Your Money

The Pinch: Prepaid debit cards offer option for those without bank accounts

2012-05-18T16:09:22Z

For people without a bank account, prepaid debit cards are a great alternative to paying for money orders or check-cashing services, said Ron Hynes, the executive vice president of Global Prepaid Solutions for MasterCard.

Twelve percent of households in Georgia don't have a bank account, according to the FDIC's 2009 National Survey of Unbanked and Underbanked Households. The statewide rate surpasses the nationwide figure of 7.7 percent.

There are several reasons people don't have bank accounts, Hynes said. Some feel that banking is too expensive. Others can't get an account because they have a poor record with Chex Systems Inc., which gives banks background on people's banking habits.

A prepaid debit card might be the only electronic payment method available to those consumers. It provides "mainstream financial services to folks that don't have access to them today," he said.

People without an account could pay less in transactions costs if they used prepaid debit cards, said a study by Bretton Woods Inc. The average person who relies on money orders and check-cashing companies spends $9 to $48 a month, compared with $8 to $20 for prepaid-card users.

To cash a paycheck, some businesses charge 1-3 percent of the face value of the check, Hynes said.

"It also gives the security of not having to have all of your money in cash either in your pocket or in your house or apartment," he said. "And having the security of having it stored somewhere safely with a lot of the protections that come with any bank account."

If MasterCard's prepaid card is lost or stolen, all the money is protected. Most of MasterCard's prepaid products offer FDIC insurance.

Consumers can buy prepaid debit cards at retailers or directly from payment-card companies. Prepaid debit cards enable users to make purchases anywhere credit or debit cards are accepted. The cards can be used to withdraw cash at ATMs, though a fee might apply.

Prepaid cardholders can load money onto their card by depositing cash or paychecks at retailers or through direct deposit. Prepaid cards give the ability to shop online or use other financial tools. Though no interest rates apply to prepaid cards, most have monthly or other fees.

For more information, visit masteryourcardga.org.

Social Security Payments Transitioning to Direct Deposit

2012-05-08T14:29:33Z

Guess what? Starting next year, Social Security recipients as well as those receiving veterans' benefits, railroad pensions, and federal disability payments will no longer receive physical checks sent through the mail. Instead, the government will only issue electronic payments.

In general, this means direct deposit to a bank account, though debit cards will be available for the unbanked. For the time being, tax refunds will be exempt from this requirement, though the IRS has been pushing direct deposit for quite some time.

As it turns out, 90% of these payments are already made electronically, but still... Making the remaining 10% of these payments (7.3M per month) represents should save the feds a significant chunk of change.

The changeover is expected to be complete by March 2013, at which point the USPS will have even less business (and greater losses) than it does right now.

All in all, I see this move as a good thing. It's significantly cheaper -- the estimated cost savings is $120M/year -- and avoids the possibility of checks being lost or stolen. The primary downside is for those without bank accounts, as they could wind up facing ATM fees to access the money on their debit cards.

What do you think? Is this a good move?

Cashing In on Western Union

2012-05-07T21:33:48Z

Western Union (NYSE: WU ) has a competitive advantage based on network, scale, brand, and regulations. Increased global migration and a large percentage of the unbanked in emerging markets are creating significant demand for money transfers. Western Union meets this demand with convenient, flexible, cost-effective money transfers.

Western Union has a durable moat
Western Union's competitive advantage derives primarily from the network effect and its scale, but also from brand and regulatory barriers. Its network of more than 485,000 agents in 200 countries is the largest in the industry. To put that in perspective globally, for every McDonald's restaurant, there are more than 15 Western Union vendors. Additionally, Western Union processes about four times the transactions of its closest competitor, MoneyGram (Nasdaq: MGI ) . The Western Union brand is the most recognized in the industry.

Labor is moving toward highest return
Human labor commands seven times the price in the top 43 nations. This has created huge incentives for labor to move to its highest return. The United Nations estimates that there are 214 million migrants across the globe, an increase of about 37% in two decades. Their ranks grew by 41% in Europe and 80% in North America.

"There's more mobility at this moment than at any time in world history," said Gary P. Freeman, a political scientist at the University of Texas. Also, labor movement isn't flowing just from emerging markets to the U.S. and Europe. Singapore, Hong Kong, UAE, Brunei, Kuwait, Taiwan, Bahrain, Oman, and Saudi Arabia are all among the top 43 in GDP per capita; as a group, those countries will experience emigrants and migrant workers from Africa, the Indian subcontinent, and Asia. According to World Bank estimates, officially recorded remittance flows in 2010 totaled over $440 billion worldwide. That's a big market! And, Western Union only has 20% market share, which indicates significant room for growth.

And money sent home needs to be in cash
According to McKinsey, half of the world's adults -- more than 90% of whom live in Africa, Asia, and Latin America -- are unbanked. Furthermore, most transactions in those countries take place in cash. Thus, ACH transfers will not work, so money sent home needs to be converted to cash so that it can be spent.

Western Union is able to transfer $200 cash in the United States across the globe for a transaction fee of 3%-6%. Based on the alternatives, the fees seem very reasonable. If the sender is banked, he or she could mail an ATM card or credit card home. In this case, the cost would include bank fees for the sender, and ATM fees for sender and buyer (about $3-$5 each, or $6-$10 total). Additionally, there are currency exchange costs. Visa (NYSE: V ) and MasterCard (NYSE: MA ) typically charge 1% for foreign currency transaction, and banks pass that cost to consumers, often with an additional 1% tacked on for good measure. In other words, Western Union costs the same or less, and Western Union offers significantly more flexibility. Senders and buyers can choose to send and receive in cash, debit, credit or a combination.

Foolish bottom line
Western Union has structural competitive advantages; its service is in demand; and, best of all, it's trading at less than 10 times earnings.

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End of a Mailing Tradition

2012-04-30T14:41:31Z

The government's practice of mailing monthly benefit checks will end in March 2013. The checks will be received electronically through a direct bank deposit or a debit card for those people without a bank account. The change will affect millions of people and will mean another loss of business for the Postal Service.

The benefits include Social Security, veterans' benefits, railroad pensions and federal disability payments. Tax refunds are exempt and for those people who want their refunds by check, they will get them by mail.

It will mean no change for millions of people. About 90 percent of the people who receive federal benefits already are getting them electronically. The Treasury Department says electronic payments are safer and more efficient than paper checks. It adds that in 2010, more than 540,000 federal benefit checks were lost or stolen. The department also said the Feds will save about $120 million a year. Social Security will save $1 billion over the next decade.

Don't Wait for Social Security Check in the Mail

2012-04-27T18:06:43Z

Starting next year, the check will no longer be in the mail for millions of people who receive Social Security and other government benefits.

The federal government, which issues 73 million payments a month, is phasing out paper checks for all benefit programs, requiring people to get payments electronically, either through direct deposit or a debit card for those without a bank account.

The changes will affect people who get Social Security, veterans' benefits, railroad pensions and federal disability payments. Tax refunds are exempt, but the Internal Revenue Service encourages taxpayers to get refunds electronically by processing those refunds faster than paper checks.

About 90 percent of people who receive federal benefits already get their payments electronically, the Treasury Department says. New beneficiaries were required to get payments electronically starting last year, and with a few exceptions, the rest will have to make the switch by March 2013.

"It's just that natural progression of moving to how people are used to receiving their funds," said Walt Henderson, director of the Treasury Department's electronic funds transfer division.

Henderson said electronic payments are safer and more efficient than paper checks; in 2010, more than 540,000 federal benefit checks were reported lost or stolen. The switch will save the government about $120 million a year. Social Security will save $1 billion over the next decade, according to the Treasury Department.

"You think of that paper check floating out there in the delivery system, with personal information on it, it's much more susceptible to fraud versus an electronic payment," Henderson said.

Advocates for seniors say they understand the government's desire to cut costs and take advantage of technologies that most workers already use. The food stamp program switched from paper coupons to debit cards in 2004.

But they have raised concerns about requiring the switch for older retirees who may not be used to electronic payments.

"This will affect some very frail elderly people who are living by themselves, many of them, and doing well, but usually within the context of that old paper check that they deposit in the bank," said Web Phillips, a senior policy advisor for the National Committee to Protect Social Security and Medicare.

"The change has to be handled carefully and with a lot of sensitivity so that there aren't people who lose track of a payment or don't understand that they have a card that came in the mail that's the source of their payment," Phillips said. "That's our concern."

The switch is mandated by a Treasury rule issued in December 2010. Since then, the department has worked to educate the public. The government has created a website, www.GoDirect.org and a toll-free phone number, 1-800-333-1795, people can call for assistance.

"Treasury acknowledges they have a lot of education to do for people about how these things work," said David Certner, legislative policy director for AARP. "We're a bit concerned about how easy it's going to be to provide education, particularly for some in this older population who are not familiar with debit cards and don't have bank accounts."

Javelin: Prepaid cards rise in popularity

2012-04-27T17:56:12Z

The market for prepaid debit cards is still large and growing fast, according to Javelin Strategy & Research.

Thirteen percent of American consumers had prepaid cards in 2011 compared with 11% in 2010, the Prepaid Cards and Products in 2012: Enabling Financial Access for Underbanked and Gen Y Consumers found.

The rise in prepaid cards is parallel to the decline in traditional banking products, such as credit and debit cards.

Javelin Research cited higher fees in those product categories as the main reason for the switch to prepaid cards.

e-commerce growth is another contributor for the increasing use of prepaid cards, as - according to Javelin Strategy - it is the most accessible payment option for consumers underserved by the banking system.

The study found that the e-commerce market had expanded by 909% in the ten years to the end of 2011, peaking at $309bn. In the twelve months to the end of December 2011 alone, the market grew by 16%.

Although prepaid cards still account for only 8% of the total online payments markets, the volume of total funds held on prepaid cards could soar by 52% between 2011 and 2016 to $32bn.

Recent regulations such as the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 and the Durbin Amendment have also fostered a positive environment for the expansion of prepaid cards, according to the Javelin study.

Javelin Strategy and Research conducted the survey online from a random sample panel of 3,210 American adult consumers.

Federal checks go hi-tech

2012-04-26T18:11:28Z

Starting in 2013, Social Security checks will be delivered via technology, not the post office. And that could help deal the final blow to the U.S. Postal Service, already facing possible extinction in the age of email and electronic bill payments, as well as electronic greeting cards and other online methods of communication.

We wrote Monday about state income tax refunds that weren't designated by the taxpayer to be in the form of a direct deposit or a traditional check being automatically transferred (electronically, of course) to Bank of America. Taxpayers who have not made a specific request to receive a traditional check will be issued a prepaid debit card which could carry fees if not used with care.

Whether older taxpayers -- or those who are simply traditional in their financial habits -- will get used to the idea is debatable.

And Social Security recipients who may not have ready access to a computer or who simply don't feel confident about online transactions or debit cards could be the real losers in this case.

Beginning last year, new Social Security recipients were required to select direct deposit or other electronic means of payment.

According to the Associated Press, Walt Henderson, director of the Treasury Department's electronic funds transfer division, said that "It's just that natural progression of moving to how people are used to receiving their funds."

But for many Americans, especially those who don't even have bank accounts, it's not a natural progression. It's presenting them with possible roadblocks to carrying out their day-to-day purchases.

The federal government issues 73 million payments every month, a combination of Social Security, veterans' benefits, railroad pensions and federal disability payments. While almost 90 percent of people who receive federal benefits already get payments electronically, that leaves more than seven million people who must be educated on the benefits of direct deposit or debit cards.

Electronic payments, regardless of their form, are safer. Countless cases of government checks stolen from the recipients' mail are on record. Just as recently as 2010, more than 540,000 benefits checks were reported lost or stolen.

The switch will save the government and, by extension, taxpayers, about $120 million a year in printing, paper and mailing costs. According to the Treasury Department, it means a $1 billion savings over the next 10 years for Social Security, which would come in handy.

For those who don't have bank accounts (most of us would be surprised at how many people in that situation deal strictly with cash, including paying their bills by that method in person), they might find a debit card easier to use and also more secure.

But it will take a commitment on the government's part -- and continued education by such organizations as AARP -- to make sure consumers are informed of both the positive aspects of electronic banking and its pitfalls.

For now, unlike the state, tax refunds from the federal government won't be affected by the change. But don't expect that to last too much longer.

Time continually marches on, for us as individuals and with the way some of us might need a little coaxing -- or force -- into doing business in the 21st century.

People 90 and over will be exempt, and there will be exemptions in some other cases, but as AP notes, how to get a waiver isn't well-publicized.

Let's hope education efforts will be.

Don't wait for Social Security check in the mail

2012-04-23T15:03:19Z

Starting next year, the check will no longer be in the mail for millions of people who receive Social Security and other government benefits.

"It's just that natural progression of moving to how people are used to receiving their funds," said Walt Henderson, director of the Treasury Department's electronic funds transfer division.

"You think of that paper check floating out there in the delivery system, with personal information on it, it's much more susceptible to fraud versus an electronic payment," Henderson said.

But they have raised concerns about requiring the switch for older retirees who may not be used to electronic payments.

Certner said AARP wants the government to make it easier to get an exemption. Under the Treasury rule, current beneficiaries who are 90 and older won't be required to make the switch. People can get a waiver if using a debit card would impose a hardship, but the Treasury Department says those would be "extreme, rare circumstances."

These waivers are not well publicized on the government's website.

"There are several million people who receive paper checks today," Certner said. "Some of them do it because they have worked out arrangements for them that work."

AARP also has concerns about fees associated with the debit cards. The Direct Express cards are issued by Comerica Bank, Treasury's financial agent. Each month, benefit payments are added to the cards, which can be used to make purchases or withdraw cash from ATMs.

There are no fees for using the debit card to make purchases. They can be used at any retailer that accepts MasterCard debit cards. If a card is lost or stolen, the beneficiary is protected from unauthorized use as long as the missing card is reported promptly.

Cardholders can make one free ATM withdrawal each time a payment is registered in the card. Subsequent withdrawals will cost 90 cents each, and all withdrawals may be subject to fees by the owner of the ATM.

The government's switch to electronic payments also comes with a side effect: less business for the U.S. Postal Service, an agency that is already facing big budget problems with the rise of email and electronic bill paying.

The private sector has been migrating to electronic payments for years, costing the Postal Service millions of customers, said Alan Robinson, editor of the Postal Journal, a trade publication.

"Normally, these things happen one customer at a time," Robinson said. "In terms of payments, this is probably one of the largest."

Survey Shows Prepaid Cards Filling a Growing Financial-Services Void

2012-04-20T18:51:25Z

Among five major financial products, only prepaid cards grew in consumer ownership last year, according to new findings from Javelin Strategy & Research.

Pleasanton, Calif.-based Javelin assessed prepaid cards' current market position and prospects through a random online survey last October of 3,210 U.S. adults, and compared many of the findings with those from a similar study in September 2010. In the wake of the recession and more regulation, Javelin found fewer consumers reporting they had a checking account (88% in 2011 vs. 92% in 2010), a general-purpose credit card (67% vs. 74%), a major debit card (66% vs. 78%), or a personal savings account (62% vs. 72%).

But prepaid cards grew, though their customer base is still much smaller than those of mainstream payment cards and demand-deposit accounts: 13% of consumers reported having a prepaid card in 2011, up from 11% in 2010.

The recession cut deeply into banks' earnings, which caused many to add or increase fees on consumer products, with attrition being the predictable result. "The economy really cut down the number of people who have checking accounts," says Beth Robertson, director of payments research at Javelin, adding that reduced ownership of debit cards is no surprise since banks issue them to checking-account holders.

Plus, more regulation through a tightened Regulation E governing checking accounts and the Durbin Amendment regulating big banks' debit card interchange gave financial institutions more reasons to impose new fees on their demand-deposit accounts. "Many banks, especially the larger ones, eliminated free checking, and that's caused less people to have a checking account," Robertson says. On the credit side, banks still remain risk-averse in the wake of the recession, she says.

Prepaid cards, however, are one bright spot in the consumer product lineup, though they're still mainly the province of the underbanked, those Javelin defines as not having a personal or joint checking account; the unbanked, those with no financial accounts whatsoever; and young and lower-income consumers. While only 13% of all consumers reported owning a prepaid or payroll card last year, 18% of underbanked consumers did, as did 18% of the so-called Generation Y (those born between 1979 and 1999). Seventeen percent of consumers with annual incomes under $15,000 carried a prepaid card vs. 11% in the $100,000 to $149,999 bracket.

How to make prepaid cards more popular? Asked which features would encourage greater usage, 49% of all respondents cited rewards. (And, in reference to their preferred payment option, no matter what it was, 26% said earning rewards was their primary reason for using it.) Rewards even trumped fewer or lower fees, which 33% of all respondents said would boost their prepaid card usage.

Prepaid cards represent an opportunity for banks to develop customer bases among young adults who at the moment have few financial relationships. Some 32% of Gen Y members reported getting their prepaid cards from a merchant or retailer, below the 37% figure for all consumers, while 31% of the young adults got their repaid cards from a bank, higher than the 27% figure for all consumers.

Robertson notes that prepaid cards get a lot of usage from college students, who because of regulations aren't being solicited as actively as they once were for credit cards. "This is a good opportunity to begin a relationship with somebody who could evolve into a more extensive and valuable traditional banking relationship as they mature and you need a wider array of services," she says.

Despite prepaid cards' gains, cash still remains highly popular with underbanked consumers, cited by 72% of that cohort as their most frequently used payment option versus 21% for all consumers. But prepaid cards are quite popular among the underbanked when shopping online. Some 56% of underbanked consumers cited online shopping as the most common thing for which they use a prepaid card, far more than any other type of purchase. "I do think it's because they don't have alternatives," says Robertson. "A lot of underbanked are users of cash, and in most online cases you can't use cash."

Retirement Plan To Eliminate Paper Checks July 1, 2012

2012-04-19T21:14:35Z

Columbia, S.C. - April 12, 2012 - Effective July 1, 2012, all monthly annuity payments from the South Carolina Retirement Systems will be distributed electronically to recipients.

The Retirement Systems recently mailed notification of this requirement to all recipients who receive their monthly annuity by paper check. The mailing to recipients included instructions for signing up for direct deposit to their bank account. To avoid an interruption in their benefit payments, recipients should complete the Retirement Systems Electronic Funds Transfer Authorization (Form 7204) included in the mailing and return it to the Retirement Systems as soon as possible. Form 7204 is also available on the Retirement Systems' website (www.retirement.sc.gov).

Recipients who do not provide the Retirement Systems with the information required to initiate direct deposit will receive their benefit through a prepaid debit card beginning with the July 2012 benefit payment.

The Retirement Systems is requiring electronic distribution of benefit payments as part of its process of continuing improvement. This initiative will reduce risks to both recipients and the state, and will also improve efficiency and reduce costs to the retirement plans, which is good news for members and taxpayers.

For more information about this initiative, please contact the Retirement Systems at 803-737-6800, toll free at 800-868-9002 (within S.C. only), or at www.retirement.sc.gov/contact/email.htm.

About the South Carolina Retirement Systems

The South Carolina Retirement Systems, a division of the SC Budget and Control Board, manages retirement plans for South Carolina's public workforce by serving as the fiduciary stewards of the contributions and disbursements of the pension trust funds. In partnership with the state's public employers, the Systems helps ensure that employers can offer their employees a comprehensive retirement plan that is responsive to their needs and is equitable to all stakeholders. Additional information can be found at www.retirement.sc.gov.

Cash Converters Buy Used Items

2012-04-18T21:24:49Z

WINDSOR, Ont. -- Fierce competition in the payday lending industry has many outlets in Canada expanding the options they offer customers to get quick cash.

The latest move comes from EZ-Corp., which is expanding the Cash Converters brand in Canada. Like the company's CashMax stores, they provide payday loans and buy gold, but they also buy and sell used items in good condition.

Three of the four CashMax locations in Windsor were recently turned into Cash Converters. Similar conversions are being done across the province. By the end of this month, there will be 47 Cash Converters outlets in Ontario and 33 CashMax stores, said Stephanie Konczarek, director of marketing in Canada.

"This is a new model for Canada," said regional director of operations Sophie Adams, stressing Cash Converters is not in the pawn broker business - a service Texas-based EZCorp. provides on a large scale under other brand names in the United States and elsewhere.

Windsor native David Tran and his wife, Keng Fu, saw the potential for a one-stop quick cash and used goods store when they opened their business on Windsor's east side a year ago. ABC Exchange Cash & Loans, at 9845 Tecumseh Rd. E., is an expansion of a pawnshop and jewelry business Tran's parents and brother operate downtown. Tran and Fu added a Cash Shop payday loan franchise to their store in an attempt to draw in more business.

"They go hand-in-hand. People who come in and can't get a payday loan, we direct them to the pawnshop," said Tran. "If I want to be completely honest, the payday loan business isn't the money-making business a lot of people think it is. There's a very high default rate."

Tran, 29, and Fu, 28, left automotive industry engineering jobs in the Toronto area to return to Windsor for the lower cost of living and possibility of starting their own business, he said.

"We don't have trouble getting customers in the front door. We seem to be in a city where everybody is looking for money," Tran said. He also notices a growing number of customers shopping for used goods to save cash.

So far, the payday loan outlet isn't doing well enough to make it on its own, he said. "I would predict, in the future, you'll see a lot more of these payday loan places close down."

Stan Keyes, president of the Canadian Payday Loan Association, hasn't noticed that happening. What he is seeing is more online business and larger chains buying out mom-andpop operations.

"It's a very competitive industry. Companies either turn to better service delivery, a less-expensive price or convenience of location," said Keyes, whose organization represents more than 40 per cent of the stores in Canada and is focused on setting voluntary standards and dealing with government regulation.

Payday lending took off in Canada in the 1990s and has been regulated in Ontario since 2009.

Payday lenders provide short-term, unsecured loans to customers who can show they have a bank account, a permanent address and continuous employment for at least three months. Typically, the loan is for around $300 and must be repaid in about two weeks along with the fees charged for the service. Under the law in Ontario, payday lenders cannot charge more than $21 per $100 loaned, which is generally the going rate.

There are 766 licensed payday lending outlets in the province, 22 of them in Windsor, states the Ontario Ministry of Consumer Services. Licenses must be prominently displayed in the store or provided to consumers who apply online.

Businesses that resell used items, gold buyers and sellers, and pawnbrokers who can hold goods as collateral for loans, must by licensed by the City of Windsor. While the number of licensed pawn brokers in the city has remained steady at four or five since 2006, the number of retail resale outlets has increased from 59 to 79, said Mike Chantler, Windsor's supervisor of licensing.

Wendy Dupuis, executive director of Windsor's not-for-profit Financial Fitness Centre, sees no harm in combining resale and pawnshops with payday lenders, but warns consumers should understand the terms of their loan or sale.

Those who seek payday loans generally have poor credit ratings and few financial resources, which makes the high cost an even bigger burden, she said. "They're often desperate. They don't think they have a choice."

They go seeking money to cover a bill or buy necessities and sometimes get talked into borrowing more, Dupuis said.

Having to take a payday loan once is a signal someone is headed for financial trouble or already there, she said. Going back more than once is a big red flag.

Dupuis said 35 to 40 per cent of the clients in financial distress referred to her agency have taken payday loans, some for years.

The industry has got better about co-operating with credit counselling agencies, she said.

"It's not the case with all of them, but it is with the majority."

Why People Hate the Banks

2012-04-16T15:05:32Z

A few months ago, I was standing in a crowded elevator when Jamie Dimon, the chief executive of JPMorgan Chase, stepped in. When he saw me, he said in a voice loud enough for everyone to hear: "Why does The New York Times hate the banks?"

It's not The New York Times, Mr. Dimon. It really isn't. It's the country that hates the banks these days. If you want to understand why, I would direct your attention to the bible of your industry, The American Banker. On Monday, it published the third part in its depressing -- and infuriating -- series on credit card debt collection practices.

You can't read the series without wondering whether banks have learned anything from the foreclosure crisis, which resulted in a $25 billion settlement with the federal government and the states. That crisis was the direct result of shoddy, often illegal practices on the part of the banks, which caused untold misery for millions of Americans. Part of the goal of the settlement was simply to force the banks to treat homeowners with some decency. You wouldn't think that that would be too much to ask. But it was never going to happen without the threat of litigation.

As it turns out, this same kind of awful behavior has been taking place inside the credit card collections departments of the big banks. Records are a mess. Robo-signing has been commonplace. Collections practices hurt primarily the poor and the unsophisticated, just like foreclosure practices. (I sometimes wonder if banks would make any profits at all if they couldn't take advantage of the poor and unsophisticated.)

At Dimon's bank, JPMorgan Chase, according to Jeff Horwitz, the author of the American Banker series, the records used by outside law firms to sue people who had defaulted on credit card debt "sometimes differed from Chase's own files at an alarming rate, according to a routine Chase presentation." It sold debt to so-called "debt buyers" -- who then went to court to try to collect -- from one Chase portfolio, in particular, "that had long been considered unreliable and lacked documentation."

At Bank of America, according to Horwitz, executives sold off its worst credit card receivables for pennies on the dollar. Its contracts with the debt buyers included disclaimers about the accuracy of the balances. Thus, if there were mistakes, it was up to the borrowers to point them out -- after the debt buyer had sued for recovery. Most such contracts don't even require a bank to provide documentation if it is requested of them. (Bank of America says that it will provide documentation.) Another writer at American Banker, Maria Aspan, found a woman who had paid off her balance in full -- and then spent three years trying to fend off a debt collector. Sounds just like some of the foreclosure horror stories, doesn't it?

The practices exposed by The American Banker all took place in 2009 and 2010. In response to the problems, JPMorgan shut down its credit card collections, at least for now, and informed its regulator. (It also settled a whistle-blower lawsuit.) Bank of America says that its debt collection practices are not unique to it. Which is true enough.

But lawyers on the front lines say that credit card debt collection remains a horrific problem. "Most of the time, the borrower has no lawyer," says Carolyn Coffey, of MFY Legal Services, who defends consumers being sued by debt collectors. "There are terrible problems with people not being served properly, so they don't even know they have been sued. But if you do get to court and ask for documentation, the debt buyers drop the case. It is not worth it for them if they have to provide actual proof."

Karen Petrou, the managing partner of Federal Financial Analytics, pointed out another reason these practices are so unseemly. In effect, the banks are outsourcing their dirty work -- and then washing their hands as the debt collectors harass and sue and make people miserable, often without proof that the debt is owed. Banks, she said, should not be allowed to "avert their gaze" so easily.

"In my church, we pray for forgiveness for the 'evil done on our behalf,' " she wrote in an e-mail. "Banks should do more than pray. They should be held responsible."

When I was at the Consumer Financial Protection Bureau a few weeks ago, I heard a lot of emphasis placed on debt collection practices, which, up until now, have been unregulated. So I called the agency to ask if people there had read The American Banker series. The answer was yes. "We take seriously any reports that debt is being bought or sold for collection without adequate documentation that money is owed at all or in what amount," the agency said in a short statement. "The C.F.P.B. is taking a close look at debt collection practices."

Not a moment too soon.

If you don't use direct deposit, some state refunds will come by prepaid debit card

2012-04-12T18:16:02Z

NEW ORLEANS -- After trying to help her homebound mother use her state refund, Barbara Ewell is convinced the new prepaid debit card program was set up with banks rather than people in mind.

"I've found it incredibly complicated," said Ewell, an English professor in New Orleans, told The Times Picayune (http://bit.ly/H7ANde). "It really was tedious, and not at all straightforward. I was quite annoyed at the charges."

The Louisiana Department of Revenue is issuing some refunds by prepaid debit card to people who don't get them deposited directly into their bank accounts. "MyRefund" cards are being used for state income tax refunds and refunds of assessments on property insurance bills to support Louisiana Citizens Property Insurance Corp.

The revenue department estimates that it will save $315,000 to $500,000 by not issuing checks this year. "We're always looking for savings for the taxpayers," said Deputy Assistant Secretary Gary Matherne.

So far, 604,833 taxpayers have gotten refunds by direct deposit, and 355,421 MyRefund cards worth more than $57 million have been issued by Chase, the bank that won Louisiana's contract. More than $52 million of that has been spent or withdrawn from the cards. About 300 people have rejected them and requested checks.

Many taxpayers were caught by surprise, despite a radio and television campaign to alert people to the changes. Some have adjusted, but others say it's unfair to rural residents who don't live near a Chase bank or elderly people who can't use computers to track their card usage. Rep. Regina Barrow, a Democrat from Baton Rouge, introduced HB 635 to let people choose whether they want a debit card or a check. It is pending final passage in the House.

Ewell said her mother received five cards for five years of Citizens' refunds. Since her mother doesn't leave the house, spending them wouldn't be easy. Since automated tellers give out money in $10 or $20 bills, each card would be left with a small amount of money on it if Ewell withdrew all the money at ATMs.

To cash them at the bank, Ewell had to know how much money was on each card.

ATM withdrawals at Chase are free and anyone can go inside and visit a teller. But at machines that are not Chase or MoneyPass network ATMs, Chase gets $1.50 for each usage after the first, and the ATM operator will have its own charge. Requesting a check or transferring the money to a person's regular bank account costs 75 cents if the bank is not Chase.

Ewell set up an online account at Chase and paid 75 cents on each of the five cards to have the money transferred to her mother's regular account at another bank. But she didn't like having to disclose lots of sensitive information about her mother to a financial institution with which she has no relationship.

Matherne said any information that Chase gleans from handling state tax refunds for people who aren't already Chase customers is confidential, and the bank isn't allowed to use it for marketing or other purposes.

All in all, Ewell says it feels as though the program was set up to trick the little guy into paying excessive fees and leaving money on the cards. "It did seem like it was set up for the careless," Ewell said. "Chase will do very well on this."

Chase said it was unable to comment, and referred queries about the prepaid debit card program to the state.

The Louisiana Department of Revenue said that Chase beat out two other applicants in a competitive bid for the three-year contract.

Remittance Transfer Rule: A Personal Perspective

2012-04-10T23:21:19Z

As a child of South Asian immigrants, I recall my parents frequently sending money back to our family and friends in India. Because so much depended on its receipt, my parents were uneasy about the transaction until they knew the money was in the right hands. Their unease was not unwarranted. My parents had no control over how the money got there. When my parents used a service to send money, they never fully understood the process, were charged numerous, unexplained fees, and felt powerless if any errors were made. At times they resorted to sending cash by mail, an option that was not especially secure.

Unfortunately, other immigrant families and other consumers who must send remittance transfers have had similar experiences, which is why advocates have been calling for greater protections around these transfers of money, or remittance transfers. Now, with direction from Congress through the Dodd-Frank Act, the CFPB has changed that. We adopted new rules that will go into effect in February 2013. These rules will generally make the costs of remittances clear and hold remittance transfer providers accountable for certain errors.

Here's how:

Better Disclosures: Under this rule, remittance transfer providers must generally disclose the exchange rate, any fees related to the remittance, the amount of money that will be delivered abroad, and the date the money will be available. Certain disclosures must be provided both before and after the consumer pays for a remittance transfer. Consumers will generally receive these disclosures in English and sometimes in other languages. The CFPB thinks the clarity provided by these disclosures will help inform consumer decisions and instill confidence.

Option to Cancel: Typically, consumers will have at least 30 minutes after payment to cancel a remittance. If they cancel within the 30 minute window, they will get their money back, whether they make a mistake, change their minds, or feel something isn't right.

Correction of Errors: With this rule, remittance transfer providers will generally be held accountable for errors. If a remittance sender reports a problem with a transfer within 180 days, the provider must generally investigate and correct errors. Companies that provide remittance transfers may also be responsible for mistakes made by their agents. The CFPB believes this will encourage remittance transfer providers to use reliable agents and partners in the U.S. and abroad, helping to weed out the bad actors.

As a lifelong advocate for immigrant communities, I am very proud that the first final rulemaking adopted by the CFPB addresses this issue and brings new protections to many consumers who, like my family, continue to send money to family members, loved ones, and others abroad.

Bye-bye free checking. Hello fee checking.

2012-04-09T13:51:58Z

The CFPB's announcement last week followed closely news that Bank of America is experimenting with a new system that would levy monthly fees on users of basic checking accounts. As if its botched attempt to introduce a $5 debit-card charge last fall wasn't enough, this latest move could trigger another consumer uprising and a tidal wave of criticism.

It's also causing people to wonder, is free checking becoming a thing of the past? And if so, what role will the CFPB play in regulating fees?

All of the largest banks offered free checking until 2009, Mike Moebs, founder of financial research company Moebs $ervices Inc, told the Huffington Post. Now, almost none do. And as free checking has dwindled, checking service fees have shot up. Javelin Strategy & Research recently released a study tracking the rise in bank fees for checking accounts over the past 10 years. The report, which included data from both large and small banks, estimated that consumers now pay 26 percent more in checking account fees than in 2002, and that larger banks typically charge higher fees.

Since it abolished its $5 debit-card charge, Bank of America has been testing the checking account fees in Arizona, Georgia, and Massachusetts with monthly charges of $6 to $9 for customers with "Essentials" accounts. Other account options being tested are charging monthly fees ranging from $9 to $25, but they also give customers the chance to get the charges waived if they use a credit card, take a mortgage with Bank of America, or maintain a minimum balance in their accounts. (To see how checking account fees stack up at the five biggest banks, click the chart above.)

If checking used to be free, why are the big banks charging now?

The fees mark a sign of stress in the banking industry during a time of historically low interest rates and sluggish economic growth. Plus, the banks got slammed with regulatory rules in 2009 and 2010 that curtailed traditional bank fees, halved what they could charge merchants for taking credit and debit cards, and prohibited them from automatically enrolling checking account customers in services that charged for overdrafts.

The Consumer Financial Protection Bureau is now accepting consumers' complaints about bank accounts, including issues related to withdrawing money, making payments and using debit and ATM cards.

Banks need to find a way to make up for the billions of dollars lost in revenue. Bank of America and others tried to do that by establishing monthly fees for making debit-card purchases, but they quickly backpedaled when customers revolted.

After the $5 debit-card fee fiasco, banks are finding it harder than ever to implement changes.

J.P. Morgan consumer banking chief Todd Maclin told investors recently that the bank would like to be able to charge more than $10 to $12 a month, according to The Wall Street Journal, but "in this environment I am not going to rock that boat." (In the last few months, the bank has eliminated or trimmed other less-common fees for things like account research, copies of documents, and account closures.)

In the current hostile climate, banks are beginning to get sneakier about raising fees. So, instead of levying a flat $5 debit-card charge, Bank of America is targeting its checking account users.

Since almost 9 in 10 Americans have a checking account, according to the CFPB, charging for checking could be a profitable move for banks. Mr. Moebs said that Bank of America's new fee system would affect a broader swath of its consumer base than the debit-card charges.

Checking account fees will not only hit more consumers, but will "particularly impact the most vulnerable, who have the least capacity to meet minimum balances and avoid the fees," Norma Garcia, senior attorney at Consumers Union, told the Huffington Post. In a press release, she urged Bank of America to drop its latest fee scheme, or "risk losing even more consumers who are tired of being nickeled and dimed at every turn."

As much as we hated the idea of the $5 debit-card charge, at least Bank of America was up-front about the flat fee. It's still being tested, but this new system for checking-account charges seems much more complicated, requiring customers to maintain certain minimum balance, use a credit card, or take a mortgage to dodge the fees. Plus, as some consumer advocates believe, it seems targeted to hit those who need free checking accounts the most.

Banking fees should not be "punitive," meant to trap customers in problems, Kathleen Day, spokesman for the Center for Responsible Lending, told Bloomberg/Businessweek. She cited high-interest payday loans and overdraft charges as examples of these punitive fees that "pound customers into the ground." However, Ms. Day said she also sympathizes with Bank of America, which does not offer either payday loans or overdraft fees and had to give up its $5 debit-card fee. "You could argue that it is a more transparent pricing mechanism," she said.

The checking account fee system in the works may be less transparent than a flat debit-card charge, but this is where the CFPB can step in. Already, the CFPB has announced its plans to examine how banks charge overdraft fees to customers who bounce checks or withdraw more than they have in their accounts using debit cards or ATMs.

"Overdraft practices have the capacity to inflict serious economic harm on the people who can least afford it," said CFPB Director Richard Cordray. "We want to learn how consumers are affected, and how well they are able to anticipate and avoid paying penalty fees."

Now, with these new checking account charges under development, and the CFPB's recent announcement to take on complaints about bank accounts, it seems that it is taking its job as a watchdog seriously - although it's too soon to judge its bite.

It's certainly getting an earful, anyway. As of Feb. 22, the Bureau says that it has received more than 20,000 complaints, including nearly 7,000 on mortgages and almost 12,000 on credit cards.