You probably want to be leery of any financial advice offered up by celebrities like Justin Bieber‚ Carmen Electra and Hilary Duff‚ who earlier this year were paid handsomely for their public endorsements of prepaid debit cards.
You’d be forgiven for buying it‚ though‚ as these cards have also been given a stamp of approval by financial guru Suze Orman. Unfortunately‚ our Los Angeles Chapter 7 bankruptcy lawyers have seen a number of clients end up in a bad money state after being taken advantage of by these services‚ which are not nearly as secure and straightforward as they would have you believe.
Apparently‚ though‚ these advertisement campaigns are working‚ as the Mercator Advisory Group estimates that consumers put some $82 billion on prepaid debit cards just last year alone. The advisory services group estimates that this year‚ that figure could reach $120 billion.
Although the cards are often touted as a risk-free way to rack up credit‚ they aren’t exactly without drawbacks.
First of all‚ they are often overloaded with tons of hidden fees. There is a fee to activate the card. There is a fee to transfer money. There is a fee to use an ATM or the card’s automated phone system. There is often a fee if you don’t use the money on the card within a certain amount of time.
The types of fees can vary from company-to-company‚ from card-to-card‚ but the overall result is essentially the same. The president of consumer education at SmartCredit.com was recently quoted as comparing such fees to consumer “minefields” that can quickly result in a dwindling balance.
Take‚ for example‚ the Kardashian Kard‚ which was a prepaid Mastercard offering. Just the purchase of the card cost $100 a year‚ and then the firm tacked on an $8 monthly fee. Thankfully‚ swift outrage prompted the reality star Kardashian sisters to pull the product less than a month after it was unveiled.
That was three years ago‚ but not too much has changed within the industry.
The worst part of it is that those who are most likely to use these prepaid services are those who don’t have stellar credit or don’t have much credit at all. Many are living paycheck-to-paycheck‚ and these firms take advantage of a consumer’s vulnerability.
People are mistakenly led to believe that these cards are somehow better than a credit card or a traditional checking account.
However‚ a checking account‚ if you manage it appropriately‚ isn’t going to cost you anything. Where you get into the hefty fees with a checking account is the overdraft charges‚ though recent laws in this realm have helped to mitigate the blows.
Although the Credit CARD Act of 2009 polices the kind of fees that credit card companies can charge you‚ it has no bearing on the kinds of fees charged by prepaid debit card companies. It’s possible that the Consumer Financial Protection Bureau could examine that oversight sometime later this year or next. However in the meantime‚ it’s up to consumers to beware.
You should also know that a prepaid debit card isn’t going to help you boost your credit. The reality is that credit bureaus don’t include prepaid credit products in their reports. It’s no different than buying a gift card. This means they are also subject to the same kinds of vulnerabilities. They aren’t backed by the Federal Deposit Insurance Corporation‚ which means if the company that issued the card goes belly up‚ you lose all your money.
If you are contemplating bankruptcy in Los Angeles‚ contact Cal West Law to schedule your free consultation. Call (800) 568-0707.
The perils of prepaid debit cards‚ Aug. 22‚ 2013‚ By Susan Johnston‚ U.S. News & World Report