You load sixteen tons, and what do you get?
Another day older and deeper in debt.
Saint Peter, don’t you call me, ’cause I can’t go;
I owe my soul to the company store…
That’s the chorus to an old coal mining song first recorded by Merle Travis in 1946. When he talks about the company store, he’s talking about the truck system that coal mining companies used to keep their employees in debt. Instead of paying them in cash, workers were paid with vouchers that could only be redeemed in stores owned by the company with prices set by the company, too. If you didn’t have enough scrip to pay for your necessities, then the store would be happy to put it on your tab. Of course, that means you were never allowed to quit working for the company as long as you were in debt to the company store. And without any cash coming in, you couldn’t save up, shop elsewhere, open a savings account or otherwise invest in your own future. That’s why they called it debt bondage.
Keep on Trucking
Fast forward 60 years and the world’s largest private employer is paying its workers with prepaid debit cards instead of with paper checks. The press releases bill it as a convenience for their workers – they won’t have to come into work on their day off to cash their checks, they can get cashback for free at the register when buying groceries and other essentials from their employer. And with less paper, it’s “greener,” too. Greener, perhaps for the Earth. Greener, too, for Wal-Mart, MasterCard and First Data – the latter two of which reap a profit each time one of these cards is swiped. Greener for employees’ wallets? Maybe not.
Yesterday, the New York Times ran a story on the high cost of prepaid debit cards which gave real world confirmation for findings already confirmed by an earlier Consumer Union study on prepaid cards. The article, which noted that prepaid cards have long been the only viable alternative to low-income individuals and immigrants who cannot set up bank accounts (the “unbanked” in industry parlance). Prepaid debit cards deliver workers from the inconvenience and exorbitant fees associated with check cashing stores, low balance fees and overdraft penalties. But with the credit card industry grasping for more ways to increase the bottom line, it seems that prepaid debit cards are quickly becoming equally as unattractive as the seedy payday loan joints.
As well as having “little regulatory scrutiny,” NYTimes highlighted how the hidden fees of prepaid debit cards can add up:
The MiCash Prepaid MasterCard docks cardholders a $9.95 activation fee. Like many competitors, it then charges numerous recurring fees, including $1.75 for each A.T.M. withdrawal, $1 for each A.T.M. balance inquiry, 50 cents for each purchase, $4 for monthly maintenance, $2 for inactivity after 60 days and $1 for a call to customer service.
The Millennium Advantage Prepaid MasterCard goes further, listing an application fee of up to $99. The Silver Prepaid MasterCard advertises that it does not charge for overdrafts as many debit cards do, but it gives itself the option of charging a $25 shortage fee if customers exceed their balance.
Meanwhile, as pointed out by the article, the low balance fee for checking accounts averages out at $10 – a pittance compared to the extensive hidden menu of a la carte fees that are served up alongside most prepaids. In addition to these fees, Consumer Union pointed out the following:
- Dormancy fees levied for inactivity
- Fees for closing account and redeeming remaining funds
- “Loading” fees for adding money to balance
- “Bill pay” fee if card is used to pay recurring monthly expenses (utilities, rent, subscriptions)
With fees for spending money and fees for not spending money, it seems that you’re damned if you do and damned if you don’t. The inactivity fee discourages saving and the redemption fee ($10 to $15) makes it costly to get your money out to put it elsewhere.
Read the rest of this post at Master Your Card.
