All Articles Tagged "prepaid cards"
(Network Journal) — The trend of pre-paid credit cards targeted toward African-American consumers seems to be on the rise and made all the more alluring through alignment with notable personalities to the demographic such as lifestyle mogul Russell Simmons and radio personality Tom Joyner. Financial institutions seem to identify the Black segment as one of large opportunity due to recent statistics released by the Federal Deposit Insurance Corporation which states that 25% of all U.S. households are unbanked or underbanked. Of the households surveyed, 7.7 percent were unbanked, which translates nationally to 9 million households – approximately 17 million adults. An additional 17.9 percent – or 21 million households nationally (approximately 43 million adults) – were found to be underbanked.
(AP) — Celebrities endorsing financial services can be a touchy subject. But hip-hop mogul Russell Simmons says he introduced his prepaid RushCard in 2003 to serve those locked out of banking services. On Tuesday, syndicated radio host Tom Joyner ventured into the prepaid market as well with his Reach card. Joyner says the card will resonate with his predominantly African American listeners, who are more likely to avoid traditional bank accounts. Prepaid cards in general have been criticized for the fees they charge. The industry is still relatively young and there’s great variance in the fees users will encounter.
(Wall Street Journal) — Big banks may soon start pushing a different type of plastic to their customers. Financial institutions such as U.S. Bancorp, Wells Fargo & Co. and Bank of America Corp. are exploring prepaid cards as a way to make up revenue that will likely be lost from federal restrictions on debit cards. That is because prepaid cards, which are preloaded with funds and used like debit cards, are exempt from restrictions in the Dodd-Frank financial-overhaul bill. The law, enacted earlier this year, is expected to reduce significantly the transaction fees that banks collect from merchants with each swipe of a debit card, known as interchange fees. The Federal Reserve hasn’t yet provided details on the new debit-card restrictions, but a survey released by CardHub.com last month estimated banks could lose as much as $9 billion of the $22.8 billion collected each year in interchange fees.
by R. Asmerom
The Kardashians probably already knew that endorsing a prepaid card was not the way to go in the first place but they certainly didn’t expect the backlash they received from the press and personal finance experts after the “Kard” was unveiled. When celebrities like the Kardashians and Russell Simmons decide to put their name on a prepaid card, they tout the benefits of teaching non-bank holders and credit card holders about personal financial responsibility. What they often leave out is that these cards come with fees. “The Kardashian Kard is not the way to help out their fan base,” said Ornella Grosz, author of Moneylicious: A Financial Clue for Generation Y. “The fees were exorbitant and the Kardashians don’t represent financial savvy. They can afford to spend $20,000 on a shopping spree while their fan base are in no position to.”
The Kardashian Kard was pulled after Connecticut Attorney General Richard Blumenthal wrote a letter Friday to the card’s issuer, University National Bank, asking about the legality of the card’s “pernicious and predatory fees.”
The Kardashian Kard was far more expensive to maintain than a regular debit card. According to CNNMoney, a 12-month Kardashian Kard cost $99.95 just to own, including a card purchase fee of $9.95 and 12 monthly fees of $7.95. After the first year, consumers would have to continue to pay the $7.95 monthly fee. On top of these initial fees, it cost Kardashian Kard users $1 every time they added money to their card, and it cost $1.50 to speak with a live operator. If they wanted to pay their bills automatically using the card, they were charged $2 per transaction.
Mitch Goldstone, an ecommerce business owner and a lead plaintiff in a lawsuit against MasterCard, Visa and major banks over anticompetitive antitrust issues regarding credit and debit card fees, believes that although the Kard was a bad move on the Kardashian’s part, it served consumers well in a sense. “The Kardasian Kard event was epic, it helped draw international attention to unfair credit card [prepaid] fees,” he said. “I have been using social media tools to urge MasterCard to pull the prepaid “Kard,” my campaign seemed to work, but the plug was pulled by the Kardasian’s instead. My concern is the card was like a drug dealer, getting people hooked and then faced with debt.”