I've Been Mugged

5 Things You Should Know About Prepaid Cards

Right now, there probably are three different types of plastic in your wallet or purse. Each type has different rules, disclosures, government regulations, and fees. So, wise consumers use the best type of plastic instead of cash.

Most consumers are familiar with credit cards and debit cards -- the first two types of plastic. Credit cards include an interest rate applied to all purchases, plus a variety of fees (e.g., overdraft, annual usage). Debit cards are offered by banks to their account-holders to access money in their checking and savings accounts.

Prepaid cards often look like debit cards but have several important differences. Prepaid cards must have value stored or "loaded" onto them before they can be used. Usually, consumers use cash to add value to a prepaid card. Then, the consumer uses the prepaid card for purchases, which are deducted from the balance on the card until there is no value left on the prepaid card. Then, more value must be added to the card before it can be used again.

Retail stores, restaurants and malls offer prepaid cards, usually called gift cards. Chances are you may have already received a prepaid card as a gift. I've received and given several prepaid cards as gifts. Customers use the Dunkin' Donuts prepaid card are the chain's retail stores. Prepaid cards from The Old Spaghetti Factory, Starbucks, and Target all operate similarly. Some retailers use their prepaid cards to track customers' purchases for rewards for loyalty programs.

Besides retail stores, many other companies and entities offer prepaid cards. Some employers pay their employees via prepaid cards, often called payroll cards. These payroll cards are designed for employees who don't have checking and savings accounts. Behind every payroll card is a bank that handles the transactions.

Some employers offer their employees prepaid cards only for qualified healthcare spending purchases. Some golf clubs offer prepaid cards for their members to use at the club's golf store and restaurant.

Some banks offer prepaid cards, too, for consumers who lack checking and savings accounts. With all of these prepaid cards in use, it is important for consumers to to know the advantages and disadvantages. There is a pretty good CNN Money article that discusses what consumers should know about prepaid cards:

"Watch out for the fees: The average prepaid card charges nearly $300 in basic fees a year, such as monthly charges, ATM fees and reloading fees, a recent NerdWallet study found... many prepaid cards also charge activation fees, transaction fees, bill payment fees, declined transaction fees, inactivity fees, customer service fees and paper statement fees."

"They don't build credit: Using a prepaid card doesn't help you build credit with the three major credit bureaus... don't be fooled into thinking they are doing anything to boost your credit score."

To browse the entire list of five tips, read the CNN Money article. To learn more about the differences between the three types of plastic in your wallet/purse, read the FDIC alert about consumers' rights. You can also select Prepaid Cards in the tag cloud in the near right column.

What has been your experience? What prepaid cards have you used?

Report Analyzes Breach Notifications Affecting Massachusetts Residents

Last week, the Massachusetts Office of Consumer Affairs and Business Regulation (OCABR) released its findings from an analysis of four years of data breach notifications reported to the state. A chief finding was that sensitive data often was not encrypted.

Any businesses or entities storing consumers' personal information has been required since Oct. 31, 2007 to report data breaches to the OCABR. Through September 30, 2011, the OCABR received 1,833 breach notices affecting about 3.2 mikllion people, or an average breach size of 1,727 stolen or lost records. 73% (1,336) of the breaches involved electronic files and affected 97% of breach victims.

The financial services industry reported the most breaches (955) during the last four years, affecting 901,156 people. Most of these breaches were the credit- and debit-card transactions at processing centers and retail stores. The health care industry has had fewer breaches (214), but affected far more people ( 983,746), including the South Shore Hospital breach in 2010.

In March 2010, new laws went into effect requiring entities that store, own, or license personal information about Massachusetts residents to develop, implement, and maintain a comprehensive written information security program (WISP) describing how it will protect sensitive information. the new law required entities to encrypt sensitive information if it is transmitted over public networks, the Internet, or carried on portable devices.

The of breaches each year have remained pretty steady, ranging from a low of about 415 to a high of about 470. Other findings:

"... stolen or lost portable electronic devices are most often not secure. Of the 365 devices reported lost or stolen, only 13 were encrypted. The lost devices led to exposure for 409,572 people. By contrast, the 27 encrypted machines kept information secure for 24,269 people... of the 75 lost or misplaced portable devices reported; only one was encrypted, compromising 1.2 million pieces of information. Of the 290 stolen portable devices stolen, 12 were encrypted, protecting 4,110 pieces of information. The 277 unencrypted devices exposed 220,000 pieces of information."

The types of devices lost/stolen included desktop computers and computer tapes. The types of portable devices lost or stolen included laptop computers, thumb drives, and storage discs (CDs). The report concluded:

"If all portable devices were encrypted from 2007 to 2011, the number of residents whose personal information was compromised would be remarkably lower by 47 % or 1,490,308 people. If all portable devices were encrypted from march 1, 2010 the number of compromised residents would have decreased by 29 percent or 909,992 people... compliance with the encryption requirement is a powerful to to safeguard the personal information of millions of residents"

Download the OCABR data breach report (Adobe PDF, 948K bytes).

Consumer Reports Reviews Several Prepaid Cards

This blog previously warned consumers about the differences between the three types of plastic in your wallets/pursues. Consumer Reports published the findings of its review of several prepaid cards, and concluded:

"... although fees are beginning to come down, they aren't always disclosed upfront. Moreover, prepaid cards offer weaker consumer protections than those provided by traditional debit cards..."

Some of the higher fees Consumer Reports found with prepaid cards:

• Activation or initiation fees ranging from from $3 to $14.95.
• Monthly fees as high as $10
• Fees to get cash as high as $2.50 per withdrawal
• Fees to contact customer service as high as $2.99 per call.

Obviously, consumers should ask for and read closely the terms and conditions or prepaid card agreement before purchasing a prepaid card. It is wise to understand the different types of prepaid cards.

Related posts:

• Your Rights And The Differences Between The Three Types Of Plastic In Your Wallet Or Purse
• How To Evaluate a Health Care Debit Card Plan From Your Employer
• Bank of America Merchant Services And Money Network Announce New Payroll Solution
• Move Your Money To... Walmart? A Good Deal?
• How To File A Complaint About A Bank

Global Payments Breach Affects 1.5 Million Consumers

Last week, debit and credit card payments processor Global Payments Inc. announced that its systems had been breached by hackers and perhaps as many as 3 million credit and debit card numbers had been stolen. Global Payments processes transactions for Visa and MasterCard for retailers and card issuers.

In a statement released Sunday, Global Payments revised downard the number of stolen cards:

"... it identified and self-reported unauthorized access into its processing system. The company believes that the affected portion of its processing system is confined to North America and less than 1,500,000 card numbers may have been exported. The investigation to date has revealed that Track 2 card data may have been stolen, but that cardholder names, addresses and social security numbers were not obtained..."

The company has not disclosed how hackers breached its systems, nor the duration of the breach. The company's Monday-morning conference call focused on earnings and left little time for questions about the breach details.

The term "Track 2" refers to certain data elements stored in the magnetic strip on the back of debit and credit cards. Also on Sunday, Visa removed Global Payments from its list of "compliant service providers." Forbes magazine reported that the company expects to quickly correct the Visa compliance issue:

"Global Payments chief executive Paul Garcia is quoted in the company’s statement as saying that “We are making rapid progress toward bringing this issue to a close,” and emphasized that all major brands of cards still allow Global Payments to act as a payment processor."

After a breach like this, card issuers (e.g., banks, credit unions, retailers) will usually notify directly those cardholders with stolen account information, and whether replacement cards and accounts will be issued. And the card issuers usually seek reimbursement from the payments processor to cover the costs of issuing replacement cards to consumers.

Another payments processor, Heartland Payment Systems, experienced a much larger breach in 2008, after which multiple lawsuits resulted as card issuers provided replacement cards and accounts. With a reported 800,000 merchants and 3.5% market share, Global Payments is a smaller payments processor, when compared to First Data Corporation's 22.6% market share.

The largest banks, like Bank of America, have subsidiaries with joint venture arrangement with processor First Data to process card transactions. It seems to me that hackers have smartly figured out a way to steal valid credit/debit card information is to attack the transaction processors instead of retailers, like T.J.Maxx, or banks directly.

I called Global Payments to see how many retailers they may have lost already due to the breach and their inability to process Visa transactions. The public relations rep referred inquiries to the company's data breach site: www.2012securityupdate.com, which includes this statement to its merchants/retail clients:

"We are still processing all of your transactions, including Visa transactions, and will continue to work with the card associations in response to this incident."

Time will tell if and how long that continues. The company's breach web site also advises affected cardholders who suspect fraud to monitor their accounts, contact their card issuer, and place a Fraud Alert on their credit reports.

The Global Payments breach highlights the fact that several companies are involved in debit/credit card transaction flow, from the time yo swipe your card until when payment is completed. And, the security of that transaction flow is only as strong as the weakest link, or company, in the flow.

When Worlds Collide

Your Rights And The Differences Between The Three Types Of Plastic In Your Wallet Or Purse

While this blog has covered a variety of banking issues, one of the more important issues is that consumers need to know about the three types of "plastic" in your wallet or purse. Otherwise, you are likely to be "mugged" by your bank or card issuer.

As part of National Consumer Protection Week, the U.S. Federal Deposit Insurance Corporation (FDIC) listed the differences between credit, debit and prepaid cards. There are important differences about how interest rates, fees, and your liability apply. Your rights vary greatly with the type of "plastic" you choose to use.

What protections do consumers have with prepaid cards? How are prepaid cards different? The first thing you need to know is that there are several types of prepaid cards:

• "General purpose reloadable" (GPR) cards: these carry a brand of a card network (e.g., Visa, MasterCard) and can be used wherever that brand is accepted
• Payroll cards
• Gift cards

Prior blog posts have discussed payroll cards from Bank of America and the Walmart MoneyCard. How prepaid cards work:

"... allow consumers to spend only the money deposited onto them, can have a number of different features. For instance, some gift cards may be used only at a single merchant; most GPR cards may be used to pay for purchases and access cash at ATMs."

When using a prepaid card, your liability is different from a credit or debit card:

"Liability depends on the type of funds on the card. If the card is a payroll card, then the liability rules are the same as for debit cards. But if the card is a general purpose reloadable card or a gift card, then there are no protections to limit your liability under federal law."

What prepaid card issuers (e.g., retail store, employer, bank) must tell you in the prepaid card agreement varies:

"Disclosures depend on the type of card. For example, payroll cards must disclose any fees and the error resolution process, but a GPR card does not have any disclosure requirements. In addition, gift cards must disclose the terms of dormancy fees, whether there is an expiration date, and any other associated fees."

Similarly, your rights and access to statements are different with prepaid cards:

"Payroll cards must provide either a periodic statement or account balance by telephone as well as electronic transaction history. GPR cards and gift cards do not have periodic statement requirements under federal law."

When terms change for a prepaid card, your rights about advance notice of changes are different, too. With prepaid cards, you generally don't get as much advance notice as with credit cards (45 days):

"Payroll cards must provide 21 days notice before making changes to fees charged or the liability limits for unauthorized transactions. GPR cards and gift cards are not required to do so under federal law."

Some people like prepaid cards because they can avoid interest rates. It is wise for consumers to fully understand the types of fees that apply to prepaid cards:

"GPR cards and gift cards have certain restrictions on dormancy fees charged. There are no specific requirements related to payroll cards under federal law."

So, you are probably wondering if prepaid cards are a good deal, or not. That answer depends upon your financial situation and the type of prepaid card you expect to use.

Since I already have checking and savings accounts at a bank, prepaid payroll cards are of no value to me. I find extremely troublesome the lack of restrictions on payroll cards, which means the banks can change terms, fees, and interest rates whenever they want; and as high as they want.

If you don't have a checking account, then a payroll card may benefit you. (Given the fee schedules and lack of restrictions, payroll cards will definitely benefit the banks but not necessarily consumers.) However, closely read the card agreement and fee schedule first. You may be better off (e.g., fewer fees, lower rates) opening a checking account instead at a community bank or credit union.

I still find retailers' prepaid gift cards (e.g., Dunkin' Donuts, Stop 'n Shop, Cheesecake Factory) useful for some holiday or birthday gifts, but the lack of agreements with many prepaid gift cards is troublesome. The lack of an agreement means the card issuer can change things whenever they want and not notify you. I will likely reduce my use of prepaid gift cards to only those that have card agreements.

What's your opinion? Do you use prepaid cards? If so, which types? If not, why not?

CFPB Accepts Complaints From Consumers About Checking And Savings Accounts

By now, you have probably heard about the new Consumer Financial Protection Bureau (CFPB), a federal agency designed to ensure that financial products and services for consumers are beneficial for consumers. Previously, the CFPB accepted complaints about credit cards and mortgages. Consumers can now submit complaints about checking and savings accounts to the CFPB. The website has a different form for consumers to share their stories about experiences with financial products.

Also, the CFPB is investigating how checking account overdraft programs affect consumers. Part of this investigation the CFPB seeks feedback from the public about a proposed “penalty fee box” disclosure on a consumers’ checking account statements to clarify the amount overdrawn and total overdraft fees charged.

Reportedly, the average overdraft fee ranged from $30 to $35 in 2011. A 2008 study (Adobe PDF) by the Federal Deposit Insurance Corporation (FDIC) found several alarming trends and statistics about overdraft programs.The CFPB has four concerns about overdraft fees:

1. Transaction Re-ordering that Increases Consumer Costs: the way that overdraft fees are applied by some banks increase costs to consumers. One practice is the co-mingling of all checks, bill payments, debit card transactions, and ATM withdrawals each day and processing the largest transactions first -- rather than in the order received. This maximizes the number of transactions that will trigger overdraft fees.
2. Missing or Confusing Information: the CFPB is analyzing how consumers anticipate and avoid overdraft fees given current banking disclosures -- and if there is a better way.
3. Misleading Marketing Materials: the CFPB is investigating reports that consumers have received misleading marketing materials about overdraft fees, since opt-in rates to overdraft programs vary widely by bank.
4. Disproportionate Impact on Low-Income and Young Consumers: The CFPB is concerned that overdraft programs disproportionately affect certain groups. The same 2008 FDIC study found several alarming statistics, including that 9 percent of checking account customers pay about 84 percent of overdraft fees.

You can view a prototype of this "penalty fee box" at the CFPB website (Adobe PDF). To submit feedback about overdraft fees, include the Docket No. CFPB-2012-0007 with your submission by:

• Online instructions: www.regulations.gov,
• Email: cfpb_overdraft_comments@cfpb.gov
• Postal Mail: send letters to Monica Jackson, Office of the Executive Secretary, Bureau of Consumer Financial Protection Bureau, 1500 Pennsylvania Ave, NW, (Attn: 1801 L Street, NW), Washington, DC 20220.

The CFPB began operation on July 21, 2011. In its annual report (Adobe PDF) to the U.S. Congress, the CFPB reported that by December 31, 2011, it had received 13,210 complaints from consumers, including 9,307 credit card complaints and 2,326 mortgage complaints. 44% of all complaints were submitted through the CFPB website, and about 15% via telephone calls.

The FTC advises consumers who experience identity theft or fraud with financial products to both submit a complaint to the CFPB and submit a complaint to the FTC.

CFPB Reports List Of Consumer Complaints About Financial Products

In its annual report, the new Consumer Financial Protection Bureau (CFPB), a federal agency designed to ensure that financial products and services for consumers are beneficial for consumers, listed the leading complaints submitted by consumers. The CFPB accepts complaints about credit cards and mortgages.

The CFPB began operation on July 21, 2011. In its annual report (Adobe PDF) to the U.S. Congress, the CFPB reported that by December 31, 2011, it had received 13,210 complaints from consumers, including 9,307 credit card complaints and 2,326 mortgage complaints. 44% of all complaints were submitted through the CFPB website, and about 15% via telephone calls. The leading types of credit-card complaints received:

Leading Credit Card Complaints Reported By Consumers to CFPB. July 21 - Dec. 31, 2011	Number	Percent
1. Billing Disputes	1,278	13.7%
2. Identity Theft / Fraud / Embezzlement	1,014	10.9%
3. APR or Interest rate	950	10.2%
4. Other	854	9.2%
5. Closing / Cancelling Account	478	5.1%
6. Credit reporting	437	4.7%
7. Credit Card Payment / Debt Protection	383	4.1%
8. Collection Practices	378	4.1%
9. Late Fee	364	3.9%
10. Other Fee	334	3.6%
Total for Top 10 complaint types	6,470	65.9%

The types of mortgage complaints received:

Mortgage Complaints Reported By Consumers to CFPB. July 21 - Dec. 31, 2011	Number	Percent
1. Problems when you are unable to pay (Loan modification, collection, foreclosure)	889	38.2%
2. Other	540	23.2%
3. Making payments (Loan servicing, payments, escrow accounts)	501	21.5%
4. Applying for the loan (Application, originator, mortgage broker)	235	10.1%
5. Signing the agreement (Settlement process and costs)	96	4.1%
6. Receiving a credit offer (Credit decision/Underwriting)	65	2.8%
Total Mortgage Complaints	2,326	100.0%

The FTC advises consumers who experience identity theft or fraud with financial products to both submit a complaint to the CFPB and submit a complaint to the FTC.

I like the CFPB's mission and its website. The agency's consumer response mechanisms are still new and in their infancy. They will become more beneficial as the agency identifies and resolves problems. What is your opinion of the CFPB?

Bank Of America To Test New Fees

After consumer backlash last fall forced it to abandon plans to add fees for consumer debit card accouns, the Bank of America is now testing new fees for checking accounts in three states: Arizona, Georgia, and Massachusetts. Reportedly, the new monthly fees apply only to new accounts and range from $9 to $25 depending upon the consumer's account balance.

Meanwhile, the Massachusetts Secretary of State Galvin seeks legislation for national banks operating within the state to offer free checking accounts for young adults under 19 years of age and elders ages 65 and older. Galvin wants to prohibit these banks from holding state and local government deposits unless they offer free checking for these two groups. State-chartered banks in Massachusetts are already required by law to offer free checking to these two groups.

To learn more, visit the banking authority for your state.

Bill Maher: End Abusive Relationships With Your Bank

An important message about the Move Your Money Project from Bill Maher, with his usual wit and humor:

How To Evaluate A Health Care Debit Card Plan From Your Employer

A blog post on Tuesday described Caren's experience with her United Healthcare Consumer Accounts Card, a specialized debit card her employer provided for Flexible Spending Account (FSA) expenses. That blog post highlighted what can go wrong with a health care debit card.

I wanted to take a closer look at the card agreement, and see what broader issues might apply in general. Today's blog post includes my findings about several items employees should be aware of when considering a health care debit card plan. I am not an attorney, so this is not legal advice -- just my observations and opinions as a consumer -- like you tyring to navigate a complex world. If you need legal advice, hire an attorney.

First, healthcare debit cards are similar to traditional debit cards, but with several important differences. Employees must understand how they work and when fees apply, just as you would with a traditional debit card with your bank checking account. So, it is important to closely read all appliable agreements, terms, or policies y to know your rights and responsibilities -- especially when bad things happen.

The introduction to the United Healthcare Consumer Accounts Card agreement (Adobe PDF; which is also available here) lists some important warnings:

"At the register or cashier: This is not a credit card, but you will need to choose “credit” when making purchases... At the pharmacy, supermarket or other retail store: Pay for eligible over-the-counter (OTC) supplies and materials. Please note: The card will be rejected if purchasing OTC medicines, even when prescribed..."

Select "credit" at the point-of-sale even though the card says "Debit" on its face? Prescribed OTC medicine will still be rejected? These exceptions sound like a recipe for employee confusion and rejected purchases. While the agreement states that it is a MasterCard Debit, I wonder if the bank tweaked a traditional credit-card payment solution for health care purchases and rushed it to market without removing all the bugs first.

What comes to mind is that old saying: never buy the first year of a new car production (and wait until the manufacturer gets all of the bugs out). Seems to apply to payment solutions, too.

Section #2 of the same agreement states:

"When you use the Card, you represent and warrant that you will not submit, and have not previously submitted, a claim for reimbursement for the same expenses under any other plan or program. You agree to save all invoices or receipts that are provided to you by merchants and service providers when you use the Card. You agree to provide a copy of any such receipt to us or United Healthcare, promptly on request. If you fail to submit a receipt when it is requested, under IRS rules, the amount in question may not be excluded from your gross income for federal tax purposes or may otherwise result in financial penalties to you. Your use of the Card is subject to the terms and conditions of the Plan, as well as the terms and conditions of this Agreement..."

So, employees must still save all purchase receipts. The health care debit card doesn't eliminate all paperwork. The last sentence in the above clause is important because it highlights the fact that several policies apply. It would be helpful if this agreement listed all applicable policies. My estimate is that at least five different policies apply:

1. Consumer Accounts Card Agreement,
2. United Healthcare HIPAA Privacy Policy,
3. Any additional policies at myUHC.com,
4. Employee handbook or manual,
5. Optum Bank policy

Employees should not have to guess which policies apply. It would be best for employees if a single, consolidated policy applied, but unfortunately American business does not operate that way today.

Let's return to the Consumer Accounts Card agreement, which also states:

"You agree that you will only use the Card to pay for eligible expenses under the Plan... if you use the Card for anything other than an eligible expense, you will be liable for any taxes, penalties and other expenses payable under applicable law and any expenses we, United Healthcare or your employer may incur as a result of such impermissible use. Upon demand, you agree to reimburse us, United Healthcare or your employer, as the case may be, for any such use for non-eligible expenses..."

While employees may think that ineligible FSA expenses are automatically blocked at the point-of-sale, the agreement governs what really happens. The Consumer Accounts Card payment process may indeed block some ineligible purchases, but United Healthcare and the bank seem to have left themselves a convenient loophole where employees are still liable. It would be helpful if the agreement stated what those amounts of taxes, penalties, and other expenses could be. It seems risky to use a debit card when you don't know the exact amount of fees that might apply.

Second, employees should be aware of their responsibilities to avoid liability. The "Consumer Liability" portion of the agreement states:

"Tell us AT ONCE if you believe your Card has been lost or stolen. Telephoning is the best way of keeping your possible losses down. If you tell us within 4 business days, you can lose no more than $0 if someone used your Card without your permission. (If you believe your Card has been lost or stolen, and you tell us within 4 business days after you learn of the loss or theft, you can lose no more than $0 if someone used your Card without your permission.)"

This four-day time period seems unreasonably short. My bank allows 60 days from my statement to dispute a charge on that statement. Does United Healthcare expect employees to check their online FSA account every four days? The next portion of the agreement states what happens when employees provide notice after the four-day window:

"If you do NOT tell us within 4 business days after you learn of the loss or theft of your Card, and we can prove we could have stopped someone from using your Card without your permission if you had told us, you could lose as much as $50."

Now, the liability sounds more like the liability with a traditional credit card: $50. What I find troubling about this clause is that it assumes traditional theft or loss. This blog has documented numerous examples of identity thieves plant skimming devices inside point-of-sale terminals at gas stations, supermarkets, and other retail stores to steal consumers' data to clone debit cards. Since employees are forced to use health care debit cards at retail stores, a more relevant agreement would provide tips about what to do if they believe their card has been cloned. Perhaps the myUHC.com site explains this, but I don't have a myUHC.com account.

The agreement also states (emphasis added by me):

"... if the statement you receive from the Plan administrator shows transfers that you did not make, tell us at once. If you do not tell us within 90 days after the statement was mailed to you, you could lose as much as $50 if we can prove that we could have stopped someone from taking the money if you had told us in time."

Again, that sounds like traditional credit card liability (e.g., $50), but at least the window for notice is longer at 90 days. Why lead with the four day clause? It seems unnecessary. In Caren's case, it seems that United Healthcare is enforcing the 90-day clause. What I find troublesome about the above clause is that it assumes paper statements sent via postal mail. In reality, employees' statements are available online. Nothing is sent via postal mail. So, why write the agreement assuming this? It sounds like the card agreement was rushed to market without all the bugs removed.

Another portion of the agreement states:

"ALL QUESTIONS ABOUT TRANSACTIONS MADE WITH YOUR CARD MUST BE DIRECTED TO THE BANK, AND NOT TO YOUR EMPLOYER OR PLAN ADMINISTRATOR. The Bank is responsible for issuing the Card and for resolving any errors in transactions made with your Card. The transactions will appear only on the statements provided to you by the Plan administrator."

It would be helpful if the agreement listed the bank's phone and postal address information. I couldn't find it in the agreement. The agreement lists United Healthcare's phone and postal address information. In my experience, well-written agreements provide both phone and postal address information with any instructions where consumers should give notice. Perhaps, the other policies provide this information, but I don't have a myUHC.com account.

SO, let's see if I got this correct. The agreement directs employees to contact United Healthcare for transfers the employee didn't make, but contact the bank about statement "errors."What's the difference? How are employees to tell? This sounds confusing.

It troubles me that the above clause mentions "errors" and doesn't mention "fraud." I would expect any bank to aggressively investigate suspected fraud. The fact that Optum Bank's flow of funds page still presents a 2008 copyright does not give me much confidence in the bank:

If something this simple still says 2008, what else has this bank missed? Or, should consumers conclude that the Optum web site hasn't been updated in four years? Or is this flow-of-funds information that is four-years old and/or obsolete? I would expect more timely and current information from any bank -- especially one processing my extremely sensitive health care information.

The "Fees" section of the agreement states:

"OptumHealth Bank does not charge usage fees for this card."

No fees are good, because banks can apply a wide variety of fees to debit-card accounts.However, it means that employees should monitor any changes in the card agreement. Things might change with new fees introduced. So, employees should read any updates to the card agreements or policies with their health care debit cards.

Now, let's return to Caren's story. The fact that Caren never used the Medco online pharmacy should be a huge "red flag" to Optum Bank, Large HR Firm, and United Healthcare. It suggests that Caren's payment information was stolen. The payment data on Caren's Consumer Accounts Card could have been stolen via a skimming device, which identity thieves plant inside point-of-sale terminals at retail stores and gas stations -- not just at bank ATM machines.

If Caren's Consumer Accounts Card was not cloned via skimming device theft, then a couple other options are possible. The pharmacy may have re-submitted the purchases it originally rejected -- and if so, it should have notified Caren, and reimbursed her for the purchases she paid out-of-pocket. Caren could test this by using a different pharmacy. If the duplicate charges don't happen at the second pharmacy, then it is reasonable to assume a problem at the first pharmacy. If the duplicate charges continue, then it seems safe to assume that her debit payment data was stolen.

Insider identity theft is always a possibility. It's harder for employees to spot, but it does happen.

What should employees do if your employer offers a specialized debit card for healthcare expenses? I suggest the following steps:

• Read all applicable policies to know your rights and responsibilities -- especially before registering for a FSA with your employer. Your employer may have negotiated a really good deal for its employees, or not. Don't blindly assume so; read the fine print in the agreement first. Part of evaluating if it's a good deal is looking for certain clauses in the agreement -- like the ones listed above. If you have difficulty reading contracts, get help from a trusted friend, family member, or attorney if you can afford one.
• Use the Internet to find reviews written by employees about their health care debit card plan. Places I like to look include Consumer Reports, The Consumerist, and Epinions.
• File a police report with local law enforcement. (In Caren's case, somebody spent money from her FSA account without her authorization. That is theft.) Insist on law enforcement accepting the report. Make several copies. Attached the police report to any complaints filed with your employer, the FSA healthcare administrator, and the bank,
• Use a different pharmacy. If the duplicate charge problem stops, it is reasonable to assume a problem at the first pharmacy, and file a police report accordingly,
• If you feel that you aren't getting the services promised by the bank which processes your health care debit card transactions, learn about how to file a complaint against your bank.
• File a fraud complaint with the U.S. Federal Trade Commission (FTC) including any relevant documents (and non-action by employer, HR Firm, health care firm, and bank). This will help the FTC track any emerging theft trends with health care debit cards.
• If there is no action by the employer, HR Firm, healthcare firm, and/or bank), write a letter to your federal or state elected officials asking for help. It's part of their jobs -- to help their constituents.

Is the United Healthcare Consumer Accounts Card a good deal? Only you can decide for yourself, as everyone's needs are different. Hopefully, I have highlighted the things consumers should look for in any health care card agreement, so you can make an informed decision.

If you use a specialized debit card for health care expenses, what has been your experience?

A Debit Card Cautionary Tale

[Editor's Note: today's post is by guest author R. Michelle Green, the Principal for her company, Client Solutions. She is a combination geek girl, personal organizer, and career coach. Michelle helps others improve their use of technology in their personal or professional life. Today, she tackles what I believe will become a huge identity-theft problem. As employers lower their administrative costs by outsourcing payment systems that include debit-card transactions, the result is a more complicated, patchwork mix of companies where it is not easily clear who is responsible when bad things happen.]

By R. Michelle Green

At a business conference I attended, the topic turned to health care insurance administration. Some of the attendees now have new debit cards they didn’t ask for. Their employers gave them debit cards for their health care expenses (to access their Flexible Spending Accounts). Instead of having to submit receipts, employees offer the card at the point of sale. If s/he tries to charge more than allowed, or tries to charge things that are not acceptable, the card is rejected. Easily fits into the distributor’s payment systems (cash credit debit), no paperwork for the employee, less evaluative work for the FSA provider. Everyone wins, right?

Not everyone.

Meet Caren (not her real name, of course). She offered her new debit card -- her's is called a United Healthcare Consumer Accounts Card -- for prescription meds in January last year. However, the purchase was rejected by the pharmacy. She assumed it was a glitch, and paid for it herself. While this eventually happened every time, she doesn’t have medical charges every day, so it took a while to recognize that the card never worked. For reasons not relevant here, she did not pursue this with the provider until the fall, only to discover that all her money had been used up on health care charges she didn’t make.

She spoke with United Healthcare using the phone number on her Consumer Accounts Card. She submitted all her information in writing as they requested. They produced a sheet showing that her charges mostly matched (about 70%) identical charges paid 1-2 business days after hers. Though they did not accuse her of fraud, they did say the case was closed and did not merit an appeal. When she approached her human resources provider, he said, well at least she got the tax break. (!) She didn’t get a tax break, she got a salary reduction! She was deprived of access to her own money, set aside from her salary. The debit card agreement online says that she should call the bank operating the card, but that hasn’t proven productive either.

Had a second card been issued to someone else, we wondered? Not to her (or to the bank’s) knowledge. Did the drugstore have signatures on the other charges ostensibly hers? The other charges were mail order charges through Medco, so no receipts or signatures. She has no account with Medco. The pharmacy is not interested in pursuing this, they’ve been paid (perhaps twice!). Medco won’t address it, as she is not a client. The debit card provider only knows the money is spent. The FSA account holder is satisfied that it was spent for the right things. Only Caren is out of pocket and disadvantaged. Doubly so – this was so traumatic that she did not enroll in FSA this year. That makes her ineligible for the associated tax benefit in 2012.

Turns out our blog host is interested in the way financial systems are evolving, and found this issue particularly interesting. There are a lot more parties in the mix than you might at first think. Caren has an employer small enough that it purchases human resources expertise from a national firm. So there’s Caren, Small Firm, and Big HR Firm. Big HR Firm takes the money from her account and sends it somewhere based on their agreement with United Healthcare. Her debit card is managed by United Healthcare, and Optum Health Bank administers that card for them. Optum Health Bank has a subsidiary, Optum Financial, that handles the flow of money from the holding account to the point of sale. And what about the pharmacy: could their processes have been compromised as well?

I read a lot about fraud and scams, and wondered if this could be the tip of a software theft operation, selecting certain customers, and duplicating certain customers’ receipts, at just low enough rates that they are not perceived. (Good movie, eh? But Occam’s Razor says: not likely.) But who is the person with enough clout to investigate this, particularly if no one person or entity loses big bucks?

Today she tweeted that she had heard from Big HR Firm – there’s nothing they can do. So who’s responsible? Several corporations are in play; doesn’t each have a responsibility to Caren? Who can help her?

Big Banks vs. Credit Unions

If you are unsure about whether or not to move your money from a big banks to a small, community bank and credit union, consider the statistics below from Consumer Reports:

Item / Fee	Big Banks	Credit Unions
Non-interest Checking (per month)	$10.27	$6.00
Minimum Balance to Waive Fees	$1,115.97	$500.00
Online Bill Payment (per month)	$6.95	$0.00
Use Another Bank's ATM (per transaction)	$2.21	$1.07
ATM Surcharge (per transaction)	$2.96	$2.79
Overdraft (per transaction)	$34.48	$27.82
Insufficient Funds (per transaction)	$34.48	$27.82
Stop Payment (per transaction)	$31.09	$19.43

To learn more:

• Javelin Research Reports Results About Bank Transfer Day
• Learn About Credit Unions. Free Workshops At A Nearby City
• Keeping Its Commitment To Its Customers: A Bank Does The Right Thing
• Bank of America Merchant Services And Money Network Announce New Payroll Solution
• How To File A Complaint About A Bank
• Move Your Money To... Walmart? A Good Deal?
• Some Banks Reverse Decisions To Add New Debit Card Fees

Debit Cards: A New I've Been Mugged Topic

Since many consumers have shifted their purchases from cash and credit cards to debit cards, I have added a new topic in the tag cloud in the near right column. With recent events in the banking industry, new offerings allows employers to perform direct deposits to employees payroll cards, a customized version of debit cards. The "Debit Cards" topic includes this content of interest to consumers and residential banking customers. I hope that you like the new category.

Bank of America Merchant Services And Money Network Announce New Payroll Solution

Earlier this month, Bank of America Merchant Services (BAMS) and the Money Network(R) announced the launch of the Money Network(R) Payroll Distribution Service sponsored by Bank of America. According to the press release on MarketWatch:

"The program enables employers to comply with complex payroll distribution laws, such as the need to offer a paper paycheck and free check cashing locations, while providing a safe and convenient pay alternative for employees who do not have access to a deposit or checking account. With the Bank of America-issued Money Network(R) Service, the payroll process is efficiently streamlined through more than 17,750 Bank of America ATMs and 43,000 Allpoint(R) Network surcharge-free ATMs..."

This is huge news. The benefits for employers are numerous. I'd written previously about a version of this payroll solution at Walmart. Most employers would stop printing paper checks as paycards allow them to avoid check printing expenses. The benefits for consumers seem questionable.

This payroll solution enables companies to essentially provide selected banking services to their employees. Where is the line between a company and a bank? It seems blurred with payroll services like these. Have you asked your employer for check-cashing services? I doubt it. Something else is going on here.

Notice that the press release includes this statement: "for employees who do not have access to a deposit or checking account." The banking industry uses the term "underbanked" to identify consumers that have a checking account or a savings account, but not both. The industry uses the term "unbanked" to identify consumers who don't have both types of accounts.

According to a 2009 FDIC study (Adobe PDF document), only 7.7% of U.S. households are unbanked. Those unbanked households typically make less than $30,000 per year, and 66 percent of them use services with high fees: non-bank money orders, non-bank check cashing, pawn shops, payday loans, and rent-to-own services. The same study also found:

"Minorities more likely to be unbanked include blacks (an estimated 21.7 percent of black households are unbanked), Hispanics (19.3 percent), and American Indian/Alaskans (15.6 percent). Racial groups less likely to be unbanked are Asians (3.5 percent) and whites (3.3 percent)."

Those percentages are probably higher given the prolonged economic downturn of the last couple years. I doubt that BAMS and Money Network targeted this new payroll service at only the 7% unbanked slice of the market. The same study found that about 18% of U.S. households are underbanked. The market for this new payroll service seems to be both unbanked and underbanked consumers who currently use high-fee banking services, plus the upside potential:

1. More consumers might become underbanked or unbanked during economic downturns,
2. Employers with operations in developing countries have a larger percentage of unbanked employees,
3. Employers with a large percentage of seasonal or contract workers, and
4. If positioned a certain way, the new payroll service could capture more market share from employees that already have both checking and savings accounts

Upsides #3 and #4 worry me. This new payroll service seems to me to be a slick method to force consumers to use certain banks -- to restrict freedom of banking choice. Think of it this way: employees that are paid by their employer via a Bank of America-branded Money Network(R) PayCard, are being paid with a customized debit card. Use that PayCard within Bank of America and Allpoint networks and there are few or no surcharges. Use that PayCard outside of its network, and more fees and charges apply. Where do you think employees will shift their banking to?

If a company uses the Money Network Payroll Distribution Service for all its employees, then those employees who already have checking accounts (at the banks of their choice) either lose their freedom to bank where they choose, or pay more in fees to bank where they choose.

This reminds me of the old "company store" practice from the 1800's where companies forced their employees to shop only at the company store which effectively kept them in debt bondage. Haven't we learned from this history?

Perhaps, we are now seeing the future of banking and the big banks' response to customer fury about checking account fees. The big banks could co-mingle employer payroll solutions with limited consumer banking services -- all without having to highlight the embedded debit/checking fees to consumers and let the employers take the heat. Afterall, employees may not complain if they are afraid for their jobs.

This 2005 State of California study (Adobe PDF) researched the advantages and disadvantages of payroll paycards:

"... Pay Cards give an employee who does have a bank account an alternative to carrying cash or cashing a check, which may require a fee. Employees who do not have bank accounts gain the convenience of using a debit card. However, depending on the program chosen by an employer, Pay Cards may or may not reduce payroll costs for the business and/or for the employees."

This study documented a variety of fees charged to employees' pay cards:

• Monthly maintenance fee
• ATM balance inquiry fee (per transaction)
• ATM in-network domestic withdrawal fee (waived or a limited number of withdrawals per month)
• ATM outside-network domestic withdrawal fee (per transaction)
• ATM in-network foreign withdrawal fee (per transaction)
• ATM outside-network foreign withdrawal fee (per transaction)
• ATM transaction decline fee (per transaction)
• Domestic customer service automated inquiry via phone fee (per call)
• Domestic customer service live-person inquiry via phone fee (per call)
• Point-of-sale pinless signature purchase fee (per transaction)
• Point-of-sale cashback fee
• Emergency cash transfer fee (annual)
• Emergency cash transfer fee (per transaction)
• Bill payment fee (per transaction)
• Funds transfer fee
• PIN change fee
• Paycard replacement fee
• Paycard replacement fee (express delivery)
• Negative balance fee
• Account closure fee
• Duplicate statement fee
• Research fee (per hour)
• Tax levy or garnishments fee (per occurrence)

And, all of these fees for employees are in addition to fees the bank charges the employer directly for the payroll service. So, costs for employees go up when multiple fees apply, or to use a payroll paycard outside of the network at the bank of their choice. More fees apply if the employer negotiated a poor deal for its employees. These fees are effectively an economic incentive to force employees to do business at certain banks.

It is easy to find paycard solutions. This guide for employers' human resources department professionals lists ten branded payroll paycard services.

If you think that this is enough, there's more.

Similar to the Walmart Money Centers, the Money Network PayCards are insured by the FDIC (via MetaBank). So, as more employers provide limited banking services, the federal government (via taxpayers) is responsible for insuring more accounts. It would be preferrable for more public discussion about whether we want to insure more non-banks doing banking during a time of limited government budgets. 

My first impression of this payroll solution was that it may be a security issue, since it allows consumers to easily move money around the globe, with Allpoint ATM locations in the USA, Mexico, Australia, and the United Kingdom -- today. In the future, Allpoint may serve more countries. In a world where governments are concerned about terrorism, this payroll solution struck me as a potential security risk.

Then again, this payroll solution could make it easier for employees to send money to relatives in their home country -- assuming the relatives have paycards, too.

After researching this investigative article, I have learned to keep an eye on both Bank of America Merchant Services, and Banc of America Merchant Services LLC. With this latest announcement, I have learned to also keep an eye on Money Network(R), a First Data Company.

What's your opinion? If your employer pays you with a payroll debit card or paycard, please share your experiences below. I've Been Mugged readers are interested.

Move Your Money To... Walmart? A Good Deal?

This blog has covered extensively the ways banks have "mugged" consumers via higher fees, higher interest rates, traps, and tricks. I was surprised to read in the Tuesday the New York Times a report about some consumers moving their money to Walmart Money Centers, instead of to banks or credit unions. Move your money to Walmart? Really?

After reading the newspaper article, I visited the Walmart Money Centers website to learn more:

By offering several a la carte banking services (e.g., debit card, money transfers, bill pay, money orders, credit cards, check cashing, and checks), Walmart has wormed its way into banking. If it walks like a duck, sounds like a duck, and smells like a duck -- then it must be a duck. How was this allowed to happen?

Apparently, many consumers who don't have a checking account (e.g., referred to as the "unbanked") are using Walmart Money Centers to cash they paychecks, since the fees are lower than at many banks. I have mixed feelings about this. Here's why:

Advantages:

• It benefits consumers to have a competitive choice since Walmart Money Centers offer lower check-cashing fees than banks and payday lenders. That could create a downward pressure on banks to lower their fees to remain competitive
• I see the benefit to Walmart of paying its associates via Walmart debit cards. This removes or lowers the middle-man processor costs

Now, the disadvantages.

First, "banking" with Walmart is still very expensive for consumers. A $3.00 fee to cash a $800.00 weekly paycheck is really an effective annual interest rate of 19.5% ($3/$800 x 52 pay periods per year). That same $3.00 fee on a $400 weekly paycheck equals a 39% effective annual interest rate.

The Walmart MoneyCard (e.g., debit card) is expensive, too. The $3.00 fee to load money onto a card, plus the $3.00 monthly maintenance fee is really an effective annual interest rate of 18% (assuming a $300 paycheck and 26 pay periods per year). So, a consumer is paying 18% to access their own money. What? That 18% is a rate similar to many credit cards, where a consumer can avoid the interest charges by paying their balance in full at the end of the month.

While Walmart Money Centers may seem like an attractive option, it's really expensive "banking." Better to find a credit union with free checking and save both the $78 in annual check-cashing fees and $108 in annual debit card fees.

Second, I can understand the benefits for Walmart of paying its associates via Walmart debit cards. The benefits for Walmart Associates are questionable at best, given the above debit-card fees. The lack of banking choice is troublesome:

"Walmart associates may receive their pay either by direct deposit or through the First Data Money Network program and may access their wages through the Money Network MasterCard Paycard(R) or Money Network(TM) Checks."

This reminds me of the old "company store" practice from the 1800's where companies forced their employees to shop only at the company store, and kept them in debt bondage -- only it's worse today. How? Keep reading.

Third, the lack of disclosure and transparency is extremely troubling. If a consumer left Bank of America for a Walmart Money Center, then you are still banking with some of the same companies that perform outsourced, back-office financial transactions. According to a 2009 Reuters press release:

"Walmart, MasterCard Worldwide and First Data today announced a new, more sustainable payroll program designed to reduce the number of paper paychecks and pay stubs distributed each year to Walmart and Sam's Club associates... "

Alert readers will remember that First Data is a joint venture partner with Banc of America Merchant Services to process BofA debit card transactions. When I asked Bank of America to explain this joint venture, they declined to comment. And, there's more.

Wal-mart operates its Money Centers by outsourcing functions to Moneygram. According to Hoovers, Moneygram:

"... sells MoneyGram-branded cash transfers and money orders at some 227,000 locations around the globe. It is the leading provider of money orders in the US, issuing some 175 million annually. Wal-Mart is MoneyGram's largest money-transfer and money order agent, accounting for more than a quarter of the company's revenues. MoneyGram also offers in-person and electronic bill payment services, letting users pay everything from mortgages to utilities, and processes official checks for financial institutions."

In September, Fitch Ratings announced in a press release:

"MoneyGram has been informed that it is being investigated by a federal grand jury in connection with its consumer anti-fraud and anti-money laundering program matters for the period 2004 to early 2009. A prior similar investigation led to MoneyGram paying an $18 million fine..."

Thomas H. Lee Partners and Goldman Sachs own about 85% of MoneyGram.

Fourth, I thought that Walmart was prohibited from banking. The New York Times reported:

"Four years ago, Wal-Mart abandoned its plans to obtain a long-sought federal bank charter amid opposition from the banking industry and lawmakers, who feared the huge retailer would drive small bankers out of business and potentially conflate its banking and retail operations. Ever since, Wal-Mart has been quietly building up à la carte financial services, becoming a force among the unbanked and “unhappily banked,” as one Wal-Mart executive put it."

Fifth, the fine print about the Walmart MoneyCard states the following about its debit card:

"The Card is issued by GE Money Bank, member FDIC, pursuant to a license from Visa, U.S.A. Additional services provided by Green Dot Corporation. Not available in all states. Issuance fee, monthly fee, and other fees apply..."

This means that Walmart outsources its debit card operations to GE Money Bank, where cardholders' money and accounts are insured by the Federal Deposit Insurance Corporation (FDIC) which insures banks. So, the FDIC is effectively insuring Walmart! I'll bet you didn't know that. Neither did I until I read the fine print. How did this happen?

I hope the New York Times reports more about all of this.

My main point: if consumers choose to "bank" at Walmart Money Centers, you should know who you really are doing business with. The Walmart brand name appears the retail stores, but several outsourced companies actually process its financial transactions -- just like the big banks.

Me? Walmart Money Centers do not appeal to me for both the reasons above, and plus several Walmart business practices. Hence, I have boycotted Walmart since 2000.

What do you think? Are Walmart Money Centers a good option? If you have moved your money to Walmart, share your experiences.

Some Banks Reverse Decisions To Add New Debit Card Fees

[9:28 AM EST] A prior blog post announced plans by several banks to add new fees for consumers who use debit cards. In a press release on Friday, October 28, Wells Fargo bank announced that it was ending its five-state test program with a $3.00 per month debit card fee. According to a bank spokesperson:

"As we adjust to changes in our business, we will continue to stay attuned to what our customers want..."

In a press release yesterday, Sun Trust Banks announced the termination of its Check Card fees for its Everyday Checking customers, effective November 2, 2011. And, customers who had already been charged the monthly debit card fee will receive a refund. Customers will not need to take any action to receive the refund. According to a Sun Trust Banks spokesperson:

"We believe banking is a relationship business and recognize the importance of responding to client preferences... We've listened to our clients' feedback and will provide the convenience and security of check cards at no additional charge as part of all of our checking accounts."

On Friday, the Los Angeles Times newspaper reported:

"... JPMorgan Chase said that after its own eight-month testing of $3 monthly debit card fees it had decided against imposing them on its customers. Citibank, US Bank and Union Bank are among other major institutions that have now taken the no-debit-fee pledge."

Yes. Listening to your customers is always wise. Doing so sooner could have saved these banks a lot of time, effort, money, and embarrassment.

What about Bank of America? I checked the bank's online Newsroom for a press release or an announcement, but didn't see any. The same Los Angeles Times article also reported:

"Earlier Friday, Bank of America backpedaled, saying it would make it easier for its customers to avoid the fee by waiving the charge if they also used BofA credit cards, maintained minimum account balances or made certain direct deposits. Details of the revised plan had not been finalized, a person familiar with the changes said."

What? That doesn't sound any different than what a Bank of America spokesperson told me previously. It seems the bank's position really hasn't changed, despite plenty of consumer feedback otherwise. This is unsatisfactory. To learn about how to find a bank to move your money to, read this article.

If you are unsure about whether to keep your money at Bank of America, I strongly suggest that you read this Truth-out article.

[November 1, 2011 1:00 PM EST Update: The Boston Globe newspaper reported that bank of America has stopped its plans to charge checking account customers a monthly $5.00 debit card fee.]

8 Ways To Avoid The New Banking Fees

Some consumers have decided not to move their money to a credit union or community bank. If you are one of those customers, you are probably wondering what you can do to avoid those new, hefty fees including the new debit card fees.

There is an article at Bankrate.com which provides eight tips on how to avoid these new banking fees. If you can, to avoid the new monthly debit-card fees use your debit card only only at your bank's ATM machines. Don't use your debit card to make purchases at retail stores or online websites. Bankrate.com advises:

• Know the rules at your bank for when fees are applied and to which accounts
• Read all notices you bank sends. Things change and you have to keep up
• Consider moving your money to an online bank (e.g., a bank that does not have any brick-and-mortar branch offices
• Add services like direct deposit and paperless statements
• Consolidate your accounts to meet any minimums for accounts that aren't charged fees
• Talk with a bank representative in-person and ask them to waive the fees

To learn more, read the Bankrate.coom article.

Details And Transparency Matter As Banks Introduce New Debit Card Fees

While many news sources reported about the plan by Bank of America (BofA) to charge its customers a new $5.00 monthly debit-card fee starting next year, details seem to be scarce. Early reports were short on details, such as this Chicago Tribune report on September 30:

"Customers will pay $5 each month they use a debit card for a purchase. No charge for using BofA automated teller machines. Fee to be phased in starting early next year. Doesn't apply to customers with, for instance, a BofA mortgage or $20,000 in combined BofA and Merrill Lynch accounts..."

As a bank customer, I want to know:

• The exact start date in 2012 the new fees start
• Which checking account customers will be affected
• The rollout schedule (e.g., nationwide or selective by state) for the new fee
• Ways to avoid the new fee
• The actions, if any, the bank took to try to avoid charging customers the new fee

Supposedly, customers who use their debit cards only at ATM machines would not be charged the new monthly fee. Now that BofA has raised the issue of monthly debit-card fees, other banks are considering similar new fees. MSN Money reported:

"Wells Fargo begins testing a $3 monthly fee on Oct. 14 in Georgia, Nevada, New Mexico, Oregon and Washington; JPMorgan Chase is testing a $3 fee in Wisconsin; Regions Bank will impose a $3 fee beginning Oct. 1; and SunTrust is already charging a $5 monthly fee for using a debit card."

USAA Bank used these events as an opportunity to emphasize that its checking and debit-card accounts will remain free.

To learn more so I can decide what to do, I visited the Checking Accounts section of the BofA website to read about the new fee. It didn't mention the new fee. I also checked the BofA online Newsroom which did not include any content or press releases about the new fee. When I signed into my online BofA account, the website didn't display any notices about the new fee.

So, I visited a local BofA branch to learn more. The customer service representative I spoke with was very polite and asked me what I knew. I summarized the news reports I had read and asked her for details. She mentioned that the new fee will apply next year to debit-card customers with basic checking accounts, who use their debit card for purchases. I explained to her that I do not use my debit card for purchases due to skimming devicies at many retailers, such as supermarket terminals and gas station pumps.

She then explained briefly that customers with premium and platinum level accounts would not be charged the new monthly debit-card fee, even when using their debit cards for purchases. There was nothing in writing, and the chart of various checking account plans she pointed to did not mention the new fee.

She then asked for my account number so we could review my account. It turned out that I have a Platinum level account, so my account won't be charged the new monthly debit-card fee. While this was good news for me, I know that not everyone has a premium-level account which exempts them from the new fee.

Regardless, I feel that BofA has done an extremely poor job of communicating details about the new debit-card fee to its customers. Maybe other banks have done a better job. BofA used the news media instead of communicating directly to customers, first. Either a bank values its customers or it doesn't. I have the impression that it doesn't.

The BofA hasn't disclosed what percentage of its customers will be affected by the new fee. My guess: Most. After preforming several online searches and reading through at least 16 news reports, I finally found this Time Magazine report which confirmed what I had heard:

"In an email, BofA spokeswoman Anne Pace said the fee applies to MyAccess, Essentials, eBanking and Enhanced accounts. Customers with Platinum Privileges, Premium and Advantage accounts won’t have to pay the fee; these are all accounts aimed at customers with five-figure balances or other big-ticket ties to the bank like a home mortgage. “In addition, Wealth Management/Merrill Lynch and US Trust clients will not be charged the fee...”

So, if you have are rich, have a mortgage or investments with, or have several accounts with BofA, you can avoid this new fee -- and many other fees. If you are poor or don't have much money, well tough luck.

Many BofA consumers are concerned. Some are furious. Some feel resentful because the BofA and other banks received bailouts during the recession, and senior bank executives have received huge bonuses and compensation.

Some view this new fee as expensive. Given high employment in many parts of the country, I agree with this. About 120,000 BofA customers in 50 states have signed an online petition demanding that the bank cancel the new fee.

Some BofA customers have moved their money to local community banks or to credit unions. One Arizona credit union has seen a 20% increase in new applications over the weekend. I would imagine that a larger number of customers are considering a move of their money to a community bank or to a credit union.

I contacted BofA's Public Relations department about this. Spokesperson Betty Riess emphasized the bank's commitment to transparency and clear communications. She mentioned that, "... it's still early on" and the new fee wouldn't start until "early next year." She said that the bank would notify affected customers at least 30 days before the new fee goes into effect, and that the new fee would be rolled out in phases across the country.

Just to be clear, I am not defending any of the banks that plan to charge this new monthly fee. While banks have a right to make a reasonable profit, we consumers have a right to demand quality customer service at reasonable prices. We consumers have experienced lots of price hikes, starting with huge credit-card interest rate increases in 2009. And, the debit-cards distributed by American banks use obsolete technology.

Frankly, the banks have broken consumer trust. BofA hasn't provided me anything in writing about the new debit fees, so they could still change the terms of deal between now and next year. This situation does not promote trust.

What else might be going on? The issues I see:

1. Double Charges
2. Lack of Transparency

Double Charges

Consider this: Online transactions are what make the Internet go. In other words, electronic payments are what make buying and selling on the Internet possible, and attractive. With this new fee, banks are screwing around with the electronic economy.

Think of it this way: When you use your debit card to pay online at a retailer's website, the new debit-card fee adds a cost to that transaction for consumers, even though the cost of that online transaction was, in theory, already included into the cost of the retailer's product or service. You could say consumers are getting charged twice.

The double charges definitely apply if retailers don't lower their prices commensurate with the new, lower swipe fees. Will retailers lower product prices given the lower debit-card swipe fees?

The National Retail Federation commented about this, since its members benefited from the legislation that lowered debit-card swipe fees:

“Retailers across the nation are developing a wide range of innovative ways to pass these savings along to their customers with lower prices and better value... Change won’t come overnight, but consumers will definitely benefit... Every time Congress takes a step to protect consumers, the banks use it as an excuse to raise fees. We’ve seen it when Congress limited late fees and overdraft fees and now we’re seeing it with swipe fees. Just as merchants and consumers are about to get some relief, they’re doing it again. That doesn’t mean Congress shouldn’t pass consumer protection laws. It speaks more to the nature of the card industry than to whether swipe fee reform should have been passed.”

I am hopeful that retailers will lower their prices. Lower prices mean greater product sales. And greater sales could translate into more jobs for consumers. So, we'll see during the coming months what happens. If retailers don't lower their product prices, then consumers have been "mugged" yet again.

Lack of Transparency

Since the previously higher swipe fees were paid to the banks by retailers or merchants, the banks seemed to have made a calculation that since they can't charge merchants more, they can charge consumers more to make up the lost revenues. This caused me to think about who receives the debit-card swipe-fee revenues.

So, I searched online for "merchant services," since that is the business function where banks provide banking services to businesses. One link I found was the Merchant Services section of the BofA website, where BofA provides checking accounts to businesses. That read like pretty standard stuff.

A more interesting link I found was a link to a description of "Banc of America Merchant Services LLC" at the Hoovers website, which stated:

"The next time you swipe your card and it clears, you might thank Banc of America Merchant Services. A 2009 joint venture between Bank of America and First Data, it is one of the largest processors of electronic payments in the US. The firm handles more than 7 billion check and credit, debit, stored value, payroll, and electronic benefits transfer card transactions..."

When banks claim that the "economics of debit cards have changed," it's a reference to the banking legislation that capped swipe fees at about 21 cents per debit transaction, from a prior high of 43 cents. Does each online transaction really use 21 cents worth of electricity? I doubt it. Are their administrative costs that high? I doubt it. If their costs are that high, what are they doing to lower those costs? And if they aren't doing anything to lower those costs, then maybe they shouldn't be in business anyway.

So, the BofA outsources its debit-card transaction function to another company: Banc of America Merchant Services. Many consumers might be surprised to learn that BofA outsources this function to another company. Companies often claim that outsourcing is done to lower costs, but in this instance that doesn't seem to be the case, since this outsourcing isn't discussed.

My point: BofA partnered with another company to create a separate company that actually processes debit-card transactions, and it shares in those debit-card transaction revenues. Some people might call this double-dipping. I recognize its partner's name from prior blog posts: First Data.

This raised more questions for me than it answered. I now wonder who gets the revenues from the new debit-card fees the banks plan to charge consumers. Does the revenue from this new fee go to the BofA or to Banc of America Merchant Services? Or does it all go to First Data?

Also, there is the ethical question: Is it right for banks to charge consumers for a transaction function that previously was a merchant services function? It seems to me that the banks should resolve the profitability of their merchant services operations between themselves, transaction processors, and merchants. How might banks do this?

The banks seem very creative at introducing new fees. The banks could have created another new fee for their merchants, and charged merchants directly with this new fee. Or the banks could have lowered their internal costs by outsourcing to different vendors. Perhaps the costs the banks pay to outsourcing vendors for debit transaction costs is too high.

I asked Riess about this and she said that the debit-card fee revenes go to the BofA. She didn't elaborate beyond that general answer. She said she couldn't discuss what actions BofA might have taken to lower its costs before adding the new debit-card fee. She said that she couldn't discuss the questions I raised about Banc of America Merchant Services. I don't know if she couldn't discuss due to a lack of knowledge, or an internal directive.

Consumers might want to ask their banks to explain what debit-card transaction processing venture their bank engages in, and exactly where the money collected from debit-card fees go.

I am not a banking expert, but something funky is going on. It just doesn't pass the smell test.

It seems that rather than try to lower their debit-card transaction costs, the banks "punted the football" and simply want to charge consumers to make up the lost revenues, without explaining to their customers first:

• Their debit-card transaction processing ventures,
• The steps they have taken to cut costs so they don't have to raise prices, and
• The steps they have taken to make up their alleged revenue shortfall with merchants rather than with consumers

This lack of communication indicates that the banks are not being honest nor transparent about what is really going on.

What else might be going on? The New York Times reported:

"Bank of America probably has bigger problems than any of its competitors. So it stands to reason that it would make a bolder move. After all, it is dealing with a pile of troubled mortgages, legal fallout from the sales of bonds made from those loans and questions about how it serviced its home mortgages."

Perhaps, but this does not give the banks a free pass on the questionable merchant-services revenue situation I described above. I'd like to see BofA and its executives act in a more respectful and transparent manner to customers. That means communicating to customers first about what is happening, and acting in an accountable manner for past decisions (e.g., Countrywide, foreclosure documentation shortcuts) without penalizing its customers for poor decisions its executives made.

Resources

If you have decided to move your money out of BofA or your current bank, MSN Money advises consumers to look for banks with "switch kits," and to follow these five steps:

1. Choose your new bank
2. Open your new bank account first
3. Change your direct deposit
4. Close your old bank account after all outstanding checks have cleared.
5. Set up automatic payments online at your new bank

More resources to help you find a new bank:

• Move Your Money project: website, Facebook
• Checking Finder
• Consumer Reports: Free Checking

What is your opinion of the new debit-card fees? Or about the double charges and lack of transparency? If you have moved your money to a community bank or credit union, share your experience below.

Banks To Expand Their Selling of Consumers' Shopping Data

In response to regulation limiting banks' fees, banks plan to replace their lost revenues by selling consumers' shopping habits and data. If you consider how you currently use your debit cards, banks are able to collect an amazing amount of data about where you shop, when you shop, and how much you spend on various types of items.

If you are like most people, you use your debit card to pay for everything: food, clothing, entertainment, travel, medicine, doctor's visits, liquor, and more. Combine that data with your phone calling patters and the geo-locations in your smart phone, and its a comprehensive database of where you go, when you go, where you shop, what you buy, and how much you spend.

CNN Money reported:

"Merchants pay banks an average fee of 10% to 15% of the purchase price of a product each time a customer uses a discount that's generated from the bank's data, according to Cardlytics, an intermediary that works with both banks and retailers. Typically, the bank takes a 25% cut of that fee and pays the rest to an intermediary, like Cardlytics. So if a customer buys a $1,000 couch, the merchant pays a fee of up to $150 to the bank and the bank walks away with $37.50."

How the new deals will look to consumers based on the consumer data collection:

"Say you use your Citi-issued debit card to buy a pair of shoes at Nordstrom, and then Citi sells that information to a series of retailers. As a result, you receive a coupon from Macy's for a 20% discount on shoes at its store. The coupon is delivered by Citi, however, not from Macy's. To redeem the coupon, you must respond by text, e-mail or by checking off a box next to the offer on your online bank statement. Once you go into Macy's to buy the shoes, Citi will retroactively credit your account for the 20% discount."

Anytime I read a phrase like, "retroactively credit" alarm bells go off. I want to know how quickly the credit is applied and what might affect the timing or amount of the credit. That means reading the fine print for any cardholder agreements.

Some consumers like the deals and discounts they get for giving up personal information and privacy. Experts speculate that some consumers make prefer these deals over those available at online social networking website deals, like Groupon.

If you read this blog regularly, then these new fees should be no surprise. How did we get to here? Banks already compile databases about your spending with your credit cards. Learn more about the history of how banks made money from credit cards.

After banks raised the interest rates on credit cards in 2009, many consuemrs shifted their purchases to debit cards. Then, banks increased fees on a variety of actions, such as checking account overdrafts. After many consumer complaints, the U.S. Congress resopnded with legislation limiting the feeds banks can charge for debit cards and credit cards.

You could call this latest move by the banks an escapation in the race to get your money, versus you keeping your money.

As I see it, it all boils down to consumer choice: you decide how much of your personal information to disclose, and for what in return. Your shopping purchases and habits are definitely personal information. A discounted product isn't a "savings" as you still need to spend money. Remember, the debit-card shopping data collection by many banks will happen whether you take advantage of these new deals or not.

What consumers can do if you don't like the data collection:

• Read the fine print for your card agreement, especially when your bank updates its terms of use and privacy policies (online at its website, or in your monthly credit card statement). That will provide clues about how much privacy you don't have, the companies the bank will sell your shopping data to, and options for you to opt-out of e-mail and snail-mail marketing offers.
• If you want to keep purchases private, use your debit card at ATM machines to withdraw cash and shop with cash at retailers. There there is no shopping data attached to your debit card.
• Move your money to a local bank or credit union with better service and more favorable privacy terms
• Be a smart shopper with mobile banking and "mobile wallets" -- purchases made with your smart phone. First, make sure that anti-malware is intalled on your smart phone. Second, only install trustworthy apps that have privacy policies. Otherwise, leaky apps will compromise your personal information and money.

What is your opinion of this? If you have found a bank, with a favorable privacy policy, that doesn't sell your debit-card shopping data, share the bank name or website address below.