Banks, retailers pitch prepaid debit cards
Posted on Sunday, September 21, 2008
Prepaid debit cards are increasingly visible, pitched to parents by banks and retailers as tools to teach financial responsibility while protecting students from the long-term punishment of escalating debt should those lessons go unlearned.
Cards available through financial services companies were prominent in back-to-school advertising. The cards can be bought and loaded — which means the cash is paid up front — then given to a student to use, just like a traditional debit card linked to a bank account.
The big difference with these cards is that once the money’s spent, that’s the end of the shopping spree. Parents can reload the card when more money is needed. And the student doesn’t rack up overdraft charges like a conventional debit card would or incur debt tied to an interest rate like a credit card.
Arvest Bank of Fayetteville recently introduced a prepaid debit card it calls Arvest Spending Card. Among the uses it touts for the card is a way to fund and manage expenses for college-age children and track those expenses online.
“It provides a little more structure than a credit card,” Arvest spokesman Jason Kincy said. “It can go a long way toward helping someone understand financial responsibility and budgeting.”
Banks are not the only institutions offering prepaid debit cards.
Wal-Mart Stores Inc. started a new Student Edition Money-Card as part of the company’s “Do the Math and Save” marketing campaign, which ends this month, spokesman Deisha Galberth said.
The student edition card follows last year’s launch of a general-purpose reloadable card that Bentonville-based Wal-Mart markets to the “106 million underbanked consumers in the United States,” Galberth said. The company has sold more than a million cards to date, she said.
Galberth said the student cards, sold in packs of two — one for parents and one for students — have an introductory price of $ 7. 46 and can be used without incurring any additional fees.
The monthly fee of $ 4. 95 is waived if more than $ 1, 000 is loaded onto the card in a month, and users can avoid ATM fees by getting cash back with purchases at Wal-Mart stores, she said.
A 2004 study by Nellie Mae, a Sallie Mae Student Loan Company, found 56 percent of undergraduates reported getting their first credit card at age 18 or during their freshman year. In their final year, 56 percent of undergraduates reported having four or more cards, with the average balance of $ 2, 864. Only 21 percent reported they pay off the balances of all cards each month.
Mark Foster, education coordinator for Credit Counseling of Arkansas in Fayetteville, said the prepaid cards are a tool, and like any other tool, they can be used to good purpose or be misused.
“Yes, in some ways we are conditioning kids at younger and younger ages to use plastic. But it is hard to avoid using plastic in today’s world,” Foster said Wednesday.
Foster said the key to using the prepaid cards is to monitor how children and young adults are using the card and to follow up with lessons of budgeting and the consequences of overspending.
“It is like training wheels on a bike. It’s hard to do much damage. It is money you’ve already got. You didn’t go into debt to do it,” he said.
The cards can also be used to buy products online without worrying about computer fraud or identity theft, Arvest’s Kincy said. In the same vein, they are good for travelers.
Some fees apply, though.
Fees can be charged when cards are activated, when they are used at an ATM or even when they aren’t used at all.
The Arvest Spending Card, for example, does enact a monthly dormant card fee after the 13 th month of inactivity.
There are other limits to some cards, so users need to pay attention to the cardholder agreements, experts say.
U. S. Bank’s Visa Buxx card, a prepaid debit card, limits the maximum allowed on a card to $ 2, 000; limits loads on the card up to $ 500 at a time; allows a maximum transaction withdrawal of $ 200; and limits the user to three withdrawals in a 24-hour period.
Metropolitan National Bank of Little Rock also uses the Visa Buxx Card. They introduced it three years ago, said Robert Stebbins, senior vice president and director of marketing.
“They were pretty popular at first. We saw them used primarily by parents getting them for their children going on trips or going off to college.”
The fees are mainly set by Visa, the card’s provider, Stebbins said.
He has seen a move away from the prepaid cards at the bank. Customers didn’t like the fee for reloading the card and usually switched to the more traditional checking accounts with a debit card, he said.
Card users may experience problems at restaurants and gas stations, where the merchant is allowed to place a hold on a certain pre-approved amount to cover the actual transaction. If the card has less than the pre-set amount, the transaction may be denied, according to cardholder agreements. But finding places to spend the money is never a problem, Foster said. Handing a supposedly safe prepaid debit card to a student or child without also handing along basic budgeting skills or spending discipline is just as bad as handing that child a wad of cash, he said. “Parents can do the same thing with a card. If you just hand it off and let the child use it without consequences, then keep reloading it, that’s an endless, bottomless pit. And that could be a bad set-up for failure once they do get a credit card,” Foster said.
To contact this reporter: sroberts@arkansasonline. com
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