I've Been Mugged

Visa Survey Claims Consumers Lose $1 A Day In Cash

While surfing the web recently, I ran across a news item at Talking Payments, a website for people and companies (e.g., banks, retailers, card issuers, payment processors, etc.) interested in digital payments. The TP news item mentioned a study by Visa that consumers lose, on average, about $1.00 a day.

To learn more about the Visa study, I next visited the Visa Viewpoints website. The August 2012 survey included 5,641 people in Australia, India, Indonesia, Japan, Russia, Singapore, South Africa, South Korea, Taiwan, Thailand, the UAE, and the USA. View the infographic about the study (Adobe PDF). The survey tries to document the "cost" to consumers of using cash by adding cash lost plus idle cash. Some findings:

• In the US: $365 lost cash = $285 in lost foreign currencies after trips + $80 in idle cash lying around your home, office and/or car.
• In the US: men ($331) lose more than women ($245). And, younger people ($165) lose more than older people ($135).
• Lost cash varies across countries: Singapore ($656), Australia ($361), Japan ($349), and Russia ($137)

At first read, this seems very interesting. The implication of this study is that consumers who use payment cards (e.g., credit, debit, or prepaid) won't lose cash daily. Losing $1.00 a day in cash equals about $30 a month, or $365 a year.

Do you lose $1.00 a day in cash? I don't. I know this as I check the cash in my pocket at the end of the day -- everyday. When I receive change in the form of bills, I place that change in my wallet immediately. And, I don't consider idle cash as "lost." Maybe you do, but I don't. So, I am wondering exactly what consumers really lose $1.00 a day cash, and if people really lose that much cash daily.

One of the footnotes in the Visa inforgraphic reads:

"2. Foreign currencies given as tips given away in airports and/or misplaced."

What? So, a portion of the supposedly lost foreign currencies includes tips. I don't consider tips as lost money. When traveling, I tip bellhops, taxi drivers, and others who help me with my luggage. That's not lost money, That is paying for services received. Sometimes, I have foreign currencies left over from a trip, but that amount is nowhere near $285. It's under $5.

What's really going on here?

In my view, several things. First, banks really want to capture usage from consumers who don't have traditional bank accounts, or have only one account (e.g., checking or savings). Second, banks really want consumers to migrate to prepaid cards where there are fewer regulations for them; which means fewer or weaker consumer protections and consumer rights. That includes banks working with employers to provide payroll cards and banking services via prepaid cards, and/or health care spending accounts via prepaid cards. To learn more, read the list of prepaid card fees in this blog post, the payroll cards from Bank of America, and the Walmart MoneyCard.

To me, the study methodology compiled numbers in a way to inflate the amounts lost to justify these business goals.

Third, even if you lose as much as $1.00 a day in cash, a fair comparison is to consider the fees associated with prepaid cards, and if those those fees are greater than the cash you really lose. CNN Money found that basic prepaid card fees are about an average of $300 per year. That is almost as much as the supposed cash lost by consumers in the US, Australia, and Japan. Those average prepaid fees exceed the cash lost by consumers in several countries.

Both CNN Money and Consumer Reports found a wide variety of fees when it investigated prepaid cards: activation fees, monthly fees, reload fees, cash withdrawal fees, inactivity fees, online payment fees, paper statement fees, customer service phone call fees, and more.

What do you think of the Visa lost cash study?

Consumers Advised To Be Wary Of Prepaid Card Protections

If you haven't read it, there is an article by Sheila Blair in USA Today. Blair is a chairwoman at the FDIC and also a senior adviser to the Pew Charitable Trusts. If you use a prepaid card, then this article is a must-read. If you are considering a prepaid card instead of a traditional bank account (e.g., checking and savings), then this article is a must read.

In her article, Blair explores the relationship between banks, prepaid cards, and FDIC insurance protection for consumers:

"Banks sometimes fail... because of insurance provided by the Federal Deposit Insurance Corporation (FDIC). When a bank fails today, its insured depositors never lose a dime. By design, the failing bank is usually taken over by another bank... In fact, nearly 500 banks failed during the financial crisis and its aftermath, and every single depositor had access to their insured money within one business day... But this seamless protection for insured depositors can be avoided by companies that offer "reloadable" prepaid cards, a rapidly growing product that many Americans use instead of conventional checking accounts..."

So, don't get "mugged" by your bank's prepaid card. Ask your prepaid card provider for a copy of the complete terms and conditions agreement for your prepaid card. To learn more, read the Prepaid Cards section of this blog.

Payment Processors: A New I've Been Mugged Topic

When consumers purchase a product or service with some form of plastic (e.g., credit cards, debit cards, prepaid cards) and their mobile device, usually several companies are involved in completing that transaction: getting the money to the retailer (online or brick-and-mortar). While many consumers may believe that only their bank is involved in processing the transaction, the reality is that more companies are often involved.

One type of company involved are payment processors, companies that process these financial transactions. Sometimes these payment processor companies experience data breaches where sensitive customer information is lost or stolen. With recent events in the banking industry, and the spread of prepaid debit cards, this new topic can help you more easily read about and understand what is happening within the banking and retail industries.

I have tagged this new topic retroactively to archived blog posts, so you read and understand the types of information available. See the new "Payment Processors" topic. I hope that you find it useful.

The Companies Involved In Payment Transactions When Consumers Buy Items

When consumers pay for products and services, today they have a wide variety of options. To make these options work, a variety of companies are involved behind the scenes in the payment transactions: the companies money and information flow through after a consumer purchases something at the checkout register. Consumers may not realize the wide variety of different companies involved.

Companies involved in the payment transactions flow often have their onw privacy policy, and data collection of consumers' sensitive information -- driven by their agreement with the retailer or bank. And, each company involved may experience data breaches where consumers' sensitive information is exposed or stolen:

	Payment Method
Company Type	Cash	Credit Card	Debit Card	Retailer's Prepaid Card (1)	Bank Prepaid Card (2)	Prepaid Card: FSA (3)	Smart Phone
Brick-&-mortar retail store	No	Yes	Yes	Yes	Yes	Yes	Yes
Online retail website	n/a	Yes	Yes	Yes	Yes	Yes	n/a
Retailer's partners &/or affiliates (4)	n/a	Yes	Yes	Yes	Yes	Yes	Yes
Your bank	n/a	Yes	Yes	n/a	Yes	Yes	Yes
Retailer's bank	n/a	Yes	Yes	Yes	Yes	Yes	Yes
Payments Processor (5)	No	Yes	Yes	Yes	Yes (6)	Yes	Yes
Your Employer	n/a	n/a	n/a	n/a	Yes	Yes	Yes
Healthcare Vendor (7)	n/a	n/a	n/a	n/a	No	Yes	n/a
Wireless Provider	n/a	n/a	n/a	n/a	n/a	n/a	Yes
Mobile Device Manufacturer	n/a	n/a	n/a	n/a	n/a	n/a	Yes
Mobile Device Operating System Developer (8)	n/a	n/a	n/a	n/a	n/a	n/a	Yes
Mobile App Developer (8)	n/a	n/a	n/a	n/a	n/a	n/a	Yes
App Store	n/a	n/a	n/a	n/a	n/a	n/a	Yes

Footnotes:

1. Includes gift cards offered by retailers that are good only at that retailer's stores.
2. Includes general-purpose prepaid cards usually offered by banks
3. Includes prepaid cards used by employers to adminster healthcare Flexible Spending Accounts
4. Includes outsourced vendors that administer a retailer's email marketing programs, cloud-based storage services, customer relationship management databases, mobile marketing services, product fulfillment, and/or data mining services; plus companies that perform co-marketing campaigns
5. The bank and/or company that processes the debit/credit card transactions
6. Applies to employers that pay employees via a payroll debit cards
7. Some employers outsource the administration of their healthcare Flexible Spending Account (FSA) program to an external vendor, and issue participating employees a special prepaid card
8. The company that develops and maintains this software mobile devices

What do you think about the above chart?

Chicago Transit Authority Riders To Use New Ventra Card Starting This Summer

Last month, the CBS television network affiliate in Chicago reported about a new fare card to be offered this summer in Chicago by the local public transit authority. The news report stated:

"... one of the companies behind the new card gets an F rating from the Better Business Bureau... It will be offered by Money Network, which is owned by First Data. Money Network currently has an F rating with the BBB."

Reportedly, the "F" rating was based on complaints by consumers since 2010. Chicago officials said that the new Ventra fare system will save the Chicago Transit Authority (CTA) about $50 million during its 12-year contract with Money Network.

The new Ventra fare card will be available for Chicago consumers during the summer of 2013. Consumers will have the option to use the Ventra card to pay for CTA fares, or to opt in and also use it as a prepaid debit card to pay for purchases at local retail stores. By 2014, the CTA will migrate fully from the current Chicago Card and Chicago Card Plus payment methods to the new Ventra system. In the future, consumers will also be able to pay using their smart phones.

I visited the Ventra Chicago website to learn more. The website provides some information about this new fare and prepaid card:

"Cards are issued by MetaBank™, Member FDIC, pursuant to license by MasterCard International Incorporated. MasterCard and the MasterCard Brand Mark are registered trademarks of MasterCard International Incorporated."

This means that both the CTA and its riders will be doing business with MetaBank. Consumers that activate the prepaid debit option on their Ventra card will definitely want to know what bank is used, especially if there are problems or need help. (What could go wrong with a prepaid card? Read parts 1 and 2 about a consumer's experience with a healthcare prepaid card.) Since Money Network is a Ventra vendor, it means that Money Network (e.g., First Data Corp.) will likely perform the payment transaction processing.

You never heard of MetaBank? There is a pretty useful summary of MetaBank at the GetDebit website:

After reading the Ventra Chicago website, I also expected to find the full terms and conditions (e.g., contract) that applies when consumers opt-in to use the prepaid debit option with their Ventra Chicago card. In my experience, details matter with any prepaid card. Often, prepaid cards contain minimums, limits, and/or several fees (e.g., to load money onto the prepaid card, or make cash withdrawals at certain bank ATM network machines). Additional fees may apply if you use the prepaid card at a different ATM network.

In January, this blog reviewed the new AAA card. Like the coming Ventra Chicago card, AAA members can use their new AAA card as an identification card for towing services and discounts, or opt in and activate the prepaid debit option to use the card to make purchases at retail stores. The new AAA prepaid card has a $25.00 minimum to load money onto it, and a maximum monthly limit of $2,500 (or a $10,000 max with direct deposit). With the new AAA prepaid card, each month only the first ATM cash withdrawal is free, and all other ATM withdrawals cost $2.00 each. And, you have to use it at American Express network ATM machines.

I wanted to see if there were similar conditions with the new Ventra Chicago card, but the website didn't say. This is the type of information informed consumers look for, since there are legal differences and rights consumers have with prepaid cards compared to both credit- and debit cards. Informed consumers want to know their rights and specific rules, especially about replacing the funds on lost/stolen Ventra cards. Hopefully, CTA officials will update the Ventra Chicago website soon with the appropriate detailed information, so Chicago-area consumers can make informed choices.

I visited the BBB website to see if its rating of Money Network had changed since last month. It had and is now rated B+:

You don't need to be a rock scientist to see that the Ventra Chicago business model is one that can be replicated with public transit systems in other cities across the country. As each system makes decisions about the payment methods they will use, transparency is critical. It is important for transit systems to provide consumers with as much choice, freedom, and privacy as possible with payment options, while minimizing fees and surcharges.

What else is going on here? As I see it, several things. First, banks are trying to capture more customers by targeting both consumers who don't have a bank account (called the "unbanked" in industry jargon), and consumers have a single bank account (e.g., checking or a savings but not both are called the "underbanked) with prepaid card pitches. Second, banking industry research has found that consumers who have used debit cards and were burned with multiple overdraft fees, now view prepaid cards as a way to avoid high overdraft fees. So, banks have targeted these consumers, too, with prepaid card pitches directly or through intermediaries (e.g., government, employers). These consumers often don't realize the limits, minimums, fees, and surcharges that often are included with prepaid cards.

Third, given current technologies it is fairly easy to make plastic identification cards perform the traditional functions plus act as a prepaid debit card. That's why you now see prepaid cards to receive government benefits, and with employer healthcare FSA programs. Fourth, it is no secret that banks perform huge data collection of consumers' purchases with all types of plastic in your wallet or purse: debit cards, credit cards, and prepaid cards. Banks analyze and sell your purchases with other businesses including data brokers. So, if you want privacy, keep using cash.

My advice to consumers is this: anytime a bank or company serves up a strong "convenience" pitch with a prepaid debit card, take the time to read closely the contractl details (e.g., often called the Terms and Conditions), the schedule of fees, and the privacy policy. Those documents will indicate what protections and rights you have (or don't have), and the costs. And, there are five things you should know about prepaid cards.

What is your opinion of Ventra Chicago? Of MetaBank? Of Money Network?

The AAA Prepaid Card. A Good Deal?

Just before the Christmas holiday, I received in the postal mail my new AAA card for 2013. While reading the materials enclosed, I learned that my new AAA membership card is also an American Express Prepaid Card. To learn more, I visited the AAA.com/americanexpress website and read the Cardmember Agreement.

The website clearly states that the AAA Prepaid card is not a debit card, credit card, nor a gift card. You can use it wherever retail stores accept American Express Cards. AAA crafted the deal correctly: AAA members have to opt in or activate their AAA Prepaid card in order to use its prepaid features from American Express. If a member does nothing, then their AAA Membership card functions as it always has.

The AAA/American Express website pitches four major benefits of the AAA Prepaid Card:

• World-class American Express benefits
• A safer way to spend
• Several ways to fund the AAA prepaid card
• Manage spending easily

The American Express benefits include purchase protection, savings on tickets to entertainment events, assistance when traveling, and other special offers. The card seems beneficial as a payment method while traveling abroad when retail merchants don't accept credit card payment methods (e.g., MasterCard, Visa). A consumer could use the AAA Prepaid Card instead of American Express Travelers Cheques when traveling abroad.

The "safer way to spend" benefits include protections if the card is lost or stolen, and no overspending and no overdraft fees. The lost/stolen protection is helpful, but the no overspending/overdraft-fee benefits are dubious. There are no overdraft fees with cash. If I don't have the cash, I don't spend it.

There are several ways to add money to the AAA Prepaid Card: cash, bank account transfer, check, direct deposit, or an American Express(TM) Card. You have to load at least $25.00 on the AAA Prepaid card and a maximum monthly of $2,500 (or a $10,000 max with direct deposit). Each month, the first ATM withdrawal is free, and all other ATM withdrawals are $2 each.

If the AAA website has a link to the American Express ATM locator, I couldn't find it. Having that link would be helpful for consumers who anticipate using their AAA Prepaid Card for ATM withdrawals.

The website emphasizes no activation fee, no monthly fees, no reload fees, and no foreign currency transaction fees. This is good because prepaid cards often have lots of fees. However, the ATM withdrawal fees mean you have to pay to access your own money, and can only make withdrawals at ATM machines that accept American Express Cards. Not good, especially if you have a bank account of sufficient size where your bank or credit union waives ATM fees.

The Cardmember Agreement clearly states:

"The Card is a prepaid, reloadable payment device which must have funds loaded to it prior to use. The Card is not a gift, credit, debit or charge card, and does not constitute a checking, savings or other demand deposit or consumer asset account. The Card is not a payroll card and cannot be used to make payroll to anyone... Subject to the amount of Available Funds on the Card, we may allow you to use the Card to obtain cash from Automatic Teller Machines worldwide that accept the American Express Card..."

This means it is a "general-purpose reloadable" prepaid card and has the responsibilities and liabilites associated with any GPR prepaid card. The bank can raise fees or change terms at any time without notice. There are no Federal disclosure requirements, so you are at the good graces of AAA and/or American Express to promptly alert you with advance notice about any changes in fees or terms.

The AAA Prepaid Card is "paperless" (Adobe PDF) -- all disclosures statements are only online. You don't receive monthly statements, so you have to check your balances online. The Cardmember Agreement also has specific disclosures for residents of Alaska, Arizona, California, Indiana, Kentucky, New Hampshire, Oklahoma, Oregon, South Dakota, Texas, and Vermont.

I've Been Mugged blog readers know that this blog has covered prepaid card before. Wise consumers should understand their rights and responsibilities before registering any prepaid card. If you are looking for a prepaid card to avoid overdraft fees with your debit card, it is wise to shop around and compare first, so you don't get "mugged" by other fees. Both CNN Money and Consumer Reports found a wide variety of fees when it investigated prepaid cards: activation fees, monthly fees, reload fees, cash withdrawal fees, inactivity fees, online payment fees, paper statement fees, customer service phone call fees, and more.

If you need to build your credit history, then a prepaid card may not be right for you. If you already have checking and savings accounts, then you may find a prepaid card of little benefit. Wise consumers do the research to determine whether a prepaid card fits your lifestyle and spending habits. Read this FDIC comparison between debit cards, credit cards, and prepaid cards.

Is the AAA Prepaid card a good deal? Only you can decide for yourself. You know your lifestyle and spending habits best.

For me, I chose tol continue using my AAA membership card the traditional way, and not activate its prepaid card features. I'll continue to use my debit- and credit cards instead. My bank account balances are sufficiently high that my bank waives all ATM fees. My credit cards already provide rewards and special offers. Plus, I have not had any problems using my credit cards when traveling abroad. I simply don't buy that much when traveling abroad.

The new AAA Prepaid Card highlights the trend of many retail organizations to turn membership cards into prepaid cards. In my opinion, we consumers now see so many prepaid card offers because prepaid cards are a way for banks to avoid the newer rules governing debit- and credit cards that mandate certain disclosures and protections for consumers.

What do you think of the AAA Prepaid Card? If you use it as a prepaid card, what has been your experience?

States' Attorney Generals Urge Congress To Reject Payday Lender Bill

On Friday, several states' Attorney Generals announced that they had sent a letter to Congressional leaders urging them to oppose HR 6139, known as the Consumer Credit, Access, Innovation, and Modernization Act. The letter read in part:

"Most states have enacted laws and rules to regulate short term lending, including payday loans. Many of these states have chosen to strike a regulatory balance that preserves access to alternative forms of credit while protecting consumers from repeated debt cycles and other pitfalls associated with such products. H.R. 6139 would turn back existing consumer protections... H.R. 6139 would give nonbank financial services providers – including payday lenders, installment lenders, car-title lenders, prepaid-card issuers, check cashers, and others – access to a federal charter issued by the Office of the Comptroller of the Currency. The bill would totally preempt state licensing laws for nonbank financial services providers... In place of state safeguards, the bill would establish only minimal consumer protections... the bill establishes no standards for determining a consumer’s ability to repay. Moreover, the bill would exempt loans with terms of one year or less from the disclosure requirements of the Truth in Lending Act – the universal standard for measuring the true cost of credit – and substitute a cost metric that is confusing and misleading..."

The letter was sent on Friday October 5, 2012 to House Speaker John Boehner, House Minority Leader Nancy Pelosi, Senate Majority Leader Harry Reid, and Senate Minority Leader Mitch McConnell. 41 states' Attorney Generals signed the letter, including Guam and Puerto Rico.

In Congressional testimony during July 2012, the Office of the Comptroller of the Currency (OCC) stated its concerns:

"The effective result of H.R. 6139 would be to create a class of federally chartered companies (National Consumer Credit Corporations, hereinafter referred to as “NCCCs” or “companies”) focused on consumer credit products of the very nature and character that the OCC has found unacceptable based on consumer protection and safety and soundness concerns. In particular, it is our experience that the profitability of many of the types of small dollar, short-term loans that NCCCs would likely seek to offer is dependent on effectively trapping consumers into a cycle of repeat credit transactions, high fees, and unsustainable debt... The bill will result in a decrease in protections for categories of consumers that may be the most vulnerable. We have ample evidence from the recent financial crisis that the goal of enhanced access to financial products and services must be coupled with assurances that those consumers are subject to meaningful consumer protections and that the firms offering those products and services must do so on a prudent, safe, and sound basis. In this regard, the Consumer Financial Protection Bureau (CFPB) has been provided the authority to issue rigorous, uniform, and nationally-applicable consumer protection standards for financial products and services. It is important that the types of products envisioned for NCCCs not be carved out of coverage of CFPB-administered lending standards..."

There are plenty of examples of this cycle of repeat credit transactions, high fees, and unsustainable debt. In February 2009, CBS News reported about the payday lending industry:

"They've now grown into a $59 billion industry. But six states - Arkansas, Georgia, New Hampshire, North Carolina, Ohio and Oregon as well as the District of Columbia - have now effectively banned these loans... there are 24,000 payday lending stores in America - more than Starbucks and McDonald's combined. They provide 19 million American households a quick way to make ends meet... A typical customer takes out about eight payday loans a year..."

CBS News reported in April 2009:

"The payday loan industry, threatened by Congress with extinction, has deployed well-connected lobbyists and hefty sums of campaign cash to key lawmakers to save itself. The strategy has paid off."

This 2011 news report explained how many layday lenders charge unbelievably high interest rates. Last month, the City of San Francisco negotiated a settlement with payday lender Money Mart (a/k/a Loan Mart), which agreed to pay to $7.5 million to reimburse consumers for alleged illegal lending activities and interest rates as high as 400 percent. Consumers eligible to receive reimbursements may receive payments ranging from $20 to $1,800.

The letter caught my interest for three reasons. First, it seems to avoid unnecessarily the CFPB. Second, it mentioned prepaid-card issuers, which this blog has covered extensively. Banks and non-bank prepaid-card issuers have targeted the same market as payday lenders: consumers who have a checking or savings account and not both (e.g., underbanked), or who have neither (e.g., unbanked). About 8 percent of U.S. households are unbanked, and 20 percent are underbanked. Unbanked and underbanked households are typically non-Asian minorities, low-income, young, and unemployed.

Third, anytime a proposed Congressional bill mentions both "modernization" and financial services, a closer inspection is usually wise. (The Graham-Leach Bliley Act, which repealed Glass-Steagall comes to my mind.) Things often get modernized for some, not for others who really needed it, and there are always unintended consequences. One of the OCC's concerns is money-laundering, which is connected to a host of other global ills. Legislation that creates a new class of financial institutions needs to be well constructed, closely reviewed, an adequately discussed publicly.

The Attorney Generals' letter to Congress is available at the Illinois Attorney General website (Adobe PDF). Download H.R. 6139 (Adobe PDF) and see page 24, lines 3 through 8. That's a deal breaker. And, I suggest that you read the full testimony about H.R. 6139 by the OCC Deputy Comptroller of Compliance Policy (Adobe PDF).

Survey: FDIC Releases Results From Latest Survey Of UnBanked And UnderBanked Consumers

Yesterday, the Federal Deposit Insurance Corporation (FDIC) released the results of its "2011 National Survey of Unbanked and Underbanked Households." The FDIC conducts this survey every two years, in a partnership with the U.S. Bureau of the Census. Key findings from the survey:

• "8.2 percent of U.S. households are unbanked. This represents one in 12 households in the nation, or nearly 10 million in total. The proportion of unbanked households increased slightly since the 2009 survey. The estimated 0.6 percentage point increase represents an additional 821,000 unbanked households."
• "20.1 percent of U.S. households are underbanked. This represents one in five households, or 24 million households with 51 million adults. The 2011 underbanked rate in 2011 is higher than the 2009 rate of 18.2 percent..."
• "29.3 percent of households do not have a savings account, while about 10 percent do not have a checking account. About two-thirds of households have both checking and savings accounts."
• "One-quarter of households have used at least one AFS product in the last year, and almost one in ten households have used two or more AFS. In all, 12 percent of households used an AFS product in the last 30 days, including four in ten unbanked and underbanked households."

The survey included responses from about 45,000 households. The term "unbanked" refers to consumers who do not have a checking account nor a savings account. the term "underbanked" refers to consumers who have either a checking account or savings account, but not both. This is important because banks have targeted both unbanked and underbanked consumers with financial products and services-- typically prepaid cards and variations such as flexible spending health-care cards and payroll cards.

These prepaid cards, which often have numerous fees, and offer fewer rights for consumers than both credit cards and debit cards. Industry research has documented the perception by consumers, many of whom have bank accounts, that prepaid cards are a desirable method to avoid the expensive overdraft fees with debit cards. Some additional findings from the survey:

"The highest unbanked and underbanked rates are found among non-Asian minorities, lower-income households, younger households, and unemployed households. Close to half of all households in these groups are unbanked or underbanked compared to slightly more than one-quarter of all households... Among unbanked households, slightly more than half have never had a bank account. Relatively high proportions of Hispanic (14.7 percent) and foreign-born noncitizen households (18.9 percent) have never had an account. The most common reasons why households report they do not have bank accounts are that they feel they do not have enough money for an account, or they do not need or want one."

The specific banking rates by demographic groups:

Demographic Group	UnBanked %	Underbanked %	Fully Banked %
All Households	8.1	20.1	68.8
Black households	21.4	33.9	41.6
Foreign-born, non-citizens	22.2	28.9	45.8
Households experiencing unemployment	22.5	28.0	47.5
Lower income households (less than $15,000)	28.2	21.6	47.6
Unmarried female head of households	19.1	29.5	48.4
Hispanic households	20.1	28.6	48.7
Households with people under age 24	17.4	31.0	49.7

By targeting unbanked and underbanked households, banks are trying to replace pay-day lenders and check cashing services, often referred to as "Alternative Financial Services" (AFS). The survey reported:

"AFS transaction products (i.e., non-bank money orders, non-bank check cashing, and non-bank remittances) are considerably more widely used than AFS credit products (i.e., payday loans, pawn shops, rent-to-own stores, and refund anticipation loans). In the last year, 23.3 percent of households used transaction AFS and 6.0 percent used AFS credit products. The relationship between household banking status and AFS use is complex. A non-trivial share of unbanked households (29.5 percent) do not use any of the AFS providers asked about in the survey, suggesting they rely primarily on cash. However, overall, unbanked households are more active AFS users than underbanked households."

Also, I found these survey results interesting:

"Having a bank account does not guarantee long-term participation in the banking system. Households can and do cycle in and out the banking system over time. For example, nearly half of unbanked households had an account in the past, and nearly half (48.2 percent) of these report that they are likely to join the banking system again in the future... Households with banking experience appear to have more positive perceptions of having an account and rely less on AFS. Unbanked households that previously had a relationship with a financial institution are more likely to see value in having a bank account than unbanked households without this relationship. Previously banked households are more likely to want to open an account in the future..."

Download the FDIC survey (Adobe PDF, 7.9 MBytes).

How To Evaluate Prepaid Card Options

Perhaps, you have already noticed. Banks now offer a variety of prepaid cards. They are popular to. According to a 2012 report by CardHub.com:

"Consumers loaded $57 billion onto prepaid cards in 2011, a nearly 33% increase from 2010, and that number is expected to rise by 44% to $82 billion in 2012, according to the Mercator Advisory Group. By 2013, the group predicts consumers will load $117 billion onto prepaid cards, which would mark a 200% usage increase in just three years."

With so many prepaid card options, how can a consumer pick the best card? It all depends upon your financial situation. Of course, if you have the money, opening traditional checking and savings accounts at a bank or credit union is probably the best route. There are several articles in this blog to help you decide if moving your money to a prepaid card is a wise choice.

If you are determined to use a prepaid card instead, the best card for you probably depends upon your specific financial situation: how often you are paid, how much you are paid, the format of your pay, your spending and shopping patterns, and if you perform online banking.

In its 2012 report about prepaid cards, CardHub.com presented three scenarios to help consumers evaluate and find the best prepaid card. The three scenarios:

• Scenario 1:a person paid $2,000.00 monthly, whose employer offers direct deposit, visits an ATM once per week, expects to makes five purchases per week with their prepaid card, and pays two bills per month by check.
• Scenario 2: a person gives their teenager a $100.00 monthly allowance. The teenager visits an ATM twice per month and expects to makes two purchases per week with the prepaid card each week. In this scenario, money is loaded onto the prepaid card from the parent's bank or PayPal account.
• Scenario 3: a person paid weekly and earns $1,600.00 monthly, does not have the direct deposit option, and expects to make three purchases per week with the prepaid card. In this scenario, the person must load money to their prepaid card and make ATM withdrawals each week.

Of course, you can pick the scenario that matches or is closest to your financial situation. It might be that none of these scenarios adequately describe your financial situation. Maybe you have more children, earn a vastly different amount, or shop more often (e.g., groceries, lunches while at work).

Of course, you have the option to give your teenage child an allowance in cash and let him or her learn by deciding whether or not to transfer their cash to a prepaid card. Regardless, if is important for both parents and youth to learn the differences between credit cards, debit cards, and prepaid cards. Banks can charge a variety of fees on prepaid cards. Some employers offer banking services, pay their employees via prepaid cards, and administer health care spending accounts via prepaid cards.

In its 2012 report about prepaid card, CardHub.com listed the monthly costs for various banks' prepaid cards for the above three scenarios, and which prepaid cards are not suitable. Some of the monthly costs exceed $26.00, which is a lot ot pay for any banking option. So, it is wise to shop around and do your homework first. Know your pay and spending patters, then compare prepaid cards based on your banking habits.

Whatever you decide, it is wise to revisit your decision after a few months to see if your banking habits changed. A change in pay, ATM withdrawals, out-of-network ATM withdrawlas, and/or spending may make a prior decision no longer best for you:

"... every card has different fees based on the specific usage of each card. How often a person uses an ATM and how much money they load onto the card each month are the most important drivers in the cost of each card..."

If you use a prepaid card, what do you use it for. And what factors influenced your prepaid card choice?

Consumers Pay With Methods Other Than Cash

Some statistics about consumers use of cash versus other payment methods:

"Last year 27 percent of all point-of-sale purchases were made with cash and that number is expected to drop to 23 percent by 2017... plastic cards purchases comprised 66 percent of all in-person sales, with nearly half of them, or 31 percent, made with debit cards, according to Javelin. Last year shoppers used credit cards for 29 percent of point-of-sale purchases; Javelin expects that number to rise to 33 percent by 2017. Shoppers deployed gift cards and prepaid cards for 6 percent of purchases made with plastic last year. A mere 7 percent of transactions involved use of a paper check..."

The Huffington Post article also mentioned a few retail stores than no longer accept cash.

Is It Wise To Move Your Money To A Prepaid Card?

Earlier this year, Pew Health Group released the results of focus group research about how consumers view and use prepaid cards. Key findings:

1. Consumers view prepaid cards as a way to avoid hidden bank fees
2. Consumers use prepaid cards to budget and control spending
3. Some prepaid card users like the privacy of prepaid cards, since they don't have to register with their personal information
4. Consumers dislike fees on prepaid cards
5. Prepaid card users don't want either overdraft protection, nor credit lines on prepaid cards
6. Prepaid card users want direct deposit, a savings option, and credit building tools
7. Consumers incorrectly assume federal government oversight of prepaid cards

Finding #1 and #2 together suggest that some consumers view prepaid cards as an easy way to avoid spending money you don't have and avoid the overdraft fees banks charge. For these consumers, moving their money from a checking account to prepaid cards seems attractive. But what are the "costs" or consequences of using prepaid cards instead?

Life has taught me that there are always consequences; some unintentional. Read on.

The overdraft fees banks charge have been so large and frequent, that some consumers seem conditioned to view prepaid cards as a cheaper alternative. We've all heard stories about the $35.00 cup of coffee. Nobody wants to pay that.

CNN Money reported that the average prepaid card charges $300 a year in fees. That $300 in annual prepaid fees may seem cheap if you incur overdraft fees (at $35 each) more than 9 or 10 times a year. This seems to be the case with some of the Pew focus group participants. Pew shared one participant's comments:

"I don’t like the fees on prepaid debit cards... It costs to load (them). It costs $3.95. I don’t like that I pay the $3.95... I’m good with my checking account. Nobody wants to pay extra fees. If we had to, I’d take the $3.95 any day over the $35 overdrafting or for some other fees."

If only the load fee was the only fee on prepaid cards. Both CNN Money and Consumer Reports found a wide variety of fees when it investigated prepaid cards: activation fees, monthly fees, reload fees, cash withdrawal fees, inactivity fees, online payment fees, paper statement fees, customer service phone call fees, and more.

That same $300 in annual prepaid fees seems expensive when compared to a $5 - $10 monthly checking fee many banks charge (assuming good budgeting with no overdraft fees inc urred). That $300 seems ridiculous and avoidable when compared to far lower fees or free checking available at some banks and credit unions.

Are consumers confused? Probably. Banks charge both overdraft fees and fees for overdraft protection. Wise consumers know the difference. And, to avoid overdraft fees It may be better or simpler for you to decline auto-enrollment of overdraft protection.

I found it disheartening that the focus group participants didn't seem to understand the banking practice to reorder debit purchases to maximize overdraft fees. In early 2009, this blog reported about this  banking practice, which increases the frequency of overdraft fees. The CFPB is tackling the overdraft fees issue, and seeks comments from consumers by June 29.

I find particularly troublesome finding #7 above. When deciding to use a checking account or a prepaid card, consumers need to consider:

• The fees on prepaid cards (see the above list and related articles), and which will apply given your usage
• The limits, if any, on fees and interest rates
• Prepaid cards don't build your credit history
• Your rights to receive periodic statements, disclosures of fees, error resolution process, and changes in terms
• Your liabilities when your card is lost, stolen, cloned, includes unauthorized transactions, or includes transactions in error

There are huge differences between credit cards, debit cards, and prepaid cards. There are different types of prepaid cards: gift cards, general purpose, health care spending, and payroll. This blog discussed payroll cards from Bank of America and the Walmart MoneyCard.

Wise consumers know that not all prepaid cards are the same:

• Consumer's liability (e.g., loss, theft, unauthorized transactions) is different for payroll prepaid cards versus gift/general purpose prepaid cards
• Statements and disclosure requirements are different for payroll prepaid cards versus gift/general purpose prepaid cards
• Employer-provided health care flexible spending prepaid cards often have an entirely different set of rules

To learn more and be a smart shopper:

1. Ask the retailer/bank/employer for a copy of their terms and conditions policy for the prepaid card you are considering,
2. Read that policy,
3. Read this FDIC comparison of debit cards, credit cards, and prepaid cards, and
4. Browse related articles in the "Prepaid Cards" section of this blog.

What's your opinion? Do you think it is wise to move your money from a checking account to a prepaid card?

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?

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

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?

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.

Javelin 2010 Identity Fraud Survey Results

I spent some time recently reading the results of the Javelin Research 2010 Identity Fraud Survey (PDF, 453 K bytes). During the past six years, Javelin Research has surveyed about 30,000 adults to track the volume of identity theft and fraud incidents. The latest survey during 2009 included about 5,000 adults in the USA.

For new readers, there is a difference between "identity theft" and "identity fraud." The former is when an unauthorized person accesses your sensitive personal information. The latter is when the criminals use stolen identity information to steal money, obtain credit, or impersonate another person during a crime. Most of the time, I use "identity theft" in this blog to cover both theft and fraud.

How identity theft occurs:

"... among the victims who knew how their data was taken, lost or stolen wallets, checkbooks, or credit cards accounted for nearly two times as many instances of theft as all online attack methods combined."

How identity criminals fraudulently use stolen personal data:

• 42% - make purchases in person
• 42% - make purchases online
• 21% - make purchases via phone or postal mail
• 10% - withdraw money from ATM machines
• 10% - write checks
• 6% - buy prepaid gift cards

This criminal fraud is influenced by the fact that often credit cards are stolen. In 2009, more han 11 million adults were identity fraud victims.

The survey report's authors advise that the most effective way for consumers to protect themselves from identity fraud is to monitor their accounts online for unauthorized purchases. That means checking your bank accounts and phone bills online. If you see unauthorized transactions, notify the bank (or phone company) immediately. If your credit/debit cards and/or checks were stolen, notify your bank immediately.

It will become increasingly important for consumers to monitor their wireless phone bills as phone carriers add payment services to smart phones. About online shopping, the survey report's authors advise consumers to:

"... take additional precautions to protect their payment and personal information. Enrolling in Verified by Visa or MasterCard SecureCode, which allows you to have an additional password when making purchases online, offers consumers greater security. There are also programs such as Trusteer’s Rapport and IDVault offered by financial institutions, which can alert users when they enter a website for the first time, thus creating an additional layer of security to prevent users from entering their information into a fraudulent site."

About social networking sites, such as Facebook, Twitter, and MySpace), the survey warns consumers that identity criminals can harvest your sensitive personal data you share online and then use it against you to:

"... take over accounts or open fraudulent accounts. Users should not store or reveal personal contact information, including phone numbers, Social Security number, date of birth, e‐mail addresses, physical addresses, mother’s maiden name, or other information that could potentially allow a fraudster to obtain sensitive information or hints to passwords."

So if you mention your favorite color on pet online, don't use that color or pet's name as one of your online passwords. It is obvious: don't post your bank accounts online or in an email message. And, don't post online the sensitive personal information of your family and friends.

I have blogged previously about the risks of displaying your birth date on social networking sites, but too many of my online friends continue to display it based on a fear that their friends won't send them birthday wishes. Hello?! Your true friends know your birth date already. And, do you want volume or quality? Unfortunately, fear often outweighs good data security habits.

If you are a victim of identity fraud, it will take time and money to repair your credit and resolve the fraud:

"Out‐of‐pocket costs can include unreimbursed losses, lost wages due to time taken off work, and possible legal fees for those victims attempting to prosecute... Most victims don’t experience any out‐of‐pocket costs, but those who did suffered an average cost of $373. The average time to resolve the fraud for these victims was 21 hours."

Remember, your mileage may vary with credit resolution. Identity fraud involving your stolen Social Security Number or online bank account sign-in credentials is far more complex than a stolen credit card.

The report also listed several tips for consumers to avoid identity theft and identity fraud, which I have covered often in this blog:

• Keep the anti-virus and anti-spyware software on your home computer active and updated. Use anti-phishing software, too.
• Don't disclose sensitive personal data on social networking sites. See the above list of items
• At social networking sites, keep your online profile private. Read the website terms and privacy policies
• Use strong passwords online and not these
• Don't leave financial information and bills lying around the house. Store them in a secure place
• Opt out of pre-approved credit offers sent via postal mail
• Use a secure Internet connection (especially wireless users)
• Be aware of your surroundings. Cover the keyboard at ATM machines. If there are strangers lurking, don't enter your passwords to bank accounts when using your laptop
• If you are a victim of identity fraud, learn about the differences between fraud alerts and security freezes for your credit reports