Tag Archives: prepaid credit cards

New Debit Card Fees & Some Bank Insights

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Last week the federal government announced a discussion period for some prepaid credit card changes. They’re most welcome and long overdue, but they sure don’t go far enough. What the proposed changes include are:
-No expiry for prepaid credit cards
-Fees must be prominently disclosed in advance of purchase
-No maintenance fees for at least one year.

Now help me with this? When are these things a problem when you have cash? Right – they never apply! It’s ok to charge a monthly maintenance fee after a year? What? Does cash expire in the same way? With cash, do you have to look for the traps of fees? Enough said…

There is also a bunch of news from the world of our no-service big six banks:

Scotiabank is now marketing American Express Gold cards. They’re the only Canadian big bank and it’s not the real Amex charge cards, just the Gold credit card with travel points. It’s nice to see the market expanding and they’ve sure done a lot of advertising for it!

The TD had a big announcement last week: They are buying the US credit card portfolio of Target. The total of Target credit card balances is just under $6 billion and the deal is for seven years. That likely means TD will handle the Canadian Target Visa cards when they launch in Canada in March. And, as we discussed a few months ago, the rumour is that Canada will also have the permanent 5 percent discount on any shopping with their Visa card. So skip the Amex Gold and wait for the Target Visa if that’s true.

The Royal, also last week, purchased the Canadian operations of Ally Financial. Do you remember GMAC? It was the finance division of General Motors and THE most profitable part of their portfolio. No wonder when most people finance and don’t shop around for their loan. Well, GMAC was sold when GM was in big trouble. Then they got into even bigger trouble with the US financial meltdown and the government allowed them to convert into a bank. That became Ally, which is now part of the Royal. It’s still massively profitable and the Royal outbid 15 companies and paid $3.8 billion.

Prepaid Cards – The Good and the Bad

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Last January, I asked a credit card insider where the growth and focus of their company would be over the next couple of years. Without hesitation, the person told me that it would be in the area of prepaid credit cards.

With recent, and much stronger, consumer and financial legislations, more and more of the emphasis of credit card issuers will be on marketing prepaid reloadable debit or credit cards. For the last few years, we have become used to seeing them marketed as Christmas gift cards, but that will now be year-round.

These cards will be the main tool which banks will use to strengthen their relationship with younger people, and especially students, who cannot obtain a credit card on their own. The bank marketing will also focus on lower-income people, anyone with big credit problems, and those who have no current bank relationship. On the surface, prepaid cards can seem like a good idea, but be careful, because they are heavy on fees, and light on consumer protection.

Prepaid cards do not cover you for the same fraud protection as credit cards. If your card is lost, stolen, or fraudulently used, you are liable for the loss. Each issuer has voluntary guidelines and protections that you’ll need to understand before you get the card, and before something unforeseen happens.

Plus, you are not building, or rebuilding, credit with a prepaid card. You are paying the money up front and receive a plastic card to use up to the amount you have already given them. The issuer is not extending credit to you, so you will not have your activities reported to the credit bureau.

The good news is that provincial legislation, from BC to Ontario at least, now prevents cards from having an expiry date, or a monthly activity fee.

With a wide variety of other fees, here are some of the questions you need to get answered before choosing a card:

Activation fee amount: Most cards charge to get the card set up and activated. The Walmart Money card is one of the cheapest, but others can charge up to $30.

Cash advance fee: All cards will charge you a fee to get a cash advance from an ATM. As a result, you need to commit to never using the card to obtain cash. But do ask, because some have one or two free withdrawals.

Statement fee: All cards will let you check your balance online, but most will charge you for a mailed statement.

Balance inquiry fee: If you can’t wait until you can get online, almost all cards will charge you for a balance inquiry through an ATM. It’ll be their fee plus whatever the ATM provider charges on top of that.

Inactivity fees: The rule of thumb is that these won’t get charged for at least a year or more. If you are frequently using the card, it may not matter as much as someone who only intends to use the card occasionally.

Happy New Year – For Some More than Others

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Next year, a bunch of businesses, including American Express are going to be reinvented as banks. GMAC, the ex finance arm of General Motors, just made it yesterday. No, of course they’re not a bank. It’s just a neat way of getting in on the bailout money!

This was a hugely profitable company until they took stupid pills and got into sub prime mortgages in a huge way through their mortgage division Ditek.com that you see advertising on TV all the time. Two years ago, they made billions of dollars, last year they lost about $8 billion and now finance only about 2% of GM vehicle sales. How sad…but it was either deal with it, or get a bailout. I know I’d pick the free $6 billion…

In the U.S., the car loans 60-days in arrears is up 17% for the 3rd quarter. That just came out – and that pain will continue to worsen. If people can’t pay their current car loans there isn’t going to be any relief for the Little Three formerly known as the Big 3.

For the coming year in Canada, get ready for a ton more marketing of prepaid Visa and Mastercards. They’ll make the same profit, along with an administration fee, and have no chance of delinquency. After all, you can’t go in arrears if it’s all pre-paid. But right now they’re all freaked out since their internal rules require expiry dates and a number of provinces have outlawed that rip off.

Did you get any gift cards for Christmas? In our family there were none – OK, other than Tim Horton but if they go under we can likely shut down the whole country.

If you did, get out there and use them. The sooner, the better. It’s a real crap shoot if that merchant or restaurant will still be in business to honour the card and that isn’t worth the risk. Last week, a U.S. report showed that an estimated 148,000 retail businesses will go under in 2009. Someone paid real cash for that gift card but until you use it up, all you’ve got is an I.O.U.

Here’s one more prediction for 2009: As the economy gets worse, there’s a business that’s up 30% as a result: It’s on-line psychics. Yes, for about two to four bucks a minute, or $100 an hour, psychics are doing very well predicting your financial future on-line.

I’m going to do that free for you. Think of it as your late Christmas present: One on-line psychic was quoted as saying he tells people (that’s code words for: he tells everyone the same thing) your finances really won’t improve until about the middle of next year.

Now aren’t you glad you didn’t have to get on the computer to get that?

Have a happy New Year and we’ll talk about the “real” New Years resolutions in the coming weeks. You and I both know that today is not the day for any resolutions which will survive beyond a week or two…