The holiday season is a time when predatory lenders offer enticements to put more debt than money into your pockets. For unsuspecting consumers, it’s a temptation trapped in all kinds of packages that seem too good to pass by. In reality though, these deals are often a debt trap leading to a holiday financial hangover that can last well into the New Year.
If you believe pre-paid debit cards are insurance against financial rip-offs, think again.
Some prepaid cards may be a helpful way to avoid overspending. But before paying cash for this convenient form of plastic, read all of the fine print that explains the terms and fees that come with its usage. Terms and options can and do vary significantly. Many include a range of fees from activation, to learning your current balances, reloading monies and in some cases fees for inactivity. Some prepaid cards even use tricky tactics that allow consumers to inadvertently overspend the value on the card and incur an overdraft fee.
By the time all applicable fees are assessed, the amount of money actually available on that prepaid card can shrink and shortchange how far it can help on purchases.
Another debt trap, overdraft fees, are marketed and sold as a “customer convenience.” Yet in truth, these fees can run up holiday bills that many consumers will not know about until after New Year. Their trick is for the bank to extend credit when transactions exceed monies actually available in accounts – including debit card point-of-sale transactions, and ATM withdrawals which banks could easily decline at no charge when consumers lack sufficient funds. Instead, some banks often accept the transaction, putting the customer in the red and charging a steep $35 per overdraft fee.
Additionally, some banks alter the posting of transactions in an effort to maximize revenues. In 2017, customers of several large banks paid over $11 billion in overdraft fees in just one year.
Consumers most vulnerable to these high-cost fees are those who have little or no cushion in their checking accounts. Consumers who may have accepted overdraft “coverage” still have a right to cancel the so-called costly service by directing their institutions to remove it.
“With abusive overdraft fees, financial institutions take advantage of customers fighting desperately to stay afloat,” said Rebecca Borné, a senior policy counsel with the Center for Responsible Lending. “Ultimately, these fees drive many from the banking system altogether and make reentry very difficult.”
Data from the Federal Deposit Insurance Corporation (FDIC) back up Borné’s claim. Over half a million households who once had bank accounts became unbanked— primarily due to high or unpredictable fees like overdraft.
Other consumers, beckoned by the brightly-colored signs advertising “fast cash” or “bad credit? No problem”, should just keep walking or driving past storefronts of payday and car-title…