Prepaid Debit Cards Are a Great Way for Banks to Soak the Poor
If ever you become misty-eyed and soft-hearted after watching a few too many soft-focus sunlight-drenched bank ads full of friendly professional women and smiling minorities who've just bought their first homes, it's good to remind yourself that big banks are, fundamentally, soulless robots whose only aim is to extract as much money as possible from you via any tactics they're allowed to get away with. They are the bloodsuckers of the poor. There is no better example of this than prepaid debit cards.
Let's think about what a prepaid debit card is: cash, basically. Cash, on a card, that comes off the card, as you spend it. A fair price for a prepaid debit card would be: the cash value, plus the value of the plastic and packaging and manufacturing and shipping and handling (about a nickel), plus a modest profit. Because, you know, if a prepaid debit card is too expensive, you can just use cash. For free. Or a check. For free. Or a regular debit card, for free. Or PayPal, for free.
The people who tend to be heavy users of prepaid debit cards, then, are those at the bottom of the economic ladder—perhaps without enough savings to have a bank account that offers them those other free products. Right now, the U.S. government is preparing a set of rules designed to protect consumers of these cards. Why do these government bureaucrats need to go messing with the free market? Well:
JPMorgan announced earlier this month that it would start offering prepaid cards. Branded as "Liquid," the card carries a $4.95 monthly maintenance fee but does not charge customers to add money...
Some consumer advocates say the fees erode the money loaded onto the cards. Wells Fargo, for example, charges $3 for customers to withdraw money using a bank teller and $5 to replace a lost card.
Banks are also allowed to "impose high fees on merchants when consumers make a purchase with a prepaid card." Seems fair! Consider a $5 monthly "maintenance fee" (a completely fictional term, for it costs the bank little to nothing to "maintain" the balance you have paid to them) on a prepaid debit card that carries a balance of, say, $50. That's fee of 10% of your balance every month, simply to possess the card. Or, consider a card with a balance of $20, that retails for $25. That's a 25% fee to possess, essentially, cash. It is more or less extortion. Loan sharks would be envious of such terms. If the users of these cards had the cash to keep large balances on them, they wouldn't be using them in the first place. They'd open bank accounts. Especially if the banks informed them that this would be to their benefit. (Which it would be, if banks did not dedicate themselves to emptying your account with ever more creative banking fees.)
Not that they would ever do that, because they are bloodsuckers of the poor. This is simply a reminder.