Credit Cards

Beware when looking up advice online

By: Sierra Moller 

In today’s digital age, there are hundreds of thousands of articles on financial advice. A quick Google search of “credit repair” or “debt consolidation” will populate hundreds of millions search results from blogs all over the Internet. In all the noise of available advice on the Internet, how do you know what resources to trust?

In my quest to assemble great consumer tips and tricks on debt consolidation and credit repair, I came across many sites that had content that seemed like good advice, but also seemed like it was trying to guide me towards a particular product or service.

As it turns out, for every well-intentioned article available on the Internet, there are dozens of articles geared towards advertising a particular product. This form of marketing is called native advertising, and it’s rampant throughout the Internet today. Native advertising is the concept that corporations pay to have content about their products included in articles that align with the publication in style and tone, making it very difficult for readers to spot. [1]

Financial websites such as Forbes, have been participating in native advertising for several years. For instance, Forbes has a program called BrandVoice, which allows marketers to produce articles for Forbes.com and the magazine, which often resemble the look and tone of regular articles. [2] The articles contain general advice, but often also embed a “plug” for a particular brand or service. To their credit, Forbes maintains a staff of sponsored content specialists to work with the advertisers to ensure the article remains valuable to readers.

Forbes is not alone. In fact, other prominent financial websites use native advertising. For example, Fortune.com and Money.com work with Impact Partnership, a marketing organization, to pair advice on retirement and financial planning with native content from financial advisors across the country.[3]

Native advertising works. In fact, it might work too well. Click-through rates tend to be much higher than typical advertisements and readers are usually more engaged in the content. However, it can be problematic when readers, who are reading the articles for advice, rely on those articles, not realizing it was an advertisement.

This practice has garnered both positive and negative attention. On the one hand, the practice has arguably created a whole new business model for companies such as Forbes by creating new sources of revenue. On the other hand, consumer protection organizations call the practice is deceptive to consumers because readers may not always realize when the content is an ad. [4]

The practice has also raised eyebrows at the Federal Trade Commission. The FTC is currently considering implementing regulatory measures on native ads, including plans to monitor the market to ensure that native advertising is being used in a manner than benefits consumers.[5]

For now, the FTC has not issued formal guidance on requiring disclosure, but there are rumors that it plans to do so. Additionally, industry organizations such the Interactive advertising bureau (IAB) has issued their own warnings to advertisers. They suggest that brands respect consumers and clearly label sponsored content as advertising. [6]

Until the FTC issues more rules and guidance on native ads, here are a few commonly accepted labels to help spot native ads.

  • “Advertisement” or “AD“ (Google, YouTube)
  • “Promoted” or “Promoted by [brand]”
  • “Sponsored” or “Sponsored by [brand]” or “Sponsored Content”
  • “Presented by [brand]” and “Featured Partner”

Lastly, its important to note that the advice provided in sponsored articles is not necessarily wrong or even bad advice. In fact, most of the advice in these articles is legitimate. But it is important that when your searching for advice on the internet, you use sources of information that you trust. Or at the very least, you should know when your reading an article that is intended to be an advertisement or promotion for a product. Be on the lookout for content in articles that promotes one specific product or service over others.

[1] http://www.wordstream.com/blog/ws/2014/07/07/

[2] http://blogs.wsj.com/cmo/2015/01/04/forbes-takes-native-ads-to-new-level-with-att-sponsored-cover/

[3] http://www.prnewswire.com/news-releases/impact-partnership-expands-relationship-with-fortune-to-include-money-fortune-knowledge-group-300022824.html

[4] http://www.bloomberg.com/bw/articles/2014-08-05/ad-industry-execs-weigh-in-on-john-olivers-native-advertising-takedown

[5] https://www.ftc.gov/tips-advice/business-center/guidance/ftcs-revised-endorsement-guides-what-people-are-asking

[6] http://www.iab.net/iablog/2015/01/what-happens-if-the-ftc-provides-native-advertising-guidance-in-2015.html

 

Extended Warranties for Less

By: Andre Kaiser 

Choosing whether or not to buy an extended warranty on your new appliance or electronic device can sometimes be a tough choice. It is nice to have the safety blanket that an extended warranty seems to offer, but the cost is often a deterrent. But what if you could get an extended warranty without paying for it? If you like the words “free” and “cheap” as much as I do, then keep reading.

Credit Cards Provide Free Extended Warranties

If you are like 72% of Americans, chances are you have a credit card. Is your card a Visa, MasterCard, Discover, or American Express? If so, you’re in luck! All four of these credit card companies offer free extended warranty coverage in some form or another for a variety of consumer goods purchased with their card. After you’re done doing your happy dance or fist pump, don’t go running off just yet, there are some things you need to know about how this process works.

First, make sure your card actually does provide an extended warranty. All American Express, Discover, and MasterCard cardholders have extended warranty benefits. However, only Visa Signature cardholders get the Visa extended warranty perks. Additionally, World Card MasterCard holders have better benefits than holders of Standard, Gold, and Platinum Cards. Before calling your credit card company, make sure you can show with a statement or some document that you actually purchased the product with their card. For example, if you have a Discover and a Visa and you bought your computer with the Visa, you won’t be able to get Discover to extend the warranty of the computer if it breaks.

Second, don’t putz around. All four companies require you to contact them by phone within a certain period of time in order to file a claim. MasterCard and American Express both require you to contact them within 30 days of the defect arising. Discover and Visa allow 45 and 60 days, respectively, for you to contact them.

Third, save your receipts and the original manufacturer’s warranty. To make a claim with your credit card company you will be required to provide both of these documents. You will probably also need to have an estimate from the manufacturer on how much the repair will cost. In most situations this will require contacting the manufacturer, not the store you bought it from.

Fourth, recognize that not all cards offer the same benefits. CardHub.com has rated the four cards on each of their policies and benefits related to extended warranties as follows from best to worst: American Express, Discover, MasterCard, and Visa. CreditCards.com also has a good chart that compares all the exclusions and other terms by card.

Finally, don’t go rouge—follow the process your card company gives you. Credit card companies aren’t going to just toss out cash willy-nilly. Be sure to submit all the documents they require within the time requirements. But if you do follow the process and qualify for coverage, you’ll either get a check or a credit to your account to cover repair costs. Alternatively you might be required to front the cost of the repair, and then your credit card company should reimburse you. Also, depending on the product, you might be asked to mail it in to your credit card company and have to go without it for a few weeks while it is repaired, a slight inconvenience for getting a free repair.

Contact the Store and Manufacturer

Even if you didn’t buy an extended warranty, it never hurts to ask customer service what they can do for you. I’ve heard plenty of stories about Costco taking back broken TVs and computers after the warranty expired and giving the customer a new one. I once took my old mouse into the Apple store asking if they had a way to clean the scroll ball because it wasn’t working, and they just gave me the newer mouse model for free. This doesn’t always work, but I say it’s always worth asking because both stores and manufacturers want to keep their customers happy. You might just catch a break.

Add a Rider to Your Homeowners Insurance

Many homeowner insurance policies allow you to add a rider to cover certain items like a computer, camera, or other equipment. A typical rider of this sort might add about $10 to your policy and cover an item up to $1,000. Just like any extended warranty, some insurance policies are going to be more generous than others. So, be sure to check the fine print for what your policy specifically covers. For example, some policies only cover a computer while others cover a computer and its peripherals such as an attached printer, speakers, and even things like the data or software on your computer.

How Much Are You Paying in Credit Card Fees?

By: James Wilson

In the last few decades, remarkable expansion in the use of consumer credit has allowed individuals from every income bracket the opportunity to purchase goods and services that one would otherwise not have access to. Not only do individuals and families use credit cards for emergency purposes, but often these plastic cards are swiped to purchase groceries, movie tickets, ski lift passes, and many more items. One of the largest card issuers in the United States reported that for the latest fiscal year, they had $4.1 Billion in card net income, with $131 Billion in credit card loans as of December 31, 2014—and this is just ONE of many card issuers in the United States. There are substantial benefits to having access to credit, but it is important for you to understand what you are paying for that access.

The most common fee that individuals think of is the “interest” rate they pay on their card. What most people do not understand is how that interest is actually calculated. For example, do you know if your balance is compounded daily or monthly? Do you know whether interest is calculated on the average daily balance or adjusted balance? Fortunately, a detailed understanding of complicated formulas is not necessary for you to understand what you really need to know. Thanks to legislation like the Credit CARD Act of 2009 and others, a lot of important information is at your fingertips.

Credit card issuers are required to disclose a summary of important figures at the top of all promotional material. The box, where these figures are located, is often referred to as the Schumer Box. Inside this box you will find key numbers including the following:

  • Annual Percentage Rate: This is the yearly rate of interest on your credit card. Keep in mind that if you carry a balance from month to month, the effective rate of interest you actually pay is usually a couple of points higher.
  • Other APRs: A card issuer may have different percentage rates for different types of transactions, such as balance transfers, cash advances, and more. These other APRs will often be different than the standard APR for your card. Most importantly, if you are late on payments, a “Late Payment APR” may be significantly higher than the APR you normally pay.
  • Finance Charges: Some cards may have minimum fees you must pay every period for service fees and related charges. It is not hard to find cards that have very low, or no, finance charges.
  • Annual Fee: Depending on the issuer or benefits associated with your card, you may be responsible to pay an annual fee.
  • Late Payment Fee: If you are late on a payment, you may be required to pay an additional charge between $15-$50, or more, for being late. This also may trigger the Late Payment APR percentage described above.

Before you sign up for a new card, you should consider these numbers, what you plan to use the card for, and how these numbers might change in the future. You should always consider the difference between an introductory APR, and the ongoing APR. Just because you have an introductory APR of 0% for six months, does not actually mean the card will be cheaper in the long run.

For an extremely simplified example, let’s say you sign up for a card with an introductory APR of 0% for six months, and 23.99% after that (not unheard of). If you sign up for the card and carry a $1,000 balance month to month, you will pay approximately $268 in interest over the first 18 months. Alternatively, if you carry the same $1,000 balance on a card with a fixed APR of 10.99% (also not unheard of), you will save nearly $100 in interest expense over the same period. Factor in that most households have several thousand dollars in credit card debt, and the saving quickly grows.

The CARD Act went one step further to require card issuer to provide the number of months and total cost to you it would take to pay off the balance making only minimum payments. You should be able to locate this information on your statement or online account associated with your credit card. To save you added time, most issuers with online accounts also allow you to input the number of months you want to pay the balance off by and then provide you with how much you have to pay a month to achieve that goal.

Ultimately, it is up to you to understand how much more in interest and fees you may end up paying to effectively budget the total cost of that next vacation. Review your credit card agreement and go online and discover the features your card issuer provides. Signing up for the right credit card and budgeting effectively may make that vacation a little more affordable.

The Pros and Cons of Prepaid Cards

By: Charles Clark 

Increasingly, consumers are leaving traditional banking avenues and moving towards alternative sources of money management such as prepaid cards. According to Nilson, “the top 50 largest US Banks and credit union issuers of general purpose prepaid card accounted for $118.09 billion in spending at merchants in 2013.” Additionally, the Mercator Advisory group found that from 2008 to 2012 the amount of money loaded on to general-purpose, reloadable debit cards tripled, rising to $76.7 billion. Mercator estimates that number will rise to $168.4 billion this year.

While prepaid cards seem to be here to stay, there are surprisingly few legal protections available to consumers who use prepaid cards. The Consumer Financial Protection Bureau (“CFPB”) has introduced a proposal that would extend greater protection to consumers who use prepaid cards; however, until new rules are passed (a long and uncertain process) consumers are left to fend for themselves. While there are many dangers associated with using prepaid cards, there can be a number of benefits as well. Below I summarize a few of those benefits and dangers.

Benefits

  • Alternatives to Banks: Prepaid cards present an alternative for consumers who do not have a traditional bank account. Consumers may not use a traditional bank account due to preference, poor credit, or a number of other reasons. Using prepaid cards, consumers without a bank account can do things that require a credit card. Examples include renting a car or booking a hotel room. Additionally, many prepaid cards include account numbers that allow for direct deposit of paychecks.
  • Helps to Manage Money: For consumers without a traditional bank account, paying bills can be a stressful and expensive process that includes paying for and sending out money orders. Prepaid cards can create cost savings by allowing consumers to pay for utility or other bills using their reloadable, prepaid cards.
  • Helps to Develop Budgeting Skills: Finally, prepaid cards allow consumers to develop smart budgeting skills. Loading a specific amount of money onto a prepaid card allows consumers to stick to their budgets and learn where they might be overspending. Additionally, consumers with children can use prepaid cards to start developing their kids’ budgeting habits early. Developing wise budgeting habits is key to financial stability.

Dangers

  • Excessive Fees: Some prepaid card issuers take advantage of consumers by charging fees for seemingly everything. There are examples of prepaid cards that will charge a fee for loading money, withdrawing money, or even to check your card balance. To make sure your prepaid card does not nickel-and-dime you, it is important to do your research before deciding on which prepaid card to use.
  • Limited Consumer Protections: As mentioned before, there are very limited legal protections for users of prepaid cards. The CFPB has proposed potential rules, but as of now consumers using prepaid cards do not have the traditional protections afforded to consumers using traditional banks.
  • Potential Overdraft Fees: Some prepaid cards have a credit feature that allows consumers to spend more than is loaded onto the card. This can result in high overdraft fees, such as those that once plagued the debit card world. Before settling on a prepaid card, consumers must determine whether the card has credit features and charges high overdraft fees.
  • No Loss or Theft Protection: Some prepaid cards will not pay back consumers who have funds stolen or loss due to an error. This can result in innocent consumers losing hard-earned cash by no fault of their own.  Again, one must read the terms applicable to the card — as all cards are not the same.
  • Potential Lack of Insurance: Almost all checking accounts at banks are federally insured up to $250,000. This means if a consumer’s bank ever fails or loses the consumer’s money, the consumer will be protected. Prepaid cards do not come with the same type of protections.

While prepaid cards can offer many benefits to consumers, there are significant dangers that consumers must be aware of. As always, before using a prepaid card do your research and determine which card gives you the best protections. You can find a great resource for finding consumer friendly prepaid cards here.

Payroll Cards: Paying Fees to Earn Money

By: Charles Clark 

Over the past several years, there has been a growing trend towards paying American workers with payroll cards. Payroll cards are pre-paid cards issued by employers to employees that can be used at an A.T.M. to withdraw wages. In 2012, approximately 4.5 million American workers received their wages on payroll cards, and the numbers continue to grow. Using payroll cards does have certain benefits because it gives workers without traditional bank accounts a way to withdraw their wages; however, the fee structure associated with many pre-paid cards hurt American workers in a big way.

Generally, the use of payroll cards involves a number of fees that quickly add up to take a significant chunk of workers’ wages. For many hourly workers, these fees eat up valuable wages that leave them making less than the minimum wage. When every dollar counts, these fees can leave workers light in the wallet when paying for necessities such as groceries, transportation, or rent. Payroll card fees typically include a fee for withdrawing cash, a fee for receiving a paper statement, and a fee for losing a card. In one example, a McDonalds employee in Wisconsin was spending $40 to $50 a month on fees associated with his payroll card. In another example, a Taco Bell employee in St. Louis would withdraw all of her wages at the start of the month and keep them in a shoebox in her closet in order to avoid high fees associated with withdrawing wages.

When it comes to the use of payroll cards, American workers do have certain protections. Employees who have their wages transferred onto payroll cards are entitle to protection under the Electronic Fund Transfer Act. The Electronic Fund Transfer Act offers the following protections:

  • Fee Disclosure: payroll card users are entitled to receive upfront disclosures of any fees that will be associated with use of the payroll card. This allows workers to know exactly how much they will have to pay in fees before using their payroll cards.
  • Access to Account History: Payroll card issuers must provide either a periodic statement, or make available to the consumer the following: (1) the consumer’s account balance by telephone; (2) an electronic account, such as through a website, of the consumer’s transaction history covering at least the past 60 days; and (3) upon the consumer’s oral or written request, a written account of the consumer’s transaction history covering at least the past 60 days.
  • Limited Liability for Unauthorized Transfers: If there is an unauthorized withdrawal of funds from a payroll account, the consumer must notify the financial institution within two days in order to receive limited liability protection. The consumer will not be liable for the lesser of $50 or the amount of the unauthorized transfer.
  • Error Resolution Rights: Financial institutions must respond to complaints of account errors within 120 days.
  • Prohibition Against Mandating Payroll Cards: The strongest protection provided to workers is that employers cannot force their employees to receive wages on a payroll card. Employers must give employees the choice of having wages deposited at a particular financial institution or receiving wages by other means, such as by cash or check
  • Federal Enforcement: If an employer violates portions of the Electronic Fund Transfer Act the Consumer Financial Protection Bureau has authority to take action against that employer.

While the use of payroll cards will likely continue to rise, it is important that American workers know their rights. If workers find that a significant amount of their paycheck is going to payroll card fees they should consider telling their employer to pay their wages using other means. No worker should be forced to pay high fees in order to retrieve their hard-earned money.

I have more than one credit score?

By: Laurence Gendelman 

Most consumers have come to understand that their credit scores are important and affect several areas of their life. Credit scores are used by creditors to make lending and credit extension decisions, employers to make employment offers, and much more.

The broad use of your credit scores may not be surprising, but did you know that you have more than one credit score? Do you know how your credit scores are calculated? Do you know which of your creditors or potential creditors are using which scores to determine your eligibility for different loans and products?

A credit score is calculated using the information in a credit file. A credit file typically contains a consumer’s demographics, payment, bankruptcy, legal action, and legal judgment history, debt ratio, longevity of credit history, balanced owned and credit limit on open credit cards, and credit inquiries. http://www.freescore.com/3-credit-bureaus-differences.aspx. Three major private companies, known as credit bureaus, are in the business of maintaining credit files. The three credit bureaus are Experian, Equifax, and TransUnion; each company uses its own proprietary score and scoring method to determine a consumer’s credit risk.

Equifax uses the Equifax Credit Score to rate consumers on a scale from 280 to 850. “Payment history” comprises 35% of the score, including a consumer’s payment history on credit cards and loans, public records and collections including judgments, liens, and bankruptcies, and the number of accounts paid on time. The amount the consumer owes comprises another 30% of their score, including the total amount they own on all accounts, the number of accounts with balances, the percent of the consumer’s total credit line being used, and the size of their credit line. Additionally, another 15% of the score is determined by the length of the consumer’s credit history. 10-12% of the score is based solely on the number of credit accounts in the consumer credit file, recent credit inquiries, and the balance of recently opened accounts. Lastly, 15% of the Equifax Credit Score is based on the types of credit accounts the consumer holds. https://www.equifax.com/personal/education/credit/score/how-is-credit-score-calculated.

Experian uses the PLUS score, ranging from 330 to 830 to determine a consumers’ credit worthiness. Experian does not disclose the PLUS score formula to the public, but the score accounts for roughly the same information as the Equifax Credit Score.

TransUnion produces several consumer scores, most notably the TransRisk score, ranging from 300 to 850. The TransRisk score values the same factors as the PLUS score and Equifax Credit Score, but places more importance on the length of a consumers’ credit history.

Most creditors and lenders do not rely upon one score when deciding to extend credit, rather they look at a consumer’s FICO or Vantage score. FICO and Vantage scores are not educational; rather, they are used to make lending and credit extension decisions. FICO and Vantage scores are calculated using all three of the credit bureau scores; but FICO scores place more importance on the length of credit history while Vantage scores emphasize the most recent credit history. Both FICO and Vantage scores range from 300 to 850. Far more creditors rely upon FICO scores, as opposed to Vantage scores, since their model has been widely used and trusted since 1986. Several other less recognized credit scores are created and maintained by Credit Karma, Credit Optics, Innovis, Credit Sesame, and PRBC.

The reality is that different creditors report consumer information to different credit bureaus. The bureaus are businesses competing for creditors to report consumer behavior to them. The reason they compete is simple: the more accurate the bureau’s credit files are on every consumer, the more business they will likely receive from creditors and lenders. Thus, competition in the private market drives these bureaus to maintain accurate, complete, and thorough consumer credit files.

Since lending and credit decisions are typically made using a FICO score, incorporating the scores from all three bureaus, it is important to know what your credit file looks like at each bureau. The differences in a consumer’s score from each bureau can often range over 40 points based solely upon which creditors are reporting to which bureaus.

For example, let’s say that you get lab work done at a hospital and for whatever reason, the bill for $32 goes to “collections.” The hospital reports to Equifax, as there is no legal requirement to report information to more than one bureau. You apply for an auto loan two years later and the bank pulls your FICO score; your score is a 700. As you shop for cars, you apply for another auto loan at a dealership that uses a lender that only looks at the Equifax Credit Score to make their lending decisions; your Equifax Credit Score is a 610 because you have a “recent collection.” You decide to take the loan from the bank over the dealership’s lender because they are offering an interest rate on the loan that is substantially lower since their lending decision was based on a higher credit score.

The lesson here is to know what your credit file contains at each of the three credit bureaus. One way to do this is to track your FICO score, since it is compiled using information from all three bureaus. Many credit card companies offer this service to cardholders at no additional charge. Additionally www.annualcreditreport.com allows consumers to see their credit files from each of the three bureaus once per year for free. Whatever you do, check your credit scores and check them often.

Buying a Prepaid Debit Card? Read that arbitration clause!

By: Laurence Gendelman 

Prepaid debit card use has increased drastically over the last decade. In 2016, Forbes projects that 29.2 million cards will be active, indicating an average growth rate of 19.7%. While some prepaid debit cards have no activation fees, monthly fees, or card replacement fee, other cards are less advantageous for consumers. Fees can often be up to $20 for activation, $4 for monthly maintenance, $5 to reload funds, $1 just to make a purchase, and the list goes on.

Often these cards contain mandatory arbitration provisions that take away a cardholder’s right to join a class action suit against this issuer or engage in a class-arbitration. As a result, it can be very expensive, costly, and time-consuming to assert your rights if you have a dispute with a prepaid debit card issuer. Most consumers do not read their cardholder agreements before buying a prepaid debit card, but savvy consumers do. Open the package and read the agreement or go online and look up the cardholder agreement for the card that you are thinking about buying.

While arbitration agreements may not seem like an important part of your purchase, they are. If you do have a dispute, your rights can drastically be affected by the “fine print”. Many consumers only care about arbitration provisions before it is too late.

Credit Repair Series (3 of 3): Credit Repair Agencies

By: CameronPassmore 

In Part 2 of our series, we covered how to identify and correct inaccurate information on credit reports. In Part 3, we will discuss the businesses that offer these services professionally: credit repair agencies.

Overview and Concerns
A “credit services organization” (or agency) is defined under Colorado law as, “any person, including a nonprofit organization exempt from taxation under section 501 (c) (3) of the federal “Internal Revenue Code of 1986″, who, with respect to the extension of credit by others, represents that such person can or will, in return for the payment of money or other valuable consideration by the buyer, improve or attempt to improve a buyer’s credit record, history, or rating.” CRS § 12-14.5-103(2). It should be noted that attorneys acting in their normal capacity are excepted from this definition.

Not only has the State of Colorado taken the time to define this occupation legally, but an entire series of laws (known as the Colorado Credit Services Organization Act, CRS § 12-14.5-101, et seq.) has been written with an eye to protect consumers. The state legislature has summarized their concerns, “[c]ertain advertising and business practices of some credit services organizations have worked a financial hardship upon the people of this state, often those who are of limited economic means and inexperienced in credit matters. Credit services organizations have significant impact upon the economy and well-being of this state and its people.” CRS § 12-14.5-102(1)(b).

The savvy consumer should be aware that bad actors are present within the field of credit repair. At a minimum, remember that nobody can promise results. Other things to look out for include: payment up-front, offers such as “guarantee plans,” agencies that sell advice, etc. Most of the time when a credit report contains an inaccuracy, a savvy consumer will be able to address the issue themselves, provided they are willing to see the process through to its end.

Complex Matters
This series has been aimed at educating consumers on how to obtain their credit report and how to challenge inaccurate credit report information. A great deal of the time, a credit repair agency will not be able to offer you anything you cannot get for yourself. That said, every credit situation is different, and complex issues can arise regarding liens, taxes, and collection actions. If the credit repair task ahead of you is complex, credit repair agencies do have the benefit of repetition, and a reputable agency is one possible way to resolve complex issues.

Selecting a credit repair agency, should you decide you need one, is beyond the scope of this series. However, at minimum, savvy consumers should use the usual due diligence before selecting anyone to help them with any financial issue. A partial list of research tools appears below:

Google

(you can search business reviews in the Google Local section of your Google+ account)

Better Business Bureau

Do your homework before contacting an agency: the last thing your credit horror story needs is a sequel. In the end, remember that when it comes to credit repair you will always be your primary advocate. Stay credit vigilant, and good luck.

Is a Payroll Card Right for You?

By: Laurence Gendelman 

According to Forbes, In 2012, $34 billion dollars were loaded on 4.6 million payroll cards. By 2017, Forbes projects that  this number will increase to $68.9 billion dollars. Payroll cards are a recent phenomenon increasingly utilized by companies both big and small alike.

Payroll cards are an alternative to an employee receiving their salary or wages in the traditional form of check or direct deposit. Before deciding to transition away from traditional mediums of compensation and use a payroll card, it is important to make sure that a payroll card is right for you.

A payroll card is essentially a debit card with a stored value that is reloaded by your employer every pay period. The card does not extend any credit to the cardholder; rather the cardholder is limited to spend only those funds preloaded on the card. Payroll cards do not require any credit check or prerequisites like a credit card.

The major benefits of these cards is that they present many of the same features of a debit card, but do not require a bank account or an extension of credit. Additionally, the cards eliminate obsolete check cashing fees, allow the user to make purchases over the internet or at retailers, and provide similar FDIC protection as a debit card supported by a bank account.

While these features of a payroll card may be enticing, users should fully understand the terms and conditions associated with the specific payroll card they are using. First, in some states a user cannot be charged any fees to access their money. Know the laws of your particular state. The fees associated with these cards can often be outrageous including:

– ATM Withdrawal: $1.75

– ATM Balance Inquiry: $1.00

– Monthly Fees: $9.95 (Vision Premier Card, Univision Card)

– Replacement Card: $6.00

– Paper Statements: $2.95

– Inactivity Fees: $7.00

For more information about recent payroll card fee investigations by the Attorney General of New York, click here.

While some of the above fees may be typical of debit cards, these fees are different for two reasons. First, the fees tend to be higher on average than those for debit cardholders. Second, several fees exist for payroll cards that are not common for debit cards such as fees for inactivity, replacement cards, most of all monthly service fees.

The final problem associated with recent payroll card scams is that employees are sometimes forced by their employers to use payroll cards to receive their pay, rather than a payroll card being one option among many.According to the CFPB, an employee may have the option to use a payroll card, but cannot be forced or compelled to do so.

Employers cannot force their employees to use a payroll card; to do so is illegal. The Consumer Financial Protection Bureau has stated that they intend to use their enforcement powers to stop employers from forcing employees to use payroll cards. According to the American Payroll Association, employers save approximately $2.75 per payment using payroll cards rather than direct deposits or checks. This likely explains why employees may coerce employees to receive their income in for form of a payroll card. Additionally the fee structures of the cards are agreed upon between the card issuer and the employer, so employers may be benefiting as well by charging fees to their employees to access their own money.

While payroll cards are not inherently evil and may present many benefits for your and your financial wellbeing, there are risks to be aware of. If you choose to accept a payroll card from your employer, make sure that:

– It is YOUR choice to accept your income in the form of a payroll card deposit,

– You are aware of the fee structure, if any, associated with the card and its features,

– The benefits associated with your choice to use a payroll card outweigh the costs, and

– That a debit card supported by a bank account would not serve your interests better.

You work hard for your money. Make sure that the way you access that money is serving your financial interests, goals, and needs. If you believe that you have been coerced by your employer to receive your compensation on a payroll card, or that the administrator of your payroll card is engaging in other illegal behavior, you can submit your complaint here.

Gift Cards: A Perfect Gift or A Perfect Nuisance

How many of you remember receiving gift cards for birthdays, holidays, and special events? You were always so excited to get one because it meant that you had the chance to pick out not only what you wanted, but also pick it out when you wanted it. There wasn’t any hassle with having to deal with getting a gift receipt, returning the product to the store within the designated time frame, and then having to buy something that day (usually before you lost that small slip of paper that indicated you had store credit).

However, gifts cards were both the best and worst gift ever. Many of them had expiration dates within the year, inactivity fees that would gradually deplete the entire balance on the card, and transaction fees just for using the gift cards!

The CARD Act attempted to address many of these problems, but consumers need to be aware of several problems that still exist.

The CARD Act only applies to gift cards issued by retailers and those gift cards with a Visa, American Express, MasterCard, or Discover logo that don’t fall under the label of prepaid cards. Some of the enacted under the CARD Act can be found on the Federal Reserve’s website and include:

  • Limits on Expiration Dates: The money that you put on a gift card is good for at least five years from the date that the card is purchased
  • Replacement Cards: If your card expires, you can often call the company that issued it and ask for a replacement card
  • Fees Disclosed: Gift card issuers must clearly disclose all fees
  • Fee Limits:
    • The CARD Act limits the amount of fees, such as maintenance, dormancy or inactivity, usage, and fees for adding money to your card UNLESS
      • You haven’t used your card for at least a year, and you are only charged one fee per month

 

The rules mainly address the concern that consumers were being taken advantage of by companies who would hide expiration dates in obscure places or put high fees in place that essentially deprive uninformed consumers of the full value of their gift cards by charging them for simply using their gift cards.

There are still several gaps left in the rules that gift card issuers can use to take advantage of consumers. For instance, gift card issuers can still charge fees if they include them in the purchase price of the gift card. There is also a debate over what should happen in states (like Maine and Tennessee) where gift cards are considered abandoned property after they are not used for two years.

There are also several scams to be aware of when buying gift cards. The Internet has provided many benefits, but it has also provided an easy avenue for scammers to defraud the unsuspecting consumer. According to the Federal Trade Commission (FTC), online auction sites may allow fraudsters to sell gift cards that are counterfeits or stolen.

This past winter, text message gift card scams ran rampant. The Better Business Bureau (BBB) recently drew attention to text message gift card scams and explained how the scam works. According to the BBB, the texts are a way of gaining personal information from consumers for various advertisers. The FTC is aware of this issue. In a press release from March 7, 2013, the FTC stated that it is targeting the senders of the unwanted text messages and the operators of the associated websites through several lawsuits.

 

If you have a general problem with a gift card, the FTC suggests that you contact the company who issued the gift card first to see if they can resolve the problem. If that doesn’t work…

  • For Cards Issued by Retailers: Issue a complaint with the State Attorney General or contact the FTC here.
  • For Cards Issued by National Banks: Send an email to the Comptroller of the Currency’s (OCC) Customer Assistance Group at customer.assistance@occ.treas.gov