Debit cards seem so convenient, and they save you from the bother of carrying cash. But beware of the fees that can pile up with cards that aren’t issued by banks. One of them even charges you a dollar a minute if you question customer service about the fees.
Buying a prepaid card at Rite Aid, Wal-Mart, Hannaford or Shaw’s is so easy that nationally more people use debit cards than check writing. But the Center for Responsible Lending calls debit cards a trap. It notes that consumers have been increasingly turning to debit cards to avoid problems with credit cards, such as varying interest rates, high fees, and bad marks on their credit reports.
Green Dot, a popular issuer, says: “Get a Prepaid Master Card. No credit check. No bank account required.”
It also promises “No overdraft fees. No penalty charges, and no minimum balance.” The card will be “Safer than Cash. Your money is protected if your card is lost or stolen.” And you can make “Free ATM Cash Withdrawals at thousands of participating ATMs nationwide.” It costs only $4.95 to buy a card.
But look at the fine print. That first charge and other fees will be deducted from what you have put in: A monthly charge of $5.95 unless you have loaded at least $1,000 or make 30 purchase transactions. A $2.50 charge for cash advance from replacing a lost or stolen card, $6. Reloading at a retailer, up to $4.95.
Millennium Advantage charges up to $99 right off as a “processing fee.” A monthly “maintenance fee” cost $4.95. Each cash withdrawal means a “disbursement fee” of $1.95. And it will cost you 50 cents every time you check your balance, and “A call center fee of $1 per minute will be charged each time you talk to a customer service representative.”
A special twist can come when a restaurant or other merchant puts a “hold” or “freeze” for as long as three days on part of a card’s value.
For example,BankingQuestions.com reports that it is not unheard of for a restaurant to place a hold of, say, 120 percent of the tab to allow for a tip that the cardholder might add. The system normally drops the hold when the transaction shows up. But a hard-pressed cardholder could suffer a temporary zero balance.
These cards have a total balance of more than $8 billion this year and an estimated $119 billion by 2012. They appeal to the 80 million who have no bank accounts.
Yet they have little or no regulation. They should be covered by the proposed Consumer Protection Agency. In the meantime, it might be better to carry cash.