Free, with a fee
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It’s expensive to have no money — even if that lack of funds is a temporary shortfall in just one of your accounts.
Felix writes this morning about one of the more surreptitious ways Citibank hits its customers with hidden fees. After an overdraft, Citi signs some customers up for a loan, rounded to the nearest $100, and buries any mention of the loan deep in your monthly statement. “Citi was doing everything in its power to try to keep me in the dark as to the amount that I had unwittingly borrowed, and to try to ensure that I remained in debt to them for as long as possible”. Free checking, though sold as a “fundamental banking right” over the last decade, is anything but.
You don’t even need a bank account to get hit with bank fees with the rising popularity of prepaid cards. A few weeks ago, Sarah Jaffe wrote about a recent lawsuit brought by Natalie Gunshannon, a former McDonald’s employee in Pennsylvania. She’s suing the franchise she worked at for refusing to deposit her paycheck into her bank account. Instead, the franchise only pays its hourly workers via prepaid debit cards. The suit alleges that because of the fees associated with the cards, Gunshannon’s $7.44 an hour could turn into less than Pennsylvania’s $7.25 an hour minimum wage. The list of fees include: “$1.50 for ATM withdrawals; $5 for over-the-counter cash withdrawals; $1 per balance inquiry; 75 cents for online bill pay and $15 if she lost the card or had it stolen from her”.
Prepaid cards have become popular with government agencies as well. Several states use the cards to hand out things like unemployment benefits; the fees vary by state. California forces everybody to get a prepaid card, even if they just want to set up direct deposit into their bank account. New Mexico, meanwhile, charges a $10 fee for going to an out-of-network teller. Consumers in Oregon pushed back against US Bank’s ReliaCard fees back in 2011, prompting the state treasurer to renegotiate the contract. The ReliaCard in Oregon now allows more free withdrawals.
There are, of course, plenty of reasons that prepaid debit cards might be better than a check if you are one of the almost 10 million households in the US who are unbanked. A study by the National Consumer Law Center found that the cards were actually cheaper than the average check-cashing establishment. — Shane Ferro
On to today’s links: