Do Prepaid Credit Cards Target The Poor
Check cashing stores are feeling the bite as more and more of their customers are opting for prepaid debit cards to do their banking. For years the only financial service available to a large segment of the population that is not serviced by traditional banks, was to pay between 1.5% to a whopping 10% of their check simply to have it cashed. Now a new, more convenient and less expensive option is available thanks to the prepaid debit card.
Enter the prepaid debit card. Both Mastercard and Visa have prepaid debit programs that have significant advantages over the traditional check cashing shop. Probably the biggest advantage is not having to carry around cash. If you have just cashed your weekly or bi-weekly paycheck, what do you do with the cash? Carry it on you? Hide it someplace at home?
Gone are the days of standing in line at the check cashing store and leaving with a wad of money in your wallet. Debit cards can be funded by direct deposit or using one of thousands of retailers that will provide the servie. The card is the only thing you need to make purchases, pay bills or get cash.
While the debit card looks and shops like a credit card it isn't. The card's "limit" is the amount of money you put in the account. Because it is not a "credit card" there is no credit check and virtually everyone who applies is approved. Also, because there is no credit check, there is no inquiry on your credit report.
Without question, carrying a debit card is safer than carrying a large amount of cash. However, the consumer should not confuse their exposure to liability for a lost or fradulant use of the card with that of a credit card. In most states, you have 2 days to report a loss of a card or an unauthorized purchase or withdrawl. If you report this within two days your liability is limited to $50. If you report it after two days your liability is $500. If for some reason you don't discover the loss until after 60 days, then you are liable for any and all losses to your account.
So how is this different from credit card liability. The big difference is we are talking about someone taking money out of your bank account, not your account with a credit card. The bank can take up to 10 days to investigate and you are out that loss for at least that amount of time. Many of the debit card issuers offer free online statements. It would be wise to check them daily to insure your card has not been compromised.
So what do these cards cost? There is no one answer. All of them make money off of fees, both from the consumer and also off merchants who honor the card in their store. Some cards may encourage consumers to use their card like a credit card which creates a "signature purchase". While it is becoming rarer, there are still major chains that do not honor debit cards but will process them as a credit card if it's issued by Visa or Mastercard. This has no impact on the consumer, but the card issuer can charge substantially more to the merchant for processing a signature purchase. If you are looking at getting a debit card make sure you fully understand the terms and conditions an fee schedule.
Enter the prepaid debit card. Both Mastercard and Visa have prepaid debit programs that have significant advantages over the traditional check cashing shop. Probably the biggest advantage is not having to carry around cash. If you have just cashed your weekly or bi-weekly paycheck, what do you do with the cash? Carry it on you? Hide it someplace at home?
Gone are the days of standing in line at the check cashing store and leaving with a wad of money in your wallet. Debit cards can be funded by direct deposit or using one of thousands of retailers that will provide the servie. The card is the only thing you need to make purchases, pay bills or get cash.
While the debit card looks and shops like a credit card it isn't. The card's "limit" is the amount of money you put in the account. Because it is not a "credit card" there is no credit check and virtually everyone who applies is approved. Also, because there is no credit check, there is no inquiry on your credit report.
Without question, carrying a debit card is safer than carrying a large amount of cash. However, the consumer should not confuse their exposure to liability for a lost or fradulant use of the card with that of a credit card. In most states, you have 2 days to report a loss of a card or an unauthorized purchase or withdrawl. If you report this within two days your liability is limited to $50. If you report it after two days your liability is $500. If for some reason you don't discover the loss until after 60 days, then you are liable for any and all losses to your account.
So how is this different from credit card liability. The big difference is we are talking about someone taking money out of your bank account, not your account with a credit card. The bank can take up to 10 days to investigate and you are out that loss for at least that amount of time. Many of the debit card issuers offer free online statements. It would be wise to check them daily to insure your card has not been compromised.
So what do these cards cost? There is no one answer. All of them make money off of fees, both from the consumer and also off merchants who honor the card in their store. Some cards may encourage consumers to use their card like a credit card which creates a "signature purchase". While it is becoming rarer, there are still major chains that do not honor debit cards but will process them as a credit card if it's issued by Visa or Mastercard. This has no impact on the consumer, but the card issuer can charge substantially more to the merchant for processing a signature purchase. If you are looking at getting a debit card make sure you fully understand the terms and conditions an fee schedule.
About the Author:
Chris A Smith reports on the trends in the personal financeindustry including alternative banking products, bankruptcy, credit rebuilding and laws relating to personal credit. You can see all of his articles and videos at the popular site TryCreditFix