Nov28

Money Matters

Categories // LA Focus, On the Money Wednesday, 28 November 2012

BET Joins The Prepaid Card Bandwagon For Worse, Not Better

What do Russell Simmons, Kim Kardashian, Lil Wayne, Tom Joyner, Suze Orman and now BET have in common? They all have their own or have endorsed a prepaid debit card.

Yes...they have all jumped into the prolific market which targets working class and low income families promising to give them all the luxurious privilege of spending money to use their own money.

BET has joined the ranks of those who expect people spend their money using a "glorified gift card" as they are called by John Ulzheimer, President of Consumer Education at SmartCredit.com.

The prepaid card is one that doesn't help anyone establish credit, costs far too much for those who have limited budgets, and, because they allow those who use them to remain outside the banking system, too often insert the user into a permanent underclass of society, unable to progress economically.

BET has partnered with NetSpend to endorse their Control Card that promotes the following perks: no credit check;
no overdraft or other surprise fees;
no interest or late fees;
no standing in line to pay bills;
a $10 Purchase Cushion; and
a 5% APY Savings Account
Life Benefits

That sounds pretty good to the naked eye, but as I have done with many prepaid cards before, let's take a look at each "perk" to see if they are really benefits.

No credit check: This is a prepaid debit card which is the same as using cash. You will never have a credit check to use your cash so you will never have a credit check to use a prepaid debit card.

No overdraft or other surprise fees: I wouldn't know about that because I couldn't see what all the fees were unless I purchased the card...surprise! To see a complete list of the fees I could find, see the end of this article.

No interest or late fees: These cards are not extending you a line of credit. Hence, they are not helping you establish credit. Therefore, there is no need to charge you an interest rate or charge a late fee since you are only using your own money and not borrowing any money.

No standing in line to pay bills: Is this any different from any other free form of online payment?

A $10 purchase cushion: If you take the time to read the fine print in this "perk" they make it very clear this is a "non-contractual courtesy exercised in our sole discretion, by which we may approve transactions that the Control Card cardholder requests from time to time." Translation — they are under no obligation to give you this cushion if they choose not to, so if any user finds themselves having to use this cushion frequently, they can deny you!

A 5 percent APY savings account: To have access to this feature, you must have deposited at least $500 in one calendar month. This seems like a high interest rate until you remember you are being charged at least 10 percent monthly on a deposit of $500 just to earn 5 percent yearly. That doesn't make much sense, and is a great deal for the bank.

By the way, if you are one of those who had the brilliant idea of putting a large sum of money into this account and using it as a high yield savings account just to get access to the 5 percent return that is offered, there is a clause in the fine print that states "a cap may be placed on the maximum amount of funds on maintained in the account."

It also states the cap can change.

Life Benefits: This is extremely misleading considering you might think you are getting life insurance from the name but are only getting extremely limited "Accidental Death and Dismemberment" coverage. Trust me...the amount of money they earn from this card will far surpass any policy payouts they have to provide from this "perk".

Here are a few of the limitations on this coverage inserted to ensure it remains extremely profitable to provide the service: It is not available in all states and is not automatic.
It is only available to those enrolled in direct deposit and is limited for a monthly benefit for 12 months based upon the amount direct deposited during the preceding 35 day period. (So if you direct deposited $8,000 in June, 0 in July, 0 in August, and have an accidental injury in September you will have zero coverage! 
Coverage is limited to $8,000 because your direct deposit was before the 35 day period. 
 The larger point that I want to emphasize is that as long as we continue to use these financial predators, the more they will feel they can market to our communities.

I have personally assisted those who would have been deemed to be "unbankable" — homeless, bad credit, and formerly incarcerated; I have taken them to a credit union to open a free bank account and get access to the precious debit card with no fees. The only problem with this solution I have implemented through my nonprofit is there is a limited profit in it for those who want to make a profit for themselves outside of feeling good for helping someone.

Suze Orman, before her prolific deal to introduce her Approved Card, gave good advice when she spoke out heavily against these cards saying the following: "I don't think prepaid cards are a viable option..."

"If you can't qualify for a credit card, I want you to start with what is known as a secured card. A secured card is a stepping-stone to getting a regular credit card."

Let's get smart, build credit the old fashioned way, and steer clear of these cards. The more we use them, the more we will depend upon them and the further away we will be as a community from those true wealth building principles which will lead us towards true empowerment!

On The Money: Parking Fines Increase Once Again

In an attempt to balance the $238 million budget deficit in Los Angeles, Mayor Antonio Villaraigosa recently proposed an increase in ticket prices for parking offenders. In his proposal Villaraigosa suggests that the fees reach the highest they've ever been, and the city will collect $40 million in ticket revenue per year.

Last year $134 million was collected in parking fines. Below is a list of infractions and how much they will cost now in comparison to 2005 when Villaraigosa was first elected into office.

• Parking in a red zone: $65-$98
• Street sweeping: $48-$78
• Parking too close to a fire hydrant: $40-$73
• Parking in a fire lane: $35-$68

Paul Krekorian, councilman of the Budget and Finance Committee assisted with the adjustment of Villaraigosa's original proposal and approved a $5 increase for all parking tickets instead of only targeting the proposed four violations. "Risk is inherent to government budgeting, because the assumptions we make about revenues are never certain," Krekorian said.

This is the sixth time that Villaraigosa successfully increased parking fees. Those most affected are people that work or live in densely populated neighborhoods in LA County.

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