The Dangers of Prepaid Debit Cards – Part 1
Always be careful of celebrities promoting products, especially financial ones. Celebrities might be good people in some cases, but they are being paid to advertise those products without even knowing how good (or bad) they are. So you should be careful of not being lured to a bad financial product or personal loan just because a celebrity endorses it.
Shortly ago, Justin Bieber joined other very popular celebrities like Hilary Duff, Usher and Carmen Electra to endorse prepaid debit cards. In the past few years and as people strayed away from banks, these and other lending companies have been using celebrities on order to heavily promote prepaid cards.
In the vast majority of cases, banks tend to target people who are not bank customers or those who have some credit issues, like a bad credit score. In fact, their marketing is so powerful that the Mercator Advisory Group has estimated consumers loaded about $82 billion into their prepaid cards in 2012, even more than the personal loan granted in that same period. Not surprisingly, as more and more celebrities are recruited, this number is estimated to grow a lot more during this year.
But despite the popularity and appeal of prepaid debit cards, every financial expert out there cautions consumers to be aware of what they sign up for. This is because sometimes these types of cards tend to be riddled with fees for just about every concept, ranging from a payment when activating the card one for every transfer done using the ATM or the phone.
Additionally, in many cases, the fees for these prepaid debit cards, while quite low on the monthly fees, tend to be higher when it comes to ATM fees, so you can end up paying more in the end if you are not careful.
Let’s take a look at one clear example: The most notorious case of how prepaid debit cards endorsed by celebrities are not ideal, is the case of the Kardashian Kard Prepaid Mastercard. The card, endorsed by the popular Kardashian sisters, had a purchase fee of an astounding $100 for 12 months and an equally impressive $8 monthly fee. The response to it was so bad from the public that the sisters didn’t hesitate to pull the plug from it less than a month after it launched.
The problem with these cars is that, contrary to personal loans, they oftentimes take advantage of both the under- and the unbanked who, in their hopes of finding more economical ways to have access to the financial system, make the mistake of accepting almost any term these cards offer regardless of how inconvenient they can be.
The card we mentioned at the beginning, the Justin Bieber’s SpendSmart prepaid card, is squarely aimed at teenagers, but even so charges a monthly fee of $4. It might not sound like much, but if you hold the card for, let’s say, a year even without using it, then you will be $48 poorer twelve months later, which is no small amount. In fact, with that amount you could easily opt to open a checking account, which will have no annual fee at all.
This SpendSmart card also has some not-so-nice hidden fees that you usually won’t find on personal loans, which is a $3 inactivity fee if you fail to use the card for 90 days. This fee has been heavily criticized by every financial expert out there, since it basically punishes you for choosing not to spend your own money. This is not the only card that has these kind of fees though, so you should always keep an eye open for the terms they offer.
What mass things even trickier, is that the Credit CARD Act of 2009 was created to regulate credit card fees, yet it does not apply to prepaid debit cards. It is expected that the Consumer Financial Protection Bureau will scrutinize these cards harder this year, yet it still remains to be seen.
That’s it for now. Stay tuned for the next article, where we will continue our overview of the dangers of prepaid debit cards and offer some more insight into better alternatives and how to proceed in order to not be affected so much by these prepaid cards.