The "predatory" marketing of prepaid debit cards
TEXT OF INTERVIEW
Bob Moon: We mentioned last week that the Kardashian sisters — famous for being famous on their own reality TV show — abruptly withdrew their name from a new prepaid debit card that was aimed at their fans. But that wasn’t the end of the outcry from critics, who complain banks are still pushing lots of re-loadable celebrity cards with a long list of what they label “predatory” fees.
More than 30 new debit cards for teens have been unveiled in the past week. A card tied to the popular “Twilight” movie franchise has been out for a while now. And pro-surfer Jodi Nelson has been promoting her card on YouTube, for the past year.
Jodi Nelson in video: Another thing that I just love about these cards is it’s a great way for you guys to learn how to manage your money and how to budget, and it’s a great way for your parents and you guys to get on the same page.
Marketers claim they’re just giving teens a card that “feels like plastic, acts like cash.” Well, with the possible exception that every month, you’ll pay $5 for the privilege. And every time you reload it, it’ll cost you $5 for that, too.
Make an ATM withdrawal, $1.50. Let your card sit idle too long, you’ll be dinged $1.95. And $15 to dispute any transaction. Oh, you can talk live to customer service and that’s free — for the first three minutes, anyway.
So what’s the deal here? Not a good deal at all, warns Connecticut’s Democratic Attorney General, and soon-to-be U.S. Senator Richard Blumenthal. He’s on the line with us now — welcome, sir.
Richard Blumenthal: Thank you, great to be with you.
Moon: So you have called some of these prepaid debit cards “predatory.” Why?
Blumenthal: They are predatory because of the outrageous rates that are charged. Rates for starting the card, activating it, for cancelling it, for inquiring the call center, opening ATM accounts and withdrawing from them — really just an almost endless series of rates that swallow the value of the card even before it can be used. In fact, anybody using this prepaid debit card really loses before they use it.
Moon: All of these card issuers are making no secret of the market that they’re going after — they’re calling them “teen prepaid cards.” What about that — the fact that they’re directing them at the younger audience, and why?
Blumenthal: The reason that this kind of marketing pitch is so suspect is that it really targets young people who may be in a time of their lives or a time of consciousness when they are particularly susceptible to overspending, more extravagance than they can really afford, and more debt than they can possibly and responsibly incur. So the point here is that the marketing pitches, which play upon teaching smart money practices, may actually work to inculcate the opposite: that is overspending, excessive debt, and irresponsible use of credit cards.
Moon: Mr. Attorney General, you say just open a bank account and you can learn responsible finance that way. But what about convenience and security of these cards and the fact that we live in a plastic world? You can almost not buy anything without having a credit card these days.
Blumenthal: Ultimately, responsibility’s borne by the companies and the managements that profit, that use these prepaid debit cards as a revenue source. And they may be very important in the plastic world, so to speak, but plastic itself need not be as costly as these preditors’ fees make it.
Moon: Who makes the money from all these fees? The bottom of the website here, it says that it’s through a license with Mastercard International?
Blumenthal: We have not yet sorted out but our investigations continuing who actually profits and how much by all of these fees. But certainly everyone shares in the revenue.
Moon: Do you think this is going to require some sort of legislative fix?
Blumenthal: There may be a need for legislative reform, even more than has been done already through the credit card reform act, if these kinds of abusive and predatory fees become commonplace. And hopefully one of the effects of the Kardashian card experience will be to convince the industry that it ought to set a model for better behavior.
Moon: Richard Blumenthal is the Attorney General from the state of Connecticut. Thank you very much for joining us, sir.
Blumenthal: Thank you, take care.
Moon: We put in a call to the Iowa-based bank behind the MyPlash cards — MetaBank. The bank said it had no direct comment, but did point us to an industry study suggesting that fees for prepaid debit cards are competitive if not better than checking account costs.
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