I've Been Mugged Blog

Federal Reserve Released Its Non-cash Payments Fraud Report. Have Chip Cards Helped?

Many consumers prefer to pay for products and services using methods other than cash. How secure are these non-cash payment methods? The Federal Reserve Board (FRB) analyzed the payments landscape within the United States. Its October 2018 report found good and bad news. The good news: non-cash payments fraud is small. The bad news:

• Overall, non-cash payments fraud is growing,
• Card payments fraud drove the growth

Non-Cash Payment Activity And Fraud
Payment Type	2012	2015	Increase (Decrease)
Card payments & ATM withdrawal fraud	$4 billion	$6.5 billion	62.5 percent
Check fraud	$1.1 billion	$710 million	(35) percent
Non-cash payments fraud	$6.1 billion	$8.3 billion	37 percent
Total Non-cash payments	$161.2 trillion	$180.3 trillion	12 percent

The FRB report included:

"... fraud totals and rates for payments processed over general-purpose credit and debit card networks, including non-prepaid and prepaid debit card networks, the automated clearinghouse (ACH) transfer system, and the check clearing system. These payment systems form the core of the noncash payment and settlement systems used to clear and settle everyday payments made by consumers and businesses in the United States. The fraud data were collected as part of Federal Reserve surveys of depository institutions in 2012 and 2015 and payment card networks in 2015 and 2016. The types of fraudulent payments covered in the study are those made by an unauthorized third party."

Data from the card network survey included general-purpose credit and debit (non-prepaid and prepaid) card payments, but did not include ATM withdrawals. The card networks include Visa, MasterCard, Discover and others. Additional findings:

"... the rate of card fraud, by value, was nearly flat from 2015 to 2016, with the rate of in-person card fraud decreasing notably and the rate of remote card fraud increasing significantly..."

The industry defines several categories of card fraud:

1. "Counterfeit card. Fraud is perpetrated using an altered or cloned card;
2. Lost or stolen card. Fraud is undertaken using a legitimate card, but without the cardholder’s consent;
3. Card issued but not received. A newly issued card sent to a cardholder is intercepted and used to commit fraud;
4. Fraudulent application. A new card is issued based on a fake identity or on someone else’s identity;
5. Fraudulent use of account number. Fraud is perpetrated without using a physical card. This type of fraud is typically remote, with the card number being provided through an online web form or a mailed paper form, or given orally over the telephone; and
6. Other. Fraud including fraud from account take-over and any other types of fraud not covered above."

Card Fraud By Category
Fraud Category	2015	2016	Increase/(Decrease)
Fraudulent use of account number	$2.88 billion	$3.46 billion	20 percent
Counterfeit card fraud	$3.05 billion	$2.62 billion	(14) percent
Lost or stolen card fraud	$730 million	$810 million	11 percent
Fraudulent application	$210 million	$360 million	71 percent

The increase in fraudulent application suggests that criminals consider it easy to intercept pre-screened credit and card offers sent via postal mail. It is easy for consumers to opt out of pre-screened credit and card offers. There is also the National Do Not Call Registry. Do both today if you haven't.

The report also covered EMV chip cards, which were introduced to stop counterfeit card fraud. Card networks distributed both chip cards to consumers, and chip-reader terminals to retailers. The banking industry had set an October 1, 2015 deadline to switch to chip cards. The FRB report:

The FRB concluded:

"Card systems brought EMV processing online, and a liability shift, beginning in October 2015, created an incentive for merchants to accept chip cards. By value, the share of non-fraudulent in-person payments made with [chip cards] shifted dramatically between 2015 and 2016, with chip-authenticated payments increasing from 3.2 percent to 26.4 percent. The share of fraudulent in-person payments made with [chip cards] also increased from 4.1 percent in 2015 to 22.8 percent in 2016. As [chip cards] are more secure, this growth in the share of fraudulent in-person chip payments may seem counter-intuitive; however, it reflects the overall increase in use. Note that in 2015, the share of fraudulent in-person payments with [chip cards] (4.1 percent) was greater than the share of non-fraudulent in-person payments with [chip cards] (3.2 percent), a relationship that reversed in 2016."

The Top Complaints About Financial Services. One Complaint Type Grew 325 Percent

After encountering unresolved issues with financial services, many consumers file complaints with the Consumer Financial Protection Bureau (CFPB). After each complain, the CFP works hard to get each consumer a reply within 15 days. This process allows the CFPB to track which issues affect most consumers, and to identify emerging problems.

According to its April Monthly Complaint Report, debt collection issues generated the most complaints on average, and complaints about student loans grew the fastest:

"As of April 1, 2017, the CFPB has handled approximately 1,163,200 complaints, including approximately 28,000 complaints in March 2017... Student loan complaints showed the greatest percentage increase from January - March 2016 (773 complaints) to January - March 2017 (3,284 complaints), representing about a 325 percent increase. Part of this year-to-year increase can be attributed to the CFPB updating its student loan complaint form to accept complaints about Federal student loan servicing in late February 2016. The CFPB also initiated an enforcement action against a student loan servicer during this time period."

The top five categories of complaints about during March, 2017:

1. Debt collection: 8,711
2. Credit reporting: 5,498
3. Mortgages: 3,965
4. Credit cards: 2,522
5. Bank account or service: 2,476

Also during March: debt collection complaints represented about 31 percent of complaints; debt collection, credit reporting and mortgage were the top three most-complained-about consumer financial products and services. Together, these three categories represented 65 percent of complaints during March.

The top five categories of complaints since the CFPB began:

1. Debt collection: 316,810
2. Mortgages: 272,153
3. Credit reporting: 195,826
4. Credit cards: 118,732
5. Bank account or service: 115,055

The CFPB began accepting complaints for different products and services at different times:

• July 21, 2011: credit card complaints
• December 1, 2011: mortgage complaints
• March 1, 2012: bank accounts and services, private student loans, and consumer loans
• October 22, 2012: credit reporting
• April 4, 2013: money transfers
• July 10, 2013: debt collection
• November 6, 2013: payday loans
• July 19, 2014: prepaid cards, credit repair, debt settlement, and pawn and title loans
• August 11, 2014: virtual currency
• February 26, 2016: Federal student loan servicing

There were regional differences in complaint volume:

"Montana (54 percent), Georgia (46 percent), and Wyoming (45 percent) experienced the greatest complaint volume percentage increase from January - March 2016 to January - March 2017. New Mexico (-20 percent), Iowa (-5 percent), and Kansas (-0.7 percent) experienced the greatest complaint volume percentage decrease... Of the five most populated states, Texas (35 percent) experienced the greatest complaint volume percentage increase and Florida (8 percent) experienced the least complaint volume percentage increase from January - March 2016 to January - March 2017."

The report also tracks complaints by company:

The CFPB reported additional details about student loan complaints:

"Approximately 32,700 (or 74 percent) of all student loan complaints handled by the CFPB from July 21, 2011 through March 31, 2017 were sent by the CFPB to companies for review and response. The remaining complaints have been found to be incomplete (7 percent), referred to other regulatory agencies (19 percent), or are pending with the CFPB or the consumer (0.5 percent and 0.4 percent, respectively)... The most common issues identified by consumers are problems dealing with their lenders or servicers (64 percent) and being unable to repay their loans (33 percent)."

"Federal student loan borrowers reported that when contacting their loan servicers regarding financial distress, servicers provided them with information on hardship forbearance or deferment, instead of potentially more beneficial repayment options like income-driven repayment plans... loan borrowers complained of difficulty enrolling in income-driven repayment plans. Borrowers reported lost documentation, extended application processing times, and unclear guidance when seeking to switch from one income-driven repayment plan to another."

Federal student loan borrowers described their experiences when trying to obtain guidance in completing annual income recertification for their income-driven repayment plan. Borrowers reported receiving insufficient information from their servicers to meet recertification deadlines and lengthy processing times. Some federal student loan borrowers stated their payments were misapplied. Borrowers reported overpayments were not applied to specified accounts but rather applied to all accounts managed by the servicer. Additionally, some borrowers’ overpayments—intended to reduce principal balance—were credited to the account as an early payment, resulting in their ac count reflecting a paid ahead status..."

To read more, download the full "April 2017: CFPB Monthly Complaint Report: Vol. 22" (Adobe PDF).

Federal Reserve Study: Noncash Payments In The United States

Americans still love to use the plastic in their wallets and purses. Just before the holidays, the Federal Reserve Board (FRB) released the results of its study about how Americans use non-cash payment methods: debit cards, credit cards, prepaid cards, ACH payments, and checks. The study included the total number and value of non-cash payments by consumers and businesses through 2015.

The total number of U.S. non-cash payments was more than 144 billion payments with a value of almost $178 trillion in 2015. That represented an increase of almost 21 billion payments or about $17 trillion since 2012. Other key findings from the study:

"The number of debit card payments (including payments with prepaid and non-prepaid cards) grew to 69.5 billion in 2015 with a value of $2.56 trillion, up 13.0 billion or $0.46 trillion since 2012. This was the largest increase in number of payments among the payment types considered. Debit card payments grew at an annual rate of 7.1 percent by number or 6.8 percent by value from 2012 to 2015 with most of the growth occurring in non-prepaid debit card payments. The number of credit card payments reached 33.8 billion in 2015 with a value of $3.16 trillion, up 6.9 billion or $0.61 trillion since 2012. Credit card payments grew at an annual rate of 8.0 percent by number or 7.4 percent by value from 2012 to 2015, the largest growth rates among the payment types considered... The number of check payments fell to 17.3 billion with a value of $26.83 trillion, down 2.5 billion or $0.38 trillion since 2012. Check payments fell at an annual rate of 4.4 percent by number or 0.5 percent by value from 2012 to 2015. The decline of checks over the period was slower than previous studies had shown for prior periods since 2003."

Prepaid cards typically include gift cards and payroll cards which consumers load money onto and which aren't linked to bank accounts (e.g., checking, savings). Past studies have documented numerous fees with prepaid cards while some consumers use prepaid cards instead of traditional bank accounts. "Non-prepaid debit cards" refer to debit cards linked to traditional bank accounts.

There are significant differences between the volume and value for each non-cash payment type. For example, debit cards generated the largest share of payment volume and the smallest share by value:

Another way of looking at the variety of non-cash payment types is the volume of payments over time:

Additional findings about prepaid cards:

"The number of prepaid debit card payments reached 9.9 billion with a value of $0.27 trillion in 2015, up 0.6 billion or $0.04 trillion since 2012. Almost all of the growth in prepaid debit card payments by number and value came from general-purpose prepaid cards, which can be used over the same general-purpose networks as non-prepaid debit cards. General-purpose prepaid card payments increased to 3.7 billion in 2015 by number, up 0.6 billion from 2012 to 2015, which was much less than the growth of 1.8 billion from 2009 to 2012... The average value of payments using these types of cards dropped slightly from $35 in 2012 to $34 in 2015.

Private-label prepaid card payments declined slightly by number, but rose somewhat by value from 2012 to 2015. In 2012, such payments totaled 3.7 billion by number or $0.05 trillion by value, while, in 2015, they totaled 3.6 billion by number or $0.07 trillion by value. Private-label prepaid card payments dropped at an annual rate of 0.3 percent by number but rose 15.0 percent by value. Hence, the average value of these payments rose from $13 to $20.

Payments made by prepaid EBT cards increased slightly from 2.5 billion in 2012 to 2.6 billion in 2015, or 1.7 percent per year, while the value of these payments also increased slightly from $0.07 trillion to $0.08 trillion, or 0.20 percent per year. The average value of prepaid EBT card payments declined slightly, from $30 to $29.

In 2015, non-prepaid debit and general-purpose prepaid cards were used in 5.8 billion cash withdrawals at ATMs, virtually the same level as in 2012, after dropping from 6.0 billion ATM cash withdrawals in 2009. The average value of ATM cash withdrawals rose from $118 to $122 between 2012 and 2015, continuing an upward trend in average value since 2003."

To minimize fraud and waste, banks and retailers began the migration to chip cards in the United States in 2015. The FRB study included findings about fraud:

"Payments with general-purpose cards using embedded microchips, which improve the security of in-person payments to help prevent fraud, have grown by 230 percent per year since 2012. But payments with the chip-based cards amounted to only about 2 percent share of total in-person general-purpose card payments in 2015, reflecting the early stages of a broad industry effort to roll out chip card technology. In 2015, the proportion of total general-purpose card fraud by value attributed to counterfeiting, the most prevalent type of in-person card fraud in the United States, was substantially greater than in countries where chip technology has been more widely adopted."

The United States was one of the last developed countries to switch to chip cards. So, chip card usage in the United States still has a long way to go. The types of fraud with debit/credit/prepaid cards:

• Counterfeit card: Fraud is perpetrated using an altered or cloned card.
• Lost or stolen card: Fraud is undertaken using a lost or stolen card.
• Card issued but not received: A newly issued card sent via postal mail to a cardholder is intercepted and used to commit fraud.
• Fraudulent application: A new card is issued based on a fake identity or on someone else’s identity.
• Other: “Other” fraud includes account takeover and other types of fraud not covered above.
• Fraudulent use of account number: Fraud is perpetrated without using a physical card.

Fraud is perpetrated via two channels: 1) in-person when the cardholder has their card, and 2) remote when the cardholder is not present (e.g., postal mail, online, telephone). To learn more, download the "2016 Federal Reserve Payments Study" (Adobe PDF) and/or read the FRB announcement.

Federal Reserve: Monitor Your Bank Accounts For Fraud And Know Where To Get Help

On Thursday, the Federal Reserve Board (FRB) issued a warning for consumers to do two things to protect themselves and their finances:

1. Monitor online accounts for unauthorized transactions, and
2. Learn where to find help should you find unauthorized transactions in your financial accounts

The FRB's warning also stated:

"Signs of potential problems may include a notice, bill, or debit card for an account that was not activated or authorized, as well as a notice of fees for unsolicited products or services tied to an existing account. Consumers who see questionable activity should contact their financial institution immediately. Consumers who continue to experience issues may also submit a complaint to the Federal Reserve. The Federal Reserve maintains the Federal Reserve Consumer Help (FRCH) website, which offers an online complaint form and information on filing complaints by fax and phone for consumers. The FRCH website also provides consumer alerts, frequently asked questions, and information about other government agencies. While the Federal Reserve does not have the authority to resolve every problem, it will refer complaints to the relevant federal or state agency. Consumers can contact FRCH at 1-888-851-1920, or at www.federalreserveconsumerhelp.gov."

Other relevant federal agencies may include the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), and the Securities & Exchange Commission (SEC).

Released Prisoners And Arrestees Forced To Accept And Use Prepaid Cards

Banks have found an effective, profitable method to force their prepaid cards upon consumers. Yes... literally force people to use their prepaid cards. When people arrested are released from prison, any cash in their possession at the time of arrest is returned to them in the form of prepaid cards by corrections staff. The Nation reported about the rise in "get-out-of-jail broke cards" and the banks that issue them:

"Numi Financial is one of many for-profit players in an increasingly privatized prison industry... Numi is now in more than 400 jails across the country, including large facilities that house up to 8,500 inmates, and the company issues more than 600,000 cards a year. That’s enough to make Numi one of the top 10 providers nationwide of prepaid cards of all kinds... Richard E. Deloney Jr., vice president of business development at Numi, said Numi’s model is based on “turnover.” “We market to the 3,300 jails in the country,” he said... According to a 2015 Dun & Bradstreet report on Stored Value Cards, Numi’s parent company, its revenue is $3 million a year."

The industry calls these prepaid cards given to prisoners "prison release cards." Arrestees are given the contractual terms and fee schedule when they receive their release cards:

"The terms for the card used in Multnomah County lists 11 possible fees—the $5.95 monthly fee, a $2.95 fee for ATM withdrawals, $0.95 for a declined transaction, $1 to check the balance, and $9.95 to have the balance refunded by check. Some cards have as many as 19 fees, a maintenance fee as high as $15 a month, and higher fees for international transactions."

So, the release cards contain the same multitude of fees found on other prepaid cards. Previously, arrestees were given a mix of cash and checks. Other banks offering prison release cards:

"At least 10 companies now offer release cards or inmate banking services to correctional systems. JPMorgan Chase does not give a card to each and every prisoner, but according to the Center for Public Integrity, it has a “lock” on the Federal Bureau of Prisons population, which currently stands at just under 200,000. At the state level, CPI found that JPay, a company founded in 2002, dominates, generating “well over $50 million in revenue” in 2013. It was acquired for $250 million in 2015 by Securus Technologies..."

There are plenty of issues with prison release cards. First, arrestees are a vulnerable population. They are forced to accept and use release cards since their cash has been confiscated. There is no opt-out, unlike other consumers who can choose other bank services instead. This can create hardship, as the Nation's article highlighted an arrestee released at 2:00 am with no way to get home. Not all taxi-cabs accept prepaid cards.

Second, the cards contain the same multitude of high fees as other prepaid cards. People released from prison may not have jobs to return to, making the high fees a huge burden. Third, claims by Numi executives in 2014 that one-third of cardholders pay no fees and that about one percent of cards aren't used have been debunked. Fourth, the banks offering prison release cards were given no-bid contracts:

"The banks’ exclusive deals came not from the Bureau of Prisons, but from the U.S. Treasury. The agency awarded the contracts using a 150-year-old authority that allows it to sidestep the oversight, transparency and competition typically required for federal contracting. That means that for 14 years, Bank of America has never been required to compete with other vendors who might do the work better or for less money, according to Treasury documents obtained under the Freedom of Information Act. JPMorgan’s no-bid deal to issue debit cards for various federal agencies began in 1998, was extended in 2008 and eventually expanded to include cards for federal prisons. Fees from former inmates make up most of the bank’s compensation for these cards..."

This is absolutely lousy, poor management by government officials with no attempt to lower costs for taxpayers. Competition matters. Competition forces companies to provide better services, lower costs, and ideally both.

Fifth, prison release cards are given to all arrestees when released. That includes both people arrested for just causes wh have served their prison time, and people where law enforcement has dropped all charges. You'd think that people released with charges dropped would simply have their cash returned to them, but they too are forced to use prison release cards.

Many people view this situation as unacceptable. In November 2015, several U.S. Senators including Mark R. Warner (D-Va.) and VP-candidateTim Kaine (D-VA) sent a letter to the Consumer Financial Protection Bureau (CFPB) urging it to re-examine prison release cards:

"Prison release cards are a critical tool for people leaving prisons to transfer their earned wages and/or commissary account balances to a prepaid card. Any reductions to the wages and account balances of formerly incarcerated people could harm their ability to successfully reenter society. Today, some firms charge high fees on prison prepaid cards that create significant barriers to reentry for formerly incarcerated people. Most corrections agencies that report using prepaid cards also report that fees are imposed on cardholders, including unusual fees such as weekly maintenance fees. These cards often also include forced arbitration provisions. As your recent study on arbitration showed, the rights of consumers nationwide are limited by forced arbitration in the financial services industry. As another example, states receive revenue from certain vendors chosen to provide prison release cards. Correctional facilities may also structure their contracts with prepaid card vendors in such a way that costs are entirely passed on to formerly incarcerated people."

The letter listing all 18 U.S. Senators is also here. Sixth, the forced arbitration clauses are typically one-sided, expensive for consumers, and heavily favor the company, as readers of this blog already know.

Some consumers aren't waiting and have filed a class-action lawsuit: Brown versus Numi Financial, No. 3:15-cv-01370-MO (Adobe PDF). The court rejected Numi Financial's motion for arbitration. Good! Other affected consumers may want to join this suit.

What are your opinions of prison release cards?

Facts About Debt Collection Scams And Other Consumer Complaints

The Consumer Financial Protection Bureau (CFPB) recently released a report about debt collection scams. The report is based upon more than 834,00 complaints filed by consumers nationally with the CFPB about financial products and services: checking and savings accounts, mortgages, credit cards, prepaid cards, consumer loans, student loans, money transfers, payday loans, debt settlement, credit repair, and credit reports. Complaints about debt collection scams accounted for 26 percent of all complaints.

The most frequent scam are attempts to collect money from consumers for debts they don't owe. This accounted for 38 percent of all debt-collection-scam complaints submitted. This included harassment:

"Consumers complained about receiving multiple calls weekly and sometimes daily from debt collectors. Consumers often complained that the collector continued to call even after being repeatedly told that the alleged debtor could not be contacted at the dialed number. Consumers also complained about debt collectors calling their places of employment... Consumers complained that they were not given enough information to verify whether or not they owed the debt that someone was attempting to collect. "

The two companies with the most complaints:

"... were Encore Capital Group and Portfolio Recovery Associates, Inc. Both companies, which are among the largest debt buyers in the country, averaged over 100 complaints submitted to the Bureau each month between October and December 2015. In 2015, the CFPB took enforcement actions against these two large debt buyers for using deceptive tactics to collect bad debts."

Compared to a year ago, debt collection complaints increased the most in Indiana (38 percent), Arizona (27 percent), and New Hampshire (26 percent) during December 2015 through February 2016. Debt collection complaints decreased the most in Maine (-34 percent), Wyoming (-26 percent), and North Dakota (-23 percent). And:

"Of the five most populated states, California (10 percent) experienced the greatest percentage increase and Illinois (-4 percent) experienced the greatest percentage decrease in debt collection complaints..."

The report lists 20 companies with the most debt-collection complaints during October through December 2015. The top five companies with with average monthly complaints about debt collection are Encore Capital Group (139.3), Portfolio Recovery Associates, Inc. (112.3), Enhanced recovery Company, LLC (65.7), Transworld Systems Inc. (63.7), and Citibank (54.7). This top-20 list also includes several banks: Synchrony Bank, Capital One, JPMorgan Chase, Bank of America, and Wells Fargo.

While the March Monthly Complaint Report by the CFPB focused upon debt collection complaints, it also provides plenty of detailed information about all categories of complaints. From December 2015 through February 2016, the CFPB received on average every month about 6,856 debt collection complaints, 4,211 mortgage complaints, 3,556 credit reporting complaints, 2,021 complaints about bank accounts or services, and 1,995 complaints about credit cards. Most categories showed increased complaint volumes compared to the same period a year ago. Only two categories showed a decline in average monthly complaints: credit reporting and payday loans. Debt collection complaints were up 6 percent.

Compared to a year ago, average monthly complaint volume (all categories) increased in 40 states and decreased in 11 states. The top five states with the largest increases (all categories) included Connecticut (31 percent), Kansas (30 percent), Georgia (25 percent), Louisiana (25 percent), and Indiana (24 percent). The top five states with the largest decreases (all categories) included Hawaii (-25 percent), Maine (-19 percent), South Dakota (-14 percent), District of Columbia (-8 percent), and Idaho (-6 percent). Also:

"Of the five most populated states, New York (12 percent) experienced the greatest complaint volume percentage increase, and Texas (-8 percent) experienced the greatest complaint volume percentage decrease from December 2014 to February 2015 to December 2015 to February 2016."

The chart below lists the 10 companies with the most complaints (all categories) during October through December, 2015:

The "Other" category includes consumer loans, student loans, prepaid cards, payday loans, prepaid cards, money transfers, and more. During this three-month period, complaints about these companies totaled 46 percent of all complaints. Consumers submit complaints about the national big banks covering several categories. According to the CFPB March complaints report (links added):

"By average monthly complaint volume, Equifax (988), Experian (841), and TransUnion (810) were the most-complained-about companies for October - December 2015. Equifax experienced the greatest percentage increase in average monthly complaint volume (32 percent)... Ocwen experienced the greatest percentage decrease in average monthly complaint volume (-18 percent)... Empowerment Ventures (parent company of RushCard) debuted as the 10th most-complained-about company..."

To learn more about the CFPB, there are plenty of posts in this blog. Simply enter "CFPB" in the search box in the right column.

The CFPB Helps Consumers

The Consumer Financial Protection Bureau (CFPB) helps consumers in many ways. To learn more, read:

• CFPB Considers Proposal To Ban Some Arbitration Clauses
• The CFPB Consumer Complaints Database Does What It Was Designed To Do
• To Learn More About Prepaid Cards, Try The 'Ask CFPB' Service
• CFPB Accepts Complaints From Consumers About Money Transfers
• CFPB Begins Supervision of Credit Reporting Industry
• CFPB Accepts Complaints From Consumers About Checking And Savings Accounts
• CFPB Reports List Of Complaints From Consumers About financial Products

The Starbucks Prepaid Gift Card App Fraud. What You Need To Know

Criminals have targeted Starbucks gift card and mobile app users. In this fraud, criminals have drained victims' accounts by using the auto-reload featured with Starbucks prepaid gift-card apps linked to consumers' checking, credit-card, or Paypal accounts. Consumer reporter Bob Sullivan first reported about the fraud:

"Maria Nistri, 48, was a victim this week. Criminals stole the Orlando women’s $34.77 in value she had loaded onto her Starbucks app, then another $25 after it was auto-loaded into her card because her balance hit 0. Then, the criminals upped the ante, changing her auto reload amount to $75, and stealing that amount, too. All within 7 minutes."

Other customers have reported fraud this month. The coffee retail chain has had problems before with its mobile app. Starbucks announced in January 2014 a security update to its mobile app after the data of 10 million customers was exposed. Sullivan explained how criminals perpetrate the latest mobile gift-card fraud:

"Because Starbucks isn’t answering specific questions about the fraud, I cannot confirm precisely how it works, but I have informed speculation, based on conversations with an anonymous source who is familiar with the crime. The source said Starbucks was known to be wrestling with the problem earlier this year. Essentially, any criminal who obtains username and password credentials to Starbucks.com can drain a consumer’s stored value, and attack their linked credit card."

So, the fraud suggests that criminals have already stolen large numbers of Starbuck customers' usernames passwords, perhaps by keylogging malware, phishing e-mails, phishing texts, vulnerabilities in the mobile app, brute-force password attacks (since many consumers use the same password at multiple sites), or a combination. Starbucks claims its mobile app has not been hacked and the problem is not widespread.

Some banks have flagged multiple reloads through checking accounts and temporarily closed victims' accounts to stop the theft. Security experts fault Starbucks for not using two-factor authentication for gift-card reloads and for not flagging multiple reloads of consumers' cards within minutes.

Security experts advise consumers:

1. Use strong passwords and don't use these weak passwords.
2. Don't use the same username and password at multiple websites and mobile apps
3. Change your passwords every 90 days

Be very careful about enabling auto-reload features with prepaid cards. Or, disable it. Instructions to disable the auto-reload feature are available at the Starbucks site.

Criminals love prepaid cards because they are a source of cash. You now know the risks for ignoring this advice. The whole situation highlights is a reminder that Apple branded mobile devices can be hacked, too.

Cognitive Dissonance

Can you suggest any more examples?

Bank of America Raises Prices For Its Checking Customers. What You Need To Know And How To Avoid The New Fees

Bank of America (BofA) has decided to move forward with charging large monthly maintenance fees to its checking account customers. Yesterday, I received a notice via postal mail from BofA dated March 6, 2015:

"We're updating our checking products and, as a result, the existing checking account listed above will become an Advantage Regular Checking account...

What's not changing
Your account information, including your account number, checks, and debit card all remain the same. Your account features, such as direct deposit, Online and Mobile banking. Bill Pay, as well as accounts linked for overdraft protection, will also remain the same.

What's Changing
Monthly maintenance fee: You can avoid the monthly fee on this account when you meet any ONE of the requirements shown below during each monthly statement cycle. Otherwise, the $25 monthly fee will be deducted from your account. This change takes effect on your first statement cycle that starts on May 15."

I checked the BofA website for any press releases about its price increase. I saw nothing. Not good.

A $25 monthly maintenance fee equals $300 yearly. That's a big price increase. You may remember Bank Transfer Day in 2012, when many consumers moved their money from the big banks to smaller, regional banks and credit unions. Several banks and BofA had tried to raise prices in 2011 by applying monthly maintenance fees, but then reversed their decisions after considerable push-back by consumers.

BofA tried to justify its 2011 price increase by saying their transaction costs had gone up and the, "economics of debit cards have changed," After some research in 2011 (see image on right), I found that BofA partnered with another company, First Data, to create a separate company that actually processes the bank's debit-card transactions, and both share in those debit-card transaction revenues.

That partnership continues today. The 2015 Hoovers profile states:

"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 (worth a total of some $250 billion) annually. Its clients are small businesses and large corporations including retailers, restaurants, hotels, supermarkets, utilities, gas stations, convenience stores, and government entities. First Data owns 51% of Banc of America Merchant Services, while Bank of America owns 49%."

I'll bet you didn't know this. Most people don't. Most of the big banks have similar arrangements with First Data. So, the big banks make money off your money by investing it (what you'd expect), but also by both charging customers monthly maintenance fees and from collecting revenues from their debit-transaction processing partnership (not what you'd expect). Some people might call making money at both ends of the transaction double-dipping. I do. That didn't pass the smell test in 2011, nor today.

Fast-forward four years, and the transaction cost reason has been replaced with the "updated our checking products" excuse. It's still lame. A price increase is a price increase. Plus, the notice I received from BofA failed to mention any cost cutting done before passing along a huge price increase to its checking customers. That's just bad.

Moreover, the bank's latest price increase couldn't be more confusing. The bank's notice explained how checking customers can avoid the large monthly maintenance fees:

"Keep an average daily balance of $5,000 or more in your checking account or linked Regular Savings account, or

Keep an average daily combined balance of $10,000 or more in checking with linked savings, money market savings, CDs or IRAs, or

Keep an outstanding balance of $15,000 or more in an eligible linked installment loan or line of credit, or

Have $15,000 in total combined assets in your eligible Merrill Edge and Merrill Lynch investment accounts that are linked to your checking account, or

Have a linked Bank of America first mortgage loan that we service."

This reads like legalese written by lawyers. Why not keep it simple and say: keep $5,000 in an account to avoid the monthly maintenance fees. Simplicity matters.

Let's review some more of BofA's history. In August 2014, the bank agreed to a massive settlement with the U.S. Justice Department and several states' attorney generals. The $16.65 billion settlement agreement resolved both federal and state civil investigations into activities by the bank's former and current subsidiaries, including Countrywide Financial Corporation and Merrill Lynch, related to the packaging, marketing, sale, and issuance of residential mortgage-backed securities (RMBS). The bank acquired Merrill Lynch in 2009, and Countrywide in 2008.

To be fair, other big banks have paid massive settlement amounts during the past few years: Bank of America, $61.1 billion; JPMorgan, $31.4 billion; Citigroup, $10 billion; and Wells Fargo, $5.8 billion. A 2012 survey found that junior bank executives view wrongdoing as necessary to advance their careers. Based upon all of this, there clearly seems to be an ethics problem in banking.

I find BofA's reason (e.g., updated their checking products) for its price increase disingenuous. More likely, the price increase was driven profitability concerns given the massive settlement payments. Why not reduce senior executive compensation and bonuses instead (e.g., especially those executives that committed the wrongdoing that led to the massive settlement payments)? Why put the burden on customers?

That BofA decided to place the burden on its customers speaks volumes. Banks can clearly raise prices if they want. They are free to do that. Customers are free to move their money to a bank (or credit union) with lower or no monthly maintenance fees.

I'll make it easy for BofA checking customers to avoid the price increase: move your money to a small, regional bank or credit union. It's easier than you think, and there are a lot of benefits. Last month, Bankrate compared checking account fees between banks and credit unions:

"You're twice as likely to find free checking at a credit union than a bank, according to a new study by Bankrate.com. Nearly three quarters of credit union checking accounts -- 72 percent -- come with no balance requirements or monthly maintenance fees. That's in sharp contrast to banks, where only 38 percent of checking accounts are free... Most of the time, when you encounter dramatically lower prices for the same product, you assume that the cheaper product is somehow inferior. But that's not the case with credit unions, which typically offer services comparable to similarly sized banks. Instead, it comes down to the way credit unions are organized, says Jon Jeffreys, managing partner at Callahan & Associates, a management consultancy that works with credit unions..."

Thankfully, I had already begun to move my money. BofA's latest price-increase notice just accelerated my schedule. While I have sufficient account balances to avoid BofA's new monthly maintenance fees, I simply dislike the way the bank operates. For me, it goes to values.

If you are looking for a small bank or credit union to move your money to, a good resource is the Move Your Money Project. Some consumers have tried to move their money to prepaid cards instead. I believe that is a poor decision, because there usually are many fees with prepaid cards. Plus, experts have advised consumers to be wary of prepaid card protections.

What are your opinions of Bank of America? Of its latest price increase? Has your bank increased prices?

Prepaid Card Phone Scam: How To Spot It And Not Get Duped

Earlier this month, a Rite-Aid Pharmacy store in Boston posted the above alert for its customers. It read:

"Boston Police
Attention Prepaid Card users

There are numerous scams victimizing members of the community where they are being contacted by phone and instructed to buy pre-paid cards such as Green Dot and Vanilla Reload.

The caller is telling the victims that their heat or electricity will be shut off, they owe the I.R.S. taxes, and they will be arrested, that they have just won a lottery or prize, and need to pay taxes, or a relative is being held until money is paid. The victims are told to buy the cards and then call the scammer back and give them the code number off the card. The money is then electronically withdrawn and the card is empty.

DON'T BE SCAMMED

Before you buy the card, contact the Boston Police at 617-343-4700 if you received one of these possible scam phone calls."

Green Dot and Vanilla Reload are real, valid prepaid cards used by consumers. Many consumers use prepaid cards to avoid the high overdraft fees banks impose on checking account debit card users. Some employers use a version of prepaid cards, called payroll cards. It is important to realize that many fees apply to repaid cards. You can learn more in the Prepaid Cards section of this blog.

It is good for retail stores to warn their customers of phone scams. This notice described several current variations of the phone scam. Most versions include are threats (e.g., owe taxes, kidnapped relative, utilities will be shut off) to make the victim act quickly without thinking.

Sadly, this scam is not new. The Boston Mayor's Office warned consumers in 2012 about an early version of this prepaid-card phone scam:

"Victims are then told by the caller (suspect) that they have won a prize which includes a large amount of money, a new car or property. Victims are then instructed by the caller to go to a local convenience store and purchase a Green Dot Money Pack (reloadable credit card). After the reloadable credit card is purchased, victims are instructed to contact the caller (suspect) and provide the serial number to the prepaid card. Once that occurs, the suspect is given access to the account and the money. Officers would like to take this opportunity to alert potential victims that there is no prize. This is a scam."

Obviously, when criminals find a scam that is successful, they will continue with it and add new versions to make it more difficult to recognize. Criminals will also move the scam and call consumers in other areas or states.

Have you received a phone call about this prepaid card scam? If so, tell us when and the town where you live.

Payment Cards Meme

A Review of The Vanilla Visa Prepaid Card

Recently, I received several prepaid cards as birthday gifts. One gift was the Vanilla Visa Gift Card, a prepaid card. Perhaps, you have heard of it or used it. Since I have written about prepaid cards in this blog, I was curious to see what was inside the Vanilla Visa package.

The Vanilla Visa Gift Card comes in an attractive, sealed package that features on the front exterior a "Happy Birthday" message and the Visa logo. The card can contain a value from $20 to $500. The back exterior of the package includes this messaging:

"IF TAMPER EVIDENT, DO NOT PURCHASE... No Fees After Purchase. Check your balance 24/7. Visit www.vanillavisa.com"

I took the above photos after I opened the package. Hence, you see the tear in the above photograph of the packaging. The back exterior also includes spaces for the gift giver to write their name, the amount of money on the prepaid card, and the recipient's name. The sealed package seems to be a nice improvement so the consumer knows that the magnetic strip on the back of the prepaid card has not been tampered with. Retail stores frequently display racks of prepaid cards exposed without packages.

Inside the sealed package are the prepaid card and the contract, called the Cardholder Agreement. I like that the product includes the contract, since users of prepaid card don't have the same rights and responsibilities as with credit- and debit-cards. Many prepaid cards don't. It is important to read the contract because it explains several key items:

• Activation and applicable fees,
• Card features and expiration date,
• How to check your card balance,
• How to make split purchases,
• How to use the card when paying for gasoline for your auto,
• Where you can use the prepaid card,
• Non-reloadable value,
• Optional use of a PIN,
• A "Confidentiality" section, which seems to be a brief privacy policy,
• Warranties and related terms,
• Customer service information, and
• Arbitration terms

The PIN option is useful for cardholders who want that extra security. As with any payment card, it is important for consumers to know who you are doing business with. Vanilla Visa prepaid card users do business with at least three corporations -- Visa and:

"The Cardholder Agreement ("Agreement") constitutes the agreement between you, the Bancorp bank, Wilmington, Delaware ("The Bancorp Bank" or "Issuer"), ITC Financial Licenses, Inc. and IH Financial Licenses, Inc. outlining the terms and conditions under which the Vanilla Visa Card has been issued to you by the issuer... All Cards are issued by the Issuer and distributed and serviced either by ITC Financial Licenses, Inc. or IH Financial Licenses, Inc., depending upon the state or territory in which the Card was sold."

The Vanilla Visa prepaid card is issued by The Bancorp Bank of Wilmington, Delaware. The Bancorp is the holding company, and as the center image on the home page at the website says:

"Founded in 2000, The Bancorp creates customized banks for our hundreds of affinity partners, setting a new standard in financial services innovation. Today, The Bancorp remains one of the few financial service companies in the world dedicated to providing private-label banking and technology solutions for non-bank companies ranging from entrepreneurial start-ups to those on the Fortune 500."

So, companies wanting to offer prepaid cards to their customers might do business with The Bancorp Bank. As with any prepaid card, it is critical for consumers to know the terms and conditions; especially what fees apply and when they apply. With this card, there are no fees after purchase. (In my case, the gift giver paid the fee.) That is good, and the card has an expiration date. Mine expires in June 2022; plenty of time to use the $25 on it.

You can use the Vanilla Visa card only in the 50 states and the District of Columbia within the United States. The default state of the card is that it is not re-loadable; meaning you can spend only the value on the card. (In my case, I could spend the amount from the gift giver.) However, at the Vanilla Visa website, you can upgrade your card to make it a re-loadable prepaid card. I did not upgrade my card. Wise consumers will consult the website first to determine what additional fees apply before upgrading their cards to re-loadable status.

About activation, the Cardholder Agreement said:

"Activate Your Card
If your Card includes a notice that activation is required, you must activate the Card before you can use it. Please visit www.vanillavisa.com or call 1-855-904-7299 to activate your Card."

I was pretty certain that my card had been activated by the gift giver, but I called the phone number anyway just to confirm. The phone system included a message (on June 2, 2014) that card activation was not available via the telephone system. Not good. It's not good to promise something and then not fulfill that promise.

Next, I visited the website. It included a secure connection (https://) to enter the card number -- which I did. The results screen confirmed the amount on my card and that my card had been activated. That was good, easy, and fast.

I plan to use my Vanilla Visa card when dining at a restaurant. Since the bill will likely be higher than the $25 amount on my card, I will likely use the card plus cash to pay my bill -- something the Cardholder agreement calls a "split transaction." To do this, cardholders need to know the balance on their cards, and if the restaurant, or retail store, accepts split transactions. Some don't. A split transaction could also include other payment types (e.g., a prepaid card and a credit card; two prepaid cards, etc.). You get the idea.

Two images of the Cardholder Agreement (click to view a larger image):

 

The Cardholder Agreement stated the following:

"Some merchants do not allow cardholders to conduct split transactions... If you wish to conduct a split transaction and it is permitted by the merchant, you must tell the merchant to charge only the exact amount of funds available on the Card to the Card. You must then arrange to pay the difference using another payment method..."

So, to use a prepaid card with split transactions requires the cardholder to know the exact balance on their card. Otherwise, you risk having your card declined. There are exceptions when making purchases at retail places like hotels, gas stations, and car rental services. Those merchants may pre-authorize an amount greater than the balance on your prepaid card:

"If you use your Card at an automated fuel dispenser ("pay at the pump"), the merchant may preauthorize the transaction amount up to $100.00 or more. If your Card is declined, even though you have sufficient funds available, pay for your purchase inside with the cashier... , and how to perform a split transaction:

If you encounter problems, the Cardholder Agreement specifies how to contact customer service. If you experience unresolved problems, the Cardholder Agreement includes binding arbitration:

"Arbitration
Any claim, dispute, or controversy ("Claim") between you and us arising out of or relating in any way to this Agreement, your Card, your purchase of the Card, your usage of the Card, or transactions on the Card, no matter how described, pleaded or styled, shall be finally and exclusively resolved by binding individual arbitration conducted by the American Arbitration Association ("AAA") under its Consumer Arbitration Rules in your state of residence at a location that is reasonably convenient for both parties. ARBITRATION OF YOUR CLAIM IS MANDATORY AND BINDING. NEITHER YOU NOR WE WILL HAVE THE RIGHT TO LITIGATE THAT CLAIM THROUGH A COURT. IN ARBITRATION, NEITHER YOU NOR WE WILL HAVE THE RIGHT TO A TRIAL BY JUDGE OR JURY."

This contractual clause means that for an unresolved problem or dispute, the cardholder must use the arbitration process specified. It also means that the cardholder has lost at least three rights: to sue, to participate in any class-action lawsuits, and to benefit from mediation. These rights may be important to you. You may find them acceptable, or not. Bankrate published this in 2004:

"Binding arbitration, a little noticed clause in many agreements and contracts, strips consumers of their fundamental rights, including the right to sue individually or join a class-action suit if they have a problem with a company. Under binding arbitration, a consumer can be forced to pay thousands of dollars upfront to pursue a complaint, travel thousands of miles to a location of the company's choosing for the hearing, argue their case before an arbitrator who depends on the company for future business and surrender such basic legal weapons as the right to discovery and the right to appeal a decision... Labeled by the National Consumer Law Center as "astonishingly unfair and undemocratic," these clauses affect millions of consumers across the country. Corporations insert them into employment and home building contracts, in agreements for credit cards, computer software and hardware purchases, and many types of loans."

And, arbitration can cost more than a traditional court trial:

"Consumers' costs for arbitration vary widely and depend on the arbitration company, the type of dispute and the cost of the proposed remedy. The American Arbitration Association offers a streamlined process for consumer disputes that limits costs, but limits your rights too. While the American Arbitration Association is an umbrella group for arbitration companies, not all arbitration companies follow its suggested rules. Under these consumer rules, there is a filing fee of $125 if your dispute is under $10,000 and $350 if it is over that amount... However, in exchange for the low filing fees and streamlined process, you must give up some of your rights... There is no contingency in arbitration. Also, these costs don't include costs for an attorney if you want one..."

According to the National Association of Consumer Advocates (NACA):

"One of the alleged benefits of arbitration is that it costs less than litigation, but frequently this is not true for consumers and employees. Forced arbitration frequently costs more than taking a case to court and can cost thousands of dollars. Individuals often have to pay a large fee simply to initiate the arbitration process. If they are able to get an in-person hearing, individuals sometimes have to travel thousands of miles on their own dime to attend the arbitration. In the end, the loser (usually the individual) often pays the company’s legal fees."

The Public Citizen website lists the banks, retail stores, entertainment, online shopping, telecommunications, consumer electronics, software, nursing homes, and health care companies that include binding arbitration clauses in their contracts with customers. If this bothers you (and I hope that it does), you can take action at the NACA website.

With the Vanilla Visa prepaid card, its packaging exterior does not seem to provide any indication of the contractual clauses. A cardholder learns about the binding arbitration clause after the purchase, and after you have opened the package to read the contract. Is this fair? Is this right? Is this legal? While this is legal, to me it isn't fair nor right. Important contract terms like binding arbitration should be stated on the exterior packaging. Otherwise, consumers are making uninformed purchases.

Also, the above three lost rights are important for consumers; especially when things go wrong with a product or service. Since technology moves forward far faster than federal, state, and local laws, differences of opinion are likely... and hence, disputes. It is not good that more corporations have inserted binding arbitration clauses into their contracts. Case law, the accumulation of court decisions by judges and juries, is the backbone of the judicial system in the United States.

While corporations have every right to limit their legal costs, that isn't always a benefit for consumers. So, consumers have every right not to purchase products and services from corporations that include binding arbitration clauses in their agreements.

While using a prepaid card may seem as easy as using cash, there are several important differences consumers need to know. Many people like the convenience of prepaid cards: you can't spend more than your card's balance, and you can avoid overdraft fees (but incur other fees). For me, cash offers more benefits without the complexities. With cash, I can't spend more than what's in my wallet, there are no overdraft fees, and no other fees (e.g., maintenance, non-usage, check balance, etc.).

In my opinion, prepaid cards are not as easy to use as cash. With prepaid cards you lose privacy because the banks, or corporations you do business with usually store and analyze your purchases. And with the Vanilla Visa card, you lose several rights due to the binding arbitration clause in the contract.

After writing this review, I did an online search to see what other reviews exist. You may find helpful the Vanilla Visa Gift Card reviews at the Consumer Affairs site.

What's your opinion of the Vanilla Visa prepaid card? Of the contract terms? If you have used this prepaid card, share your experiences below.

JPMorgan Chase Bank: Data Breach Affects 500,000 Prepaid Card Holders, And The Bank's Sordid History

The bad news (and behavior) at JPMorgan Chase bank never seems to end. On Friday, NBC News reported that a data breach at the bank affected almost 500,000 prepaid card holders. Hackers gained unauthorized access to the bank's networks during July 2013. The bank's prepaid cards:

"... were issued for corporations to pay employees and for government agencies to issue tax refunds, unemployment compensation and other benefits. JPMorgan said Wednesday it had detected that the web servers used by its site www.ucard.chase.com had been breached in the middle of September..."

Unencrypted data was accessed. The bank is notifying the affect prepaid card holders, who comprise about two percent of 25 million UCard users. Network World reported that the bank will not issue replacement prepaid cards, and the card-holder notification focused on users who registered their cards between July and September of 2013.

In November, JPMorgan signed several settlement agreements with both federal and state agencies to resolve charges that the bank misrepresented residential mortgage-backed securities (RMBS) it sold to investors, including several banks that later failed. The bank paid about $13 billion in reimbursements and fines.

In September, the Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC) ordered JPMorgan Chase bank to pay $309 million in refunds to more than 2.1 million customers for:

"... illegal credit card practices. This enforcement action is the result of work started by the Office of the Comptroller of the Currency (OCC), which the CFPB joined last year. The agencies found that Chase engaged in unfair billing practices for certain credit card “add-on products” by charging consumers for credit monitoring services that they did not receive."

In August, the New York Times first reported about an investigation of the bank for allegedly bribing officials in China to gain lucrative contracts:

"Federal authorities have opened a bribery investigation into whether JPMorgan Chase hired the children of powerful Chinese officials to help the bank win lucrative business... In one instance, the bank hired the son of a former Chinese banking regulator who is now the chairman of the China Everbright Group, a state-controlled financial conglomerate... After the chairman’s son came on board, JPMorgan secured multiple coveted assignments from the Chinese conglomerate... The Hong Kong office of JPMorgan also hired the daughter of a Chinese railway official..."

This would appear to be a violation of the Foreign Corrupt Practices Act (FCPA), a federal law that prohibits United States companies from making:

"... payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business...."

The investigation is still ongoing. This past weekend, several news sources reported about emails by the bank with hiring children of prominent Chinese families. Violations of the FCPA are fraud, folks. This is rare but not a first in the banking industry. As the New York Times reported:

"Only a handful of Wall Street employees have ever faced bribery accusations, including a former Morgan Stanley executive in China who pleaded guilty to criminal charges in 2012..."

The above instances are the tip of the proverbial iceberg. Read more about the bank's sordid history. To me, it seems rotten to the core, and needs to be dissolved with jail-time for all senior executives.

The Google Wallet Prepaid Card. Is It a Good Deal?

Recently, Google launched the Google Wallet Card, a new, physical prepaid card you can use in addition to using your smart phone to pay for purchases via the Google Wallet service. Readers of this blog know that I've discussed prepaid cards at length in this blog.

So, the appropriate question: is the Google Wallet Card a good deal?

To answer this, first I read the card announcement at the Google Commerce blog. The Google Wallet Card is structured like any other prepaid card. You add money to it, and then use the available balance on your card to make purchases in retail stores and/or to withdraw cash at ATM machines. You must have a Google Wallet account, first. The blog post announcement said that the Google Wallet Card can be used at "millions of MasterCard(R) locations." That seems partly true. Keep reading.

Google Wallet Card users also need the Google Wallet app running on their smart phone. The app provides notifications about purchases with the Card, and allows Card users to check their available card balances, add money to their Wallet/Card, and perform related tasks. Right now, Google Wallet users can order the Google Wallet Card for free.

Then, I visited the Google Wallet Card FAQ page, which is buried within the Google Wallet website. The page clearly stated that the Google Wallet Card can only be used within the United States. So, the announcement in the Google Commerce blog is a little misleading, and not quite accurate.

Also, there are transaction limits with the Google Wallet Card:

• The maximum you can spend is your Google Wallet balance or $5,000.00 per 24 hours
• The maximum you can withdraw from an ATM machine is $300.00 per 24 hours

There seem to be fewer fees with the Google Wallet Card. Google does not charge the following fees to Google Wallet Card users:

• Retail store purchases with the Google Wallet Card
• An annual or a monthly fee
• A card activation fee
• Cash withdrawals at ATM machines
• Checking balances at ATM machines

There are fees if you add money from a debit/credit card, but no no fees if you add money from a checking account. So, how you use the Card matters. I found it extremely helpful to read the page listing fees for both the Google Wallet and the Google Wallet Card. The fee-listing page is a site page Card users will probably want to refer to frequently, since fees can change.

More importantly, this page provides the warnings that the bank or ATM network (e.g., NYCE, Cirrus, Plus, etc.) may charge fees for cash withdrawals and checking balances at ATM mchines. The fee-listing page doesn't list the specific fees banks or ATM networks might charge. It just gives the general warning.

I found this general warning a disappointment. It would be more helpful if the fee-listing page included these additional fees, so Google Wallet Card users would know in advance what fees they will likely encounter at ATM machines.

At the Google Wallet Card FAQ page, I looked for links to the fee schedule or Card agreement. I've learned that these documents specify all relevant details. I did not see links prominently in the Google Wallet Card FAQ page. This was a disappointment. Users should not have to hunt for these links, as I did.

The page footer at the Google Wallet site contains a link to the Google Wallet Terms of Service agreement. This agreement contains important information about the Google Wallet Card:

"6.5 Google Wallet Card - (a) Issuance of the Google Wallet Card. GPC may arrange for Bancorp to provide you with access to a MasterCard branded physical debit payment card, the Google Wallet Card. By using the Google Wallet Card, you also agree to the Google Wallet Card Terms of Use, which may be updated from time to time. For avoidance of doubt, the Google Wallet Card Terms of Use are between you and Bancorp, not Google or GPC..."

So, the Terms of Servce identifies the bank Google Wallet Card users do business with. And, it confirms that the site does contain an agreement (or contract) specifically for Google Wallet Card users. You just have to hunt a little to find it. That agreement/contract is between the Card user and Bancorp. The Google Wallet Card Terms of Use contains some important terms, including but not limited to:

"If you use your [Google Wallet Card] at an automated fuel dispenser (“pay at the pump”), the merchant may preauthorize the transaction amount up to $100.00 or more. If your Card is declined, even though you have sufficient funds available, pay for your purchase inside with the cashier. If you use your Card at a restaurant, a hotel, for a car rental purchase, or for similar purchases, the merchant may preauthorize the transaction amount for the purchase amount plus up to 20% or more to ensure there are sufficient funds available to cover tips or incidental expenses incurred. Any preauthorization amount will place a “hold” on your available funds until the merchant sends us the final payment amount of your purchase. Once the final payment amount is received, the preauthorization amount on hold will be removed. It may take up to seven (7) days for the hold to be removed. During the hold period, you will not have access to the preauthorized amount."

For security reasons, I almost never use a debit/credit/prepaid card at gas station pumps becasue it is extremely easy for identity theives to tamper with gas station pumps. When gas stations are closed, the pumps are usually unattended and left out in the open where anyone can access them.

So, is the Google Wallet Card a good deal? Only you can decide for yourself as you know your financial situation best. The above transaction limits may or may not fit with your lifestyle and financial needs. Your current debit- or prepaid card may offer fewer or no fees for ATM machine usage. Hopefully, I have highlighted the issues and terms to consider to make an informed decision.

The Google Wallet Card is not for me because I avoid using any prepaid cards due to many fees and fewer consumer protections. My current mix of credit cards and a debit card with my bank fulfill my banking needs.

If you already use Google Wallet, then the Google Wallet card may be a useful option at retail stores that don't accept the smart phone payment method. CNN Money said this about why Google introduced a prepaid card:

"[Google Wallet] hasn't really taken off, however -- iPhones haven't adopted the technology necessary to use the in-store payment feature, and many retailers don't have the appropriate point-of-sale equipment to process the transactions."

What's your opinion of the Google Wallet prepaid card?

Coin: A New Service Combines Several Payment Cards On A Single Card. Is It a Good Deal?

Coin, a new credit-card like payment device, has received a fair amount of press coverage recently. If you haven't heard about Coin, which will debut in 2014, it is a new service that allows you to store payment information for up to eight credit-, debit-, and prepaid cards on a single card-like device. You can use the Coin service to lighten your wallet or purse by leaving at home all of your physical plastic cards. And, Coin has some nifty features that work with your smart phone. If you pre-order Coin now, it'll cost you either $50 or $100.

So, the next appropriate question: is Coin a good deal?

Many technophiles I know will pre-order Coin now and start using it when it becomes available next summer. They like to use the next new, shiny, mobile device or service. Nothing wrong with that. I prefer to look a little deeper first.

We've all experienced products, services, and social networking websites that promote convenience while the cost, or price we pay, has usually been our privacy and personal information. So, when a new financial payment device promotes convenience, I'm inclined to investigate first.

To answer this question, I first read the Coin Master Terms of Service (CMTOS) dated October 1, 2013; which you should, too. It helps you understand more about the service, what you get, and what your responsibilities are. After reading this document, I quickly learned that the Coin card includes software embedded on it:

"1. USE OF THE SERVICE. You are solely responsible for the use of the Service. By using the service you acknowledge that your use of the Service is solely at your own risk... Subject to the Terms, Coin grants you a limited, non-exclusive, non-transferable, revocable license to use any software that is provided by Coin that is pre-installed on, embedded in or incorporated into the Coin Card (“Embedded Software”)..."

Okay. That is good to know as a starting point. Section 9 of the CMTOS says that users aren't allowed to:

"... Access or use the Site for any comparative or competitive research purposes;"

Huh? Part of deciding whether or not to use any financial product or service is to research it and compare it against alternatives. This term struck me as most odd and curious. Maybe the lawyers at Coin rule.

With any new service or new product, i want to know exactly what I am getting for my money. That includes what happens when things go wrong. Nothing in life is is perfect. Good customer service includes help when things go wrong. Section 4 of the CMTOS:

"... If you have any reason to believe that your account information has been compromised or that your account has been accessed by a third party, you agree to immediately notify Coin by e-mail [email protected]. You are solely responsible for your own losses or losses incurred by Coin and others due to any unauthorized use of your account."

That seems pretty clear. And if your Coin card is lost or stolen:

"... you should immediately contact the customer service department of your credit card company and/or bank to suspend access to the financial accounts associated with your Coin Card. Additionally, you should use the App to disable your Coin Card until the Coin Card is recovered or replaced. If your Coin Card is lost, damaged or stolen you may purchase a replacement card..."

That seems pretty clear, too. I was hoping that the folks at Coin might help with notifying banks and card issuers of lost/stolen credit/debit/prepaid cards since they would already have all of my information for each debit/credit/prepaid card loaded on my Coin card. I guess not. If your account or Coin card are hacked and your money is stolen, then you are on your own to notify each card issuer, and to absorb any financial losses. Maybe your bank or financial institution will help and reimburse your for any stolen funds... or maybe they won't.

Perhaps most importantly, CNN Money reported that Coin doesn't have the approval of the credit card issuers and networks. That approval seems critical to me before ordering (or pre-ordering) Coin. It seems wise for consumers to check the terms of service or contract for any credit card to make sure a device like Coin isn't prohibited.

Sections 13 and 14 both seem to reinforce the you're-on-your-own theme:

"13. WARRANTY DISCLAIMER. THE SERVICE IS PROVIDED ON AN “AS IS” BASIS, WITHOUT WARRANTY OF ANY KIND."

If the Coin site, mobile app, or Coin card are hacked or contain malware, you still are on your own. In my opinion, any site that compiles financial payment information for users is a high-value target by hackers. Hackers go where the money and salable user information are.

So, not only are you on your own but you give up certain rights. See section 16 of the CMTOS:

"... In the interest of resolving disputes between you and Coin in the most expedient and cost effective manner, you and Coin agree that any and all disputes arising in connection with this Agreement shall be resolved by binding arbitration... Arbitration uses a neutral arbitrator instead of a judge or jury, may allow for more limited discovery than in court, and can be subject to very limited review by courts... You understand and agree that, by entering into these Terms, you and Coin are each waiving the right to a trial by jury or to participate in a class action... No Class Actions. YOU AND COIN AGREE THAT EACH MAY BRING CLAIMS AGAINST THE OTHER ONLY IN YOUR OR ITS INDIVIDUAL CAPACITY, AND NOT AS A PLAINTIFF OR CLASS MEMBER IN ANY PURPORTED CLASS OR REPRESENTATIVE PROCEEDING. Further, unless both you and Coin agree otherwise, the arbitrator may not consolidate more than one person’s claims..."

Maybe these rights (e.g., to sue, to join with other consumers) aren't important to you, or maybe they are important. I mention this so you know what rights you may give up. And, Coin uses are liable for certain fees should you pursue arbitration. In my opinion, companies have introduced this into their policies to limit their financial exposure. To me, it is the loss of important rights for consumers. Since technology moves forward far faster than federal, state, and local laws, differences of opinion are likely... and hence, disputes.

Keep reading. There's more.

Next, I read the Coin Privacy Policy (also dated Oct. 1, 2013), because privacy policies often indicate what specific personal information is collected and shared. That sensitive, personal information the policy refers to as "Personally Identifiable Information" (PII). The policy doesn't list all data elements, but provides some examples:

"Examples of personal information include name, email address, mailing address, mobile phone number, and credit card or other billing information. Personal information also includes other information, such as date of birth, geographic area, or preferences, when any such information is linked to information that identifies a specific individual..."

Anytime I see the words "examples" and " such as" in this context, I assume that much more personal information will be collected. The Coin service collects personal information (PII) you directly provide and information you indirectly provide through your usage:

"... we may automatically record certain information from your device by using various types of technology, including “clear gifs” or “web beacons.” This "automatically collected" information may include your IP address or other device address or ID, web browser and/or device type, the web pages or sites that you visit just before or just after you use the Service, the pages or other content you view or otherwise interact with on the Service, and the dates and times that you visit, access, or use the Service. We also may use these technologies to collect information regarding your interaction with email messages, such as whether you opened, clicked on, or forwarded a message."

So, like most other social networking sites, you are the product and Coin will collect an extensive amount about both you and your activities through the Coin card, mobile app, and website.

When I read both policies I looked for language that stated whether or not Coin collects my purchase or transaction information (e.g., amount, store, location, items). That is where the value is. Banks know this and already collect consumers' purchase information. To me, it is reasonable to assume that Coin will collect this purchase information also.

The policy mentions third-party vendors, but doesn't state what information is shared with these vendors. So, information may be shared or not. It's hard to tell from the policy language. Just because the policy is silent about whther certain data is collected and/or shared, doesn't mean it won't. So, I assume some information is collected and shared to make it attractive for third-party vendors to participate. Perhaps, a future privacy policy version will be more precise.

Next, the privacy policy addressed data security:

"We cannot, however, ensure or warrant the security of any information you transmit to us or store on the Service, and you do so at your own risk. We also cannot guarantee that such information may not be accessed, disclosed, altered, or destroyed by breach of any of our physical, technical, or managerial safeguards."

Next, Coin has a security feature that CNN Money reported could also be problematic: it relies upon your smart phone being on and nearby. The security feature deactivates the Coin device if it is far from your smart phone (with the Coin app loaded). So, if your smart phone battery has died or your phone is broken, then your Coin card won't work. Nightmare scenario #1: you are at the phone store to buy a replacement battery for your dead smart phone, but you can't because the credit/debit credentials on your Coin card are locked. Only you know how often you fail to charge your smart phone and/or been stranded somewhere with a dead smart phone. Nightmare scenario #2: while you wait for your smart phone insurer to send a replacement smart phone for the one you lost/damaged/dropped, you can't use your Coin card.

last, Coin's convenience is limited. You can load an unlimited number of cards into your Coin account, but only up to eight (8) cards onto your coin device. So, a certain amount of shuffling is required for those who are heavy shoppers with lots of plastic in your wallet/purse.

So, is Coin a good deal? Only you can decide for yourself. Hopefully, I've highlighted some of the issues to consider. As a wise person once said: the devil is in the details.

Coin is not for me. I do not want to include yet another vendor in my purchases, as there are already many vendors involved in consumers' payment transactions -- all who want my purchase information for their own "big data" or data-mining purposes. Thanks to NSA surveillance, we've learned that metadata is extremely valuable, too. To me, convenience alone is not enough for a vendor to gain access to my purchase transactions.

Plus, the executives at Coin seem to have done, what appears to me to be, a masterful job at crafting online policies that effectively limit their liabilities, limit rights, and place a burden on Coin users that I find unacceptable.

If you have and use eight credit cards, one could argue you have bigger issues to address with credit. Me? My wallet is already light enough -- intentionally. I use only one credit card when shopping, avoid using prepaid cards (due to many fees and fewer consumer protections), and use my debit card only at my bank's ATM machines once weekly. Some membership cards have optional prepaid features, which I don't use for purchases because of the many fees on prepaid cards. Plus, the supermarket chain I shop at discontinued its loyalty-card program. So that card has already been destroyed. Plus, more retailers will replace their loyalty-card programs with newer, more comprehensive tracking technologies (e.g., smart shopping carts, video-camera-enabled mannequins, wristbands, WiFi hotspots, smart trash bins, etc.) in physical stores.

What's your view of the Coin service?

When Employees Are Forced To Receive Pay On Prepaid Payroll Cards

To learn more, read this.

Credit Unions Outperform Banks On Customer Loyalty, And Banks Lobby To End Credit Unions' Tax-Exempt Status

The Bankrate Banking blog reported the results from a recent survey about customer loyalty:

"According to the 2013-2014 National Member and Nonmember Survey from the Credit Union National Association, 57 percent of credit union members indicate they are extremely likely to recommend their credit union to friends. In contrast, just 40 percent of members who also use banks say they're equally as likely to recommend that institution to friends."

A 2012 survey found that 11% of customers were ready to leave their bank. To improve their performance, you'd think that banks would focus on better customer service, and cut costs to improve profitability. The big banks have focused on lobbying legislators in Washington to end the tax-exempt status of credit unions, which are non-profits:

"... Frank Keating, president of the American Bankers Association (ABA) wrote, "Many tax-exempt credit unions have morphed from serving 'people of small means' to become full-service, financially sophisticated institutions. The time has come to abolish this exemption." "

Another claim the banking industry likes to make is that repealing the credit unions' tax-exemption would create a level playing field. Earlier this year, the American Banking Association trade group released a flyer (Adobe PDF) which claimed:

"Today credit unions are a $1 trillion industry that pays no income tax. That’s nearly $2 BILLION every year that could help shrink the federal deficit. Now, credit unions want even more perks. It’s time to end credit unions’ indefensible and outdated special treatment. Enough is enough."

I agree. Enough is enough. And, enough with the spin and misleading statements. Let's start with some facts from the U.S. Statistical Abstract:

• The average bank is about 14 times larger than the average credit union. In 2010, the average bank had $1,739.7 billion (or $1.7 trillion) in assets while the average credit union had $124.6 billion in assets.
• Banks still control a whopping 94% of the market, based on assets. In 2010, FDIC-insured banks (commercial and savings) had over $13.3 trillion in assets, compared to $914 billion in assets at credit unions (federal- and state-insured).
• Banks are far bigger with more branch offices and ATM retail booths. Also in 2010, the 7,657 FDIC-insured banks (commercial banks and savings institutions) had 95,527 offices (main office and branches). That is about 12 offices per institution. In the same year, there were 7,339 credit unions; most with a couple offices (that rely on others' ATM networks to service their members).
• In 1990, the average bank was about 20 times larger than the average credit union. In 1990, the average bank had $306.6 billion in assets while the average credit union had $15 billion in assets.
• From 1990 to 2010, the number of banks decreased (e.g., consolidations, failures) by about 50%, the number of offices increased by 45%, and assets increased 186%. So, the big banks got a lot bigger.
• During the same period, the number of credit unions decreased (e.g., consolidations, failures) by about 43%, and assets increased by 361%. So, small organizations did get bigger.
• In 1990, banks controlled about 96% of the market; based on assets. So, credit unions have captured 2% of the market in 20 years. That is miniscule annual growth in market share.

Some additional facts worth noting:

• Banks provide retail banking operations (e.g., checking accounts, savings accounts, money market accounts, debit/credit cards), commercial banking (e.g., lending to businesses), and investment services. 70% of credit unions do not provide commercial banking operations. So, the claim about full service isn't accurate.
• A 2012 study found that while the total number of branch offices at banks increased during the past six years, the number of branches increased in higher-income areas and decreased in low-income areas. It seems hypocritical at best (and dishonest at worst) for banks to accuse credit unions of focusing away from the poor while banks do it.
• The claim by banks that credit unions receive special treatment is particularly laughable. Banks should never, ever complain about special treatment. During the 2007-2008 recession, banks received about $700 billion in TARP bailout money.
• If banks want to enjoy the benefits of tax-exempt status, they have the freedom and choice to re-organize as a credit union.
• When talking about banks, let's remember who we are dealing with. A 2012 survey found that more than a quarter of executives polled said that they considered unethical behavior necessary to succeed in business. The industry has an ethics problem it has failed to fix, yet it wants to tell another industry how they should operate.

The trade group representing credit unions has completed its own analysis which totally debunks the level playing field claim by banks. Read this 2011 report: Commercial Banks and Credit Unions: Facts, Fallacies, and Recent Trends:

• The claims by bankers imply that credit unions have captured a larger share of the market. This is false. In 1992, credit unions had 6% of the market -- the same share as in 2010.
• In 2011, half of credit unions had less than $19 million in assets while less than 2% of commercial banks were this small. During the same period, two-thirds of banks had $100 million or more in assets, while only 20% of credit unions were this big.
• The claims by bankers that credit unions don't paying their fair share of taxes is misleading and dishonest. Many banks use the SubS tax status to pay less taxes. According to CUNA, the number of banks using the SubS tax status has grown from 6% in 1997 to 31% in 2011. Both small and big banks use this tax dodge. Again in 2011, 61 banks with $1 billion or more in assets used the SubS lower-tax status, which was originally created for small businesses. It would seem that the banks are gaming the system tax wise.

What's really going on here? I began to wonder why an industry that controls 94% of the market would complain about its competition.

As I see it, this lobbying by banks is another slick attempt to focus attention away from themeselves and to limit consumer freedoms and banking choices. By limiting or eliminating choices (e.g., credit unions), banks reduce competition that keeps banking prices down. Without credit unions, it would be easier for banks to raise prices (e.g., fees, loan interest rates, decrease savings interest rates). Consumers would not have an option to move their money to from banks. I can think of no other reason why an industry would complain about competition that has only 6% of the market.

Remember, raising prices was what the banks wanted to do in 2011, but couldn't when consumers rejected higher monthly checking and debit fees proposed by the Bank of America and other big banks. Raising banking prices has several benefits for banks:

1. Increases banks' revenues and profits
2. Encourages some current account-holders to move to underbanked status: a checking or a savings account, but not both
3. Encourages some current account-holders to move to unbanked status: neither a checking nor a savings account
4. Allows banks to service both underbanked and unbanked customers with highly-profitable prepaid cards, instead of with traditional checking and savings accounts. Prepaid cards aren't as tightly regulated as debit cards, credit cards, checking accounts, and savings accounts. Prepaid cards have fewer or no disclosure requirements and few to no limits on the number or amount of fees the banks can charge. Prepaid card users have greater liability should the bank that issued their prepaid card fail.

In 2011, about 8% of U.S. households were unbanked and 20% were underbanked. The average prepaid card charges about $300 per year in basic fees. That's a huge revenue source for banks. Do you want to pay $300 per year, or more, in banking fees? I doubt it. I don't.

This blog discussed the long list of fees charged on many prepaid payroll cards. The goal should be to decrease unbanked and underbanked households. The St. Louis Federal Reserve said it well in 2010:

"Encouraging the unbanked to handle payments through the financial mainstream is important for a number of reasons. Having a checking and savings account is an important first step in establishing that the consumer has the financial acumen to apply for credit for a car or home... the key advantage to consumers having bank accounts is avoiding costly alternative financial services and enabling families to build and protect their wealth. Unbanked consumers spend approximately 2.5 to 3 percent of a government benefits check and between 4 percent and 5 percent of payroll check just to cash them. Additional dollars are spent to purchase money orders to pay routine monthly expenses. When you consider the cost for cashing a bi-weekly payroll check and buying about six money orders each month, a household with a net income of $20,000 may pay as much as $1,200 annually for alternative service fees—substantially more than the expense of a monthly checking account fee."

So, traditional checking and savings accounts are ways for consumers (e.g., the poor and lower middle-income people) to move up the economic ladder in society to achieve the American dream. If one wants the poor and middle-income classes to succeed, one should encourage them to open traditional checking and savings accounts with the lowest-cost financial products possible, usually available at credit unions.

Without credit unions (or with severly hampered credit unions), a rise in banking prices by banks would likely result and cost consumers dearly. The Los Angeles Times reported:

"The tax exemption is crucial to credit unions, which by law can't raise capital through public stock offerings the way that banks can, said Fred R. Becker Jr., president of the National Assn. of Federal Credit Unions, a trade group with about 3,800 federally chartered members... A 2012 economic study commissioned by the trade group found that removing the tax exemption would cost consumers about $10 billion a year through higher fees and interest rates on loans, as well as lower interest rates on savings."

The Los Angeles Times article also provided some good background information:

"Under a 1934 law, Congress exempted credit unions from federal income taxes as long as they were nonprofit businesses, organized without capital stock and operated for the benefit of their members. For decades, most credit unions were small operations, usually serving employees of individual businesses and government agencies. The industry has grown significantly since the 2008 financial crisis, boosted by outrage over Bank of America's 2011 plan to impose a $5 monthly fee for debit card use."

So, the big banks have only themselves to blame for the rise in credit unions. I think that it is important to remember the history of banks and credit unions described in this Federal Credit Union handbook (Adobe PDF):

"In the early twentieth century, credit needs of the urban working classes in the United States were largely neglected by established financial institutions. For the most part, the average worker had nowhere to turn except to the usurious money lenders of the day. This growing dependency complicated the economic life of the average consumer and gave rise to the development and formation of a cooperative credit system in the United States, an idea originating in Europe and imported to North America in 1900. In 1908, the first legally chartered cooperative credit society was established in Manchester, New Hampshire by a special act of the state’s legislature. The following year, the first complete credit union act, the Massachusetts Credit Union Act, became law in Massachusetts. By 1933, enactment of state laws permitting formation of credit unions had been largely accomplished. In 1934, the Federal Credit Union Act was signed into law..."

A reminder: usurious = very high or unlimited interest rates. So, a world without credit unions would eliminate the need for the Credit Union Act. It would also eliminate several freedoms citizens have, including the right to gather as a group and form a credit union. It would also set conditions for a return to the high interest-rate times of the 1800's. Do you want to return to banking practices of the 1800s? I doubt it. I don't.

What to do next. First, contact your elected officials and tell them what you think of the banks' lobbying against the tax-exempt status of credit unions. Second, move your money to a local, community bank or to a credit union. Third, join the Don't Tax My Credit Union movement.

To Learn More About Prepaid Cards, Try The 'Ask CFPB' Service

Last year, the Consumer Financial Protection Bureau (CFPB) launched its "Ask CFPB" service with answers to frequent questions by consumers. I visited the website to see what it said about prepaid cards.

The Prepaid Cards section of Ask CFPB provides basic answers to these and other key questions:

• What is a prepaid card?
• What is a payroll card?
• What is the difference between a debit card and a prepaid debit card?
• What are some of the main types of prepaid cards?
• If my employer offers me a payroll card, do I have to accept it?

Some prepaid cards are "closed-loop" and some are "open-loop." For example, gift cards from Dunkin' Donuts, The Old Spaghetti Factory, Starbucks, or Barnes & Noble are closed-loop cards -- usable only at each retailer's stores. Open-loop prepaid cards (GPR) can be used in many retail stores, like traditional debit cards and credit cards. The prepaid cards for some public transit systems (e.g., subways, buses, commuter trains) are closed-loop, and others are open-loop. Another example, when its prepaid features are activated the AAA Prepaid Card is an open-loop card. It's important for consumers to remember that while open-loop GPR prepaid cards may look like traditional debit cards, they aren't because of the different regulations, disclosures, and rights for consumers.

You can browse on your own the answers about prepaid cards at the "Ask CFPB" website, so I won't repeat the answers here. If you have a problem, you can submit a complaint at the CFPB website. However, if you want to know more than the basic answers, keep reading.

Consumers should know that prepaid cards are huge revenue generators for banks and card issuers. The cards represent a fast-growth opportunity, as the CFPB highlighted in a 2012 announcement:

"According to a 2009 FDIC study, 9.7 percent of all households used these prepaid cards. Mercator Advisory Group reports that the prepaid market totals $57 billion and is expected to grow at a rate of 42 percent per year from 2010-2014. The two largest prepaid card program managers have reported a jump from 3.4 million active cards in 2009 to over 7 million this year. It is projected that the total dollar amount loaded onto prepaid cards will hit $167 billion in 2014... The largest prepaid card program manager in the United States reported that funds directly deposited onto its prepaid cards increased by nearly 70 percent from 2010 to 2011..."

In 2012, the CFPB noted some of the key issues about some prepaid cards (bold emphasis added):

"Fees and Terms Disclosure: The lack of an industry-wide standard on prepaid card fee disclosure may make it difficult for consumers to understand the cost of the product or compare fees. Often, consumers do not know what protections or fees come along with their prepaid cards prior to purchase because such disclosures are contained inside the packaging... Consumers should also know whether or not their funds are protected by FDIC insurance..."

"Unauthorized Transactions: Federal regulations require that credit and debit card issuers limit consumers’ liability when their cards are used without their authorization. These regulations do not extend to prepaid cards. Many prepaid card issuers voluntarily offer this protection, but it is not standard across the industry..."

"Product Features: Most prepaid cards do not offer any credit features. In general, cardholders may not be able to withdraw or spend more than the funds loaded on their cards. However, some prepaid cards allow their cardholders to overdraw their accounts, and some offer small-dollar loans or a line of credit. Similarly, very few prepaid cards have a savings account. Even though such savings accounts typically have high interest rates, consumers do not seem to take advantage of the opportunity to save. Another feature is that of credit repair, which claims to offer consumers the opportunity to improve or build credit..."

To better understand GPR prepaid cards, I also read the CFPB's "2012 Advanced Notice on Proposed Rulemaking" (a/k/a ANPR - Adobe PDF) document:

"... Some [prepaid] cards are “closed-loop cards,” which a consumer can use only at a specific merchant or group of merchants. Other cards are "open-loop cards," which a consumer can use anywhere that accepts payment from a retail electronic payments network, such as Visa, MasterCard, American Express, or Discover..."

The ANPR document explained:

"Many, but not all, GPR card accounts are insured by Federal Deposit Insurance Corporation (FDIC) pass-through insurance (coverage that "passes through" the agent to the holders of the accounts). Other GPR cards may provide alternative security mechanisms, but do not offer FDIC pass-through insurance..."

Why buy a prepaid card without that protection for your money? If you didn't know before, you know now to shop for GPR prepaid cards with that protection. And, I bet you will, provided the prepaid card's exterior packaging includes these disclosures. Obviously, a GPR prepaid card with FDIC insurance protections is more valuable than a card without that protection. Wise consumers want their money protected.

Last week, the CFPB announced:

"We are also expecting to build on an Advance Notice of Proposed Rulemaking that we published last year concerning prepaid cards, by developing a proposed rule to strengthen federal consumer protections for these products."

I look forward to reading later this year the CFPB's updated rules about prepaid cards, even though the agency did not seek feedback in 2012 about (closed-loop) gift cards, payroll prepaid cards, and electronic benefits transfer (EBT) prepaid cards. Given recent news stories about payroll prepaid cards, consumers need improved disclosures to avoid losing choice and getting "mugged" with undisclosed fees.

Many consumers consider switching to GPR prepaid cards to avoid overdraft fees with debit cards attached to traditional checking accounts. Is this wise? Only you can decide for yourself as you know your lifestyle and finances best. Do your research first.

Wise consumers understand their rights and responsibilities before buying any prepaid 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. Wise consumers do the research first to determine whether a prepaid card fits your lifestyle and spending habits. Read this FDIC comparison between debit cards, credit cards, and prepaid cards. For me, a GPR prepaid card does not meet my needs. I don't buy nor use GPR prepaid cards, unless they are a gift from a family member or friend.

To learn more, this blog offers several related articles:

• Consumers Advised To Be Wary Of Prepaid Card Protections
• How To Evaluate Prepaid Card Options
• Is It Wise To Move Your Money To A Prepaid Card?
• 5 Things You Should Know About Prepaid Cards
• Consumer Reports Reviews Several Prepaid Cards
• 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
• Move Your Money To... Walmart? A Good Deal?
• Bank of America Merchant Services And Money Network Announce New Payroll Solution

What's your opinion of prepaid cards?

New York State Attorney General Investigates Payroll Cards Programs By Walmart, McDonalds, Home Depot, And Walgreens

The Office of the Attorney General (AG) for the State of New York is investigating several employers about their use of prepaid payroll cards to pay employees. Forbes magazine reported that the investigation is focused on:

"... the process; if it’s costing employees more in fees and whether or not employees have an easy way to choose how they are paid... Walmart launched its payroll card in 2009. Shortly after, the company met with New York’s Department of Labor to provide it “full details” on how the program works... McDonalds says it offers payroll options in the form of direct deposits or pay cards..."

The crux of the situation:

"Under New York state law employees must give advance written consent to be paid by payroll cards and any agreement to receive wages by the cards can’t be a condition of employment."

Besides McDonald's, and Walmart, other companies being investigated include Home Depot and Walgreens. More employers offer prepaid payroll cards to employees because prepaid payroll cards are one of the least expensive methods to pay employees.

A class-action lawsuit is underway in Pennsylvania where employers allegedly forced employees to accept pay via prepaid payroll cards. The suit also alleged under-payment of pay due to the numerous fees with the payroll cards. When an employer offers an employee pay via a prepaid payroll card this situation highlights the importance for job seekers and employees to:

• Know your payroll rights in the state where you live
• Read closely any prepaid payroll card agreements to understand the costs and fees involved
• Compare those costs and fees to other banking options, such as a checking account at a credit union or a bank
• Visit the website for the attorney general's office or the local agency, to learn more about prepaid payroll card rules in your state

The New York State AG offers this brochure about pay options to help consumers (Adobe PDF). In January 2013, the State of Florida Attorney General reached a settlement with several companies (Account Now, Inc., First Data Corporation, Green Dot Corporation, Net Spend Corporation, and Unirush, LLC) about alleged prepaid debit card abuses:

"Following an investigation based upon concerns that consumers where not clearly advised of important fees and misled by claims that using the cards would build positive credit history, the settlements require the companies to provide clear and conspicuous notice of fees and prohibits them from making misleading claims about the ability of prepaid debit cards to build positive credit history. Additionally, the companies have agreed to pay $115,000 to the Central Florida Chapter of Junior Achievement."

I applaud the New York State AG for this investigation, and hope that other states' attorney generals do the same.

This investigation is good news for several reasons. First, employers' payroll programs should comply with federal and state laws. Second, employees demand choice. Many consumers already have checking and savings accounts where direct deposit is applicable. Third, it is unfair for employers to dodge the costs of direct deposit programs by using payroll cards -- which effectively shift those administrative costs to employees. Once again, the banks are trying to influence administrative processes in a way to produce more revenues for themselves.

To learn more, this blog offers several related articles:

• Move Your Money To... Walmart? A Good Deal?
• Bank of America Merchant Services And Money Network Announce New Payroll Solution
• Consumers Advised To Be Wary Of Prepaid Card Protections
• How To Evaluate Prepaid Card Options
• Is It Wise To Move Your Money To A Prepaid Card?
• 5 Things You Should Know About Prepaid Cards
• 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

What's your opinion of prepaid payroll cards?

[Update July9: McDonald's employer in Pennsylvania makes prepaid payroll cards optional. Meanwhile, politicians in New York State introduced a proposed bill S04392 to make it easier for employers to pay employees with fee-laden prepaid payroll cards.]