Photo: Flickr / williamhartz
Hot on the heels of American Express, JPMorgan Chase rolled out plans for a new line of prepaid debit cards this week. From the business side of things, it’s a savvy move for a couple of reasons, which Reuters’ David Henry points out:
“A loophole in the 2010 Dodd-Frank financial reform law allows banks to charge merchants higher fees for processing payments made with this type of debit card …
Chase, the bank’s retail arm, hopes the prepaid debit card will help it avoid the negative publicity that overdraft fees can garner.”
That means the bank will start cold calling customers it considers “least profitable” – those who don’t hold credit cards or qualify for checking accounts – to move their balances to prepaid cards.
Their main selling point will be the reason prepaid debit cards are considered such useful tools for cash-strapped consumers: They don’t often incur overdraft fees (which average $35 a pop) and are a good way to manage spending on a tight budget.
But that doesn’t mean they’ll come fee-free. Chase* plans to charge $4.95 per month for its cards and $2 for using out-of-network ATMs.
Granted, Chase’s usage fee is admittedly lower than some rates you’ll find on other prepaid cards on the market. Consumers with prepaid debit cards spend an average of $300 per year in basic fees and some run as high as $15 per month.
Chase won’t charge fees often associated with these cards, cutting users slack on fees for ATM withdrawals, inactivity charges, reloading cards, and activation.
Banks have long relied on overdraft fees as a major source of revenue, but with regulators taking a harder line against them, it’s no wonder they’ve begun looking for other ways to generate cash on the consumers’ dime.
Prepaid debit cards just might do the trick.
Here’s their verdict:
“It’s affordable, unlike most established prepaid cards; and it’s accessible to consumers nationwide, whereas comparable products have a limited presence,” says Anisha Sekar, Nerdwallet VP.
-For those with low balances, the Chase Liquid is cheaper than a Chase checking account.
-Low-cost offers like Liquid will likely drive down fees on other established prepaid cards.
-Presence in low-income communities can counteract usurious prepaid cards and payday loans.
-It’s more expensive than comparable U.S. Bank Convenient Cash card.
-It cannot compete with unconditionally free checking accounts from credit unions.
-Unbanked consumers wary of checking accounts may be suspicious of a bank-branded cards.
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