaid debit card, money management app and nationwide ATM network. For T-Mobile customers (non-customers can be subject to more fees), Mobile Money can be a basically free replacement for a no longer free checking account. And in a way, isn’t it appropriate that a cell phone company is helping to hasten the demise of a dinosaur every bit as obsolete as a landline?

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