Goodbye, checks. Hello, prepaid debit cards
Posted
Sep 08 2009, 01:00 PM
by
Karen Datko
Rating:
Prepaid debit cards are rapidly taking the place of paper checks for all sorts of financial transactions.
A few examples:
- Wal-Mart, the nation's largest private employer, will stop issuing checks to employees who don't use direct deposit -- about half of its workforce. Instead, their pay will be deposited into a debit card account, our partner site ConsumerAffairs.com reports. (Those employees will get a checkbook just in case they have to pay a bill the old-fashioned way.)
- Social Security recipients who don't have bank accounts can get their benefits on a prepaid debit card.
- School teachers in New York City are being reimbursed for (some of) their out-of-pocket purchases for classroom supplies with a debit card now, rather than a check, says "Flexo" at Consumerism Commentary.
- Verizon is giving rebates on new phone purchases with a prepaid debit card.
Clearly there are some advantages to this:
- Prepaid debit cards don't allow overdrafts; when your account is out of money, the card will be declined, the card companies say. (For more on this, see below.)
- Debit cards with the Visa or MasterCard name offer fraud protection similar to that of credit cards.
- The money is FDIC-insured, if the institution where the money is deposited is FDIC-insured.
- Trees are spared. Wal-Mart says it will save 257,000 pounds of paper each year.
- Prepaid debit card fees are becoming more reasonable. "Though many critics have long dismissed prepaid check or debit cards as a fee-laden waste of money for consumers, competition among issuers has recently produced offerings whose fees are comparable with a bank's checking account," ConsumerAffairs.com says. You can compare fees at CreditCards.com.
So far, so good. But what's the downside? Is this really as convenient as it's touted to be? Flexo, among others, thinks not.
Consider:
- Flexo's girlfriend, an NYC teacher, would rather get a check to replace money she's already spent, Flexo says, rather than a card that makes her spend more money. To turn the card into cash, she has to visit a Chase bank branch. Verizon users can apply online to convert their card to a check, Flexo adds, which is also inconvenient.
- The cards have fees -- and how, according to Consumers Union, the publisher of Consumer Reports. Fees can include charges for activation, cash withdrawal from ATMs, customer service, card inactivity, balance inquiries and overdrafts.
- Yes, overdraft fees. Consumers Union says, "A number of prepaid card issuers claim that they do not charge fees when users spend more than the available amount on their cards. However, Consumers Union found that 10 of the 18 cards it reviewed included overdraft or ‘shortage' fees" -- ranging from $24.90 to $29. "Overdrafts are possible if purchases aren't posted immediately and you spend more than the card holds," Eileen Ambrose wrote at The Baltimore Sun.
- Federal law doesn't give prepaid debit cards the same anti-theft protection that comes with regular debit cards.
- The cards encourage spending. "When you send debit cards out to 80,000 teachers, I would believe that many will be used for extra spending and some will not be cashed or used at all," Flexo says.
What do you think? Would you rather be paid with a paper check or a prepaid debit card?
Related reading:
6 great money tools for your kids
Bank fees charged to unemployed workers
Will debit cards outstrip credit?
