No foolin’: A bank card with 15 fees

It sounds like an April Fools joke: A prepaid debit card meant to help teens manage their money that includes 15 potential fees. Another card claiming “no hidden fees” that charges $1 every time you use it. And another that charges $1 to talk to a customer-service rep, and 50 cents to talk to a machine!

Those are some of the surprises we found in the wild world of prepaid debit cards, or as they're known in the industry, "general purpose reloadable cards." This type of plastic, a variant of prepaid gift cards, is gaining popularity particularly among folks without bank accounts or without standard checking accounts that would entitle them to bank debit cards. While these prepaid cards don’t charge interest like credit cards, their fees can add up fast. Here are some examples:

The Wachovia Visa Buxx card is intended for teenagers to use in lieu of cash; as the Visa Buxx home page says, “it’s perfect for schoolbooks, everyday errands, travel, and life’s little emergencies.” And it appears that each of those emergencies has its own fee; in all there are 15 different potential fees. Activating the card costs $12. Each time parents load money onto the card from their bank accounts, the card charges $2. Cash advances from ATMs are $2.50. ATM withdrawals with the card are limited to 2 every 30 days; after that, the card subtracts $1.50 per withdrawal. After more than 7 months of inactivity, the card charges $2. Overdrafts are $20 each. Finally, there’s a $90 “escheat processing fee," which has to to with unloading the account after a long period of inactivity.

Visa Buxx cards are marketed by five other banks, none of which list as many fees. But some charge more for certain services. National City Bank charges a $15 activation fee; PAYjr, another Visa Buxx issuer, charges a monthly service fee of $4.95, and $10 to receive a paper statement. And to be fair, notes Curtis Arnold, founder of cardratings.com, a comparison and ratings service for credit-card offers, the Visa Buxx overdraft fees at all the banks are not nearly as high as those of many credit cards, which can run $39 per month.

The Prepaid Visa RushCard, marketed by Unirush Financial Services, claims to have no hidden fees. True, its “convenience” fee isn’t hidden; it’s clearly listed among the other fees, including a $19.95 sign-up charge. But users of the card have to dig deep into the fine-print Terms and Conditions to discover that the convenience fee means you’re charged $1 each time you use the card. On the plus side, the RushCard caps the convenience fee at $10 a month. And it doesn’t charge for services like phone inquiries. But you’d better use the card regularly, because after just three months of inactivity, you’ll be charged $1.95 a month.

Few alternatives

Michelle Jun, a staff attorney in Consumers Union’s West Coast Office in San Francisco, notes that for the “unbanked” or “underbanked"--people who don’t want or qualify for checking accounts--employing these cards may be less costly than using check-cashing services to cash their paychecks and money orders to pay their bills. And she acknowledges that for such consumers, there aren’t many alternatives. But consumers currently can’t compare terms and fees as they can with credit cards, because disclosure isn’t standardized. She supports requirement of “Schumer” boxes for each card, disclosing fees and other terms. (The Schumer box is named for the New York Senator Charles . Schumer, who sponsored the law creating the standard disclosures.)

Arnold of creditratings.com agrees. “With these pre-paid cards, there are long pages of text and no uniform presentation to compare fees,” he says. “It’s frustrating for me as an expert. You can imagine how frustrating it is for non-experts.

Check this blog later for more on prepaid ploys.

by Tobie Stanger

A call to arms for savers

By Martin Lewis

We've now limboed well under the 300-year historic low for Bank of England rates, and it's time to fight back.

Huzzah! This is a battle cry, out to the nation's savers. We've now limboed well under the 300-year historic low for Bank of England rates, and it's time to fight back. This is a three-pronged savings manifesto championing better rights and showing how to boost your interest.

Savers' Rights: Don't Hide Our Interest

Month by month savers have been slapped across the face by a succession of half per cent Bank Rate cuts. Yet click onto your account, or open the statement envelope and does it indicate what interest rate you're now earning? Not on your nelly. At best, most provide an overloaded list of obfuscated accounts with similar or identical names.

Yet there's no technological barrier here, if they can tell us what's in our account, they can tell us the rate it pays. It can only be a downright dirty attempt to create a fog to stop people from finding out how pitiful their interest is.

While credit card providers are forced to provide a summary box of data, savings' Scarlet Pimpernels hide info with impunity. This must stop. How can we improve our interest if they don't tell us the rate in the first place?

To combat this abject failure, I've launched a petition on No 10s website to mandate a change that forces disclosure, nearly 10,000 signed it on the first day, and scores expressed real anger about the issue, if you agree please add your weight at http://petitions.number10.gov.uk/savingsummarybox.

This summary box needs to include the current interest rate and the size of any bonuses and withdrawal penalties. Yet it's about more than that, the savings safety situation should be included too.

With that, if you opened a Post Office Savings account you'd know it had zero UK Government protection, only Irish protection instead. Or open AA savings and you'd be told if you've got cash in Halifax too, you're only protected up to £50,000 in total (see www.moneysavingexpert.com/safesavings for more).

Look for the "Schumer Box"

Credit card companies have to provide certain information in any offer that they make to you, under the federal Truth in Lending Act (TILA).

You can find this information printed in what’s known as the “Schumer box” (after the U.S. Senator from New York who drafted the bill), which is required under TILA.

This box will appear on the back of the letter offering you credit, or on another sheet of paper enclosed in the same envelope.

The credit card issuer must tell you:

• the APR or APRs;
• finance charges, including the minimum finance charge;
• the minimum payment required;
• the method used for computing your outstanding balance;
• the actual company offering you credit (sometimes not the company marketing the card);
• the credit limit;
• the grace period;
• the annual fee, if any; and
• the fees for credit insurance, if any.

In disclosing the APRs, the card issuer must make it clear whether there is an introductory or promotional rate and, if so, how long it will last.

Plus, it must disclose the regular APR for purchases, cash advances and balance transfers—as well as any penalty rate and what actions on your part will trigger the penalty rate.

- If the interest rate is variable, the disclosure box also must include information on how the rate is computed.

A class-action lawsuit in which consumers were fooled by the information provided in a solicitation letter illustrates the importance of reading the Schumer box—and the cardholder agreement that you receive when you get your credit card.

In the case, against New England-based Fleet Bank, the bank’s letter promised that the 7.99 percent rate “is NOT an introductory rate. It won’t go up in just a few short months.” However, 13 months later, Fleet raised the interest rate.

The court found this was a completely legal move on the credit card issuer’s part, because the Schumer box said the rate could change if the cardholder failed to meet repayment requirements or upon closure of the account. Plus, the cardholder agreement said the bank reserved the right to change the terms of the agreement at any time.

U.S. District Judge John Fullam wrote:

- The preliminary disclosure statement sent to [the cardholder] at the same time as the solicitation letter informed her that [Fleet] reserved the right to change the interest rate, upon due notice. The credit card agreement, which [the cardholder] signed (after her application had been approved) also contained an express provision giving [Fleet] the right to change the interest rate.

Therefore, Fleet did not violate the disclosure requirements of the Truth in Lending Act or other parts of that law. In other words, read the agreement.

The TILA also applies after you’ve started using your credit card. For instance, lenders are required by the law to give you at least 15 days’ notice before raising the APR on a fixed-rate credit card.

Protections for users of credit cards and overdraft services

Protections for users of credit cards and overdraft services. Before the Subcommittee on Financial Institutions and Consumer Credit, Committee of Financial Services, U.S. House of Representatives, Washington, D.C.

Credit Card Applications and Solicitations

The final rule includes several changes to the content and terminology of the tabular disclosure of key costs and terms currently provided with credit card applications and solicitations, commonly known as the "Schumer box." These changes were based largely on information from our consumer testing about what information consumers do and do not notice or find important when shopping for credit. The final rules mandate that certain terminology be used in the table in order to enhance consumer understanding, such as by requiring that issuers use the term "penalty rate" to describe the increased rate that may apply if a consumer engages in behavior such as paying late. In order to target the tabular disclosure to those terms that are most useful to consumers, the final rule does not permit a creditor to include in the table information that testing revealed consumers do not use in comparing different credit card offers, for example detailed information about the calculation of variable rates.

Get the best returns from your ISA

Nathan Wallis, spokesman at Birmingham Midshires, says when it comes to choosing the right ISA, it is important to pick a product that suits your needs: ‘There isn’t that much small print to go through on ISA accounts, because all providers have to offer a summary box showing product details. But if you might need to withdraw funds, you could be better off with an account paying a lower rate, for example, and forfeiting the interest.’