“Personal Finance: Buyer, beware of prepaid payment cards - Sacramento Bee” plus 1 more |
| Personal Finance: Buyer, beware of prepaid payment cards - Sacramento Bee Posted: 18 Dec 2010 03:55 PM PST When it debuted last month, the Kardashian Kard was touted as the ultimate glitz-and-glam holiday stocking stuffer. But don't try finding one. The prepaid payment card, emblazoned with a sultry image of the Hollywood celebrity-sister trio, was almost immediately yanked off the market, amid widespread criticism that it was overloaded with costly, hidden fees. Short-lived as it was, the Kardashian Kard is just one of many celebrity, sports and cartoon-branded plastic payment cards, primarily aimed at teens/young adults or those with poor credit. And during the holidays, they're often dangled to consumers as a festive gift idea. "Prepaid cards may walk and talk like regular credit or debit cards, but they're not the same thing," said Suzanne Martindale, associate policy analyst with Consumers Union in San Francisco. A recent report by the nonprofit warned consumers about the prepaid cards' often-hefty fees and weak financial protections. (For the full report, go to www.consumersunion.org.) "The fees can be high, multiple and confusing … And, you're at the mercy of the prepaid card company if your card is lost or stolen. There's no guarantee you'll get your money back," said Martindale. But that hasn't slowed the "explosion" of prepaid card offers. And during the economic slowdown, when many people are consciously trying to cut credit card debt – or can't obtain a traditional card due to financial troubles – a prepaid card is often seen as a viable solution. (See box for details on how they work.) "With so many people still out of work or (dealing) with damaged credit scores, it leaves many consumers feeling no choice but to turn to these 'fringe' banking products," said Martindale. Prepaid payment cards aren't covered by the same mandatory federal protections that limit consumer losses on bank-linked credit cards to $50, for example. With prepaid cards, any consumer protection is strictly voluntary. In its September report, Consumers Union compared the fees charged by 19 prepaid cards and found they vary tremendously by type and amount. For instance, the survey found that one-time activation fees ranged from zero to $39.95; monthly fees were up to $10; typical charges for ATM withdrawals were $2. (The ill-fated Kardashian Kard, by comparison, charged $99.95 for 12 months, which included a $7.95 monthly fee, as well as a long list of extra charges.) Prepaid cards in general carry many miscellaneous fees, for items such as calling customer service to getting a paper statement listing monthly purchases. Among the cards with the lowest fees in Consumer Union's survey were the Wal-Mart Money and nFinanSe cards, which charged $3 for activation, $3 monthly service and ATM fees of $2 (Wal-Mart) and 99 cents (nFinanSe). "It's buyer beware," said Bill Hardekopf, CEO of LowCards.com, a credit card comparison site that also rates prepaid cards. Hardekopf is especially bothered by prepaid cards catering to teens. "Cartoon characters, athletes and celebrities who may not know anything about financial management can influence teens and young adults," he said. "They're wanting these cards, but not for the right reasons." MyPlash, a prepaid MasterCard for teens, offers cards picturing the "hottest" music, sports, film and cartoon stars, everyone from teen surfer Kassia Meador to rapper Rich Boy to nine versions featuring the "Twilight" vampire movie cast. It's free to activate, with $4.95 monthly charges, $1.50 for ATM withdrawals and incentives to get free services. One of the less-splashy entrants in the teen market is San Diego-based BillMyParents.com, whose prepaid card is geared to ages 13 to 18. Its cards don't carry images of rap stars, vampire actors or other teen idols, but lean toward flowers and puppies. The company says its card aims to promote family communication and help parents teach kids "financial responsibility." Its website hosts teen-friendly budgets and money advice, as well as tips for parents. The fees: free activation, $3.95 monthly, $1.50 for ATM withdrawals. Meanwhile, Consumers Union and other groups are asking the FDIC to require more consumer protections on prepaid cards. Until that happens, consumer specialist Martindale recommends: "Do your homework. If you're getting a prepaid card, find out the fees and do your best to avoid them so you're not nickel-and-dimed to death." Read the card's terms and conditions, just as you would with any debit or credit card. Look beyond the basic fees posted on the card's packaging; you may need to drill down on the company website to find fee schedules. Ideally, get a prepaid card that reports to a credit bureau, so the user can establish good credit history. And keep low amounts on a prepaid card so you don't risk losing everything if the card is lost or stolen. Despite the glitzy, Kardashian-style marketing of many prepaid cards, Hardekopf reminds: "These are not toys. They can be very costly and create some bad habits. If we don't teach our children how to use money properly, they could cause a lot of (financial) damage that could take years to dig out of." © Copyright The Sacramento Bee. All rights reserved. Have a personal finance question? Call The Bee's Claudia Buck at (916) 321-1968. This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
| Posted: 21 Dec 2010 09:17 AM PST 2010-12-21 18:21:22 - It's estimated that the percentage of U.S. households without bank accounts may be as high as 26%. So what happens to the $1.1 trillion that those households take in each year? According to the latest Sector Focus commentary by Turner Investments, much of that money is likely to end up on prepaid cash cards over the next five years. Turner, an investment firm based in Berwyn, Pennsylvania, publishes Sector Focus commentaries monthly as part of the continuing efforts of its five analyst teams to monitor the market sectors for its growth-stock portfolios.Entitled Prepaid cash cards: the New Frontier of plastic, the piece was written by Turner's financial-services analysts: Amanda Black, portfolio manager/global security analyst; Pablo Echavarria, global security analyst; David Honold, portfolio manager/global security analyst; Mark Turner, president and senior portfolio manager; and Rick Wetmore, portfolio manager/global security analyst. They anticipate that the market for prepaid cash cards may grow at double-digit annual rates between now and 2015. Two small prepaid-card vendors that appear to be well positioned to profit from that growth are Green Dot and NetSpend Holdings. For the consumers averse to traditional banking who Green Dot and NetSpend serve, prepaid cash cards may hold three appeals. - The cards can be a cheaper alternative to checking accounts. Consumers who are prone to overspending can't spend more than they put on the cards, so they aren't exposed to overdraft charges. Also, the increased checking-account fees resulting from new federal financial reforms are driving some consumers to the cards. - The cards require no background check, unlike some checking accounts. - The cards are convenient to load and use, enabling customers to take their paycheck to a retailer where they can have the money loaded onto a card and start shopping immediately. To read this December 2010 Sector Focus in its entirety, see the Turner Investments Web site, www.turnerinvestments.com/sectorfocus : The views expressed represent the opinions of Turner Investments as of the date indicated and may change. They are not intended as a forecast, a guarantee of future results, investment recommendations, or an offer to buy or sell any securities. Opinions about individual securities mentioned may change, and there can be no guarantee that Turner will select and hold any particular security for its client portfolios. Earnings growth may not result in an increase in share price. Past performance is no guarantee of future results. Turner Investments, founded in 1990 and based in Berwyn, Pennsylvania, is an investment firm with more than $17 billion in assets under management in stocks, as of September 30, 2010. Turner manages growth, global/international, core, value, quantitative, and alternative separately managed accounts and mutual funds for institutions and individuals. As of November 30, 2010, Turner held in client accounts 269,740 shares of Green Dot. Turner held no shares of NetSpend Holdings. Turner InvestmentsMegan Charlton, 484-329-2407E-mail: mcharlton@turnerinvestments.com : mailto:mcharlton@turnerinvestments.com This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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