T-Mobile on Wednesday became the latest retailer to barrel into the banking world with the introduction of a prepaid card, entering the market just as lawmakers and regulators move to impose tougher consumer protections on such products.
The use of prepaid cards has exploded in the wake of the credit crisis that pushed millions of Americans outside of the traditional banking system. Chain stores, including Wal-Mart, Walgreens and Target, have entered the marketplace with broad access to those consumers left on the sidelines.
Advocacy groups, however, have raised concerns that issuers of prepaid cards are not always transparent about the fees or rules associated with their products. And while the cards act much like debit or credit cards, they are not covered by the same strict consumer-protection laws.
But Michael Goo, vice president of marketing at T-Mobile, said that the telecom company is offering Americans an affordable way to manage their money through its Mobile Money service. Customers can use the Visa-branded card to pay bills, deposit checks via a smartphone camera and make purchases. There are no overdraft fees, no minimum balance requirements and no charges for withdrawing cash from 42,000 ATMs across the country, he said.
“There is a significant portion of Americans, 68 million adults, that rely on alternative financial services or don’t have traditional accounts, and this product will help free them in terms of time savings and cost savings,” Goo said. “Our product is incredibly consumer-friendly.”
On its Mobile Money Web page, T-Mobile said there will be charges for “non-typical use,” such as using an out-of-network ATM or putting rush demands on checks to be cashed. Company officials said in an e-mail it would charge $2 for such services, but the cost is not explained on its Web site.
The inability of consumers to get clear information about the terms of such products has riled lawmakers and regulators. Within the past month, Sens. Robert Menendez (D-N.J.) and Mark R. Warner (D-Va.) introduced separate legislation to require prepaid card issuers to fully disclose all fees tied to the product.
Disclosure is at the heart of the rules the Consumer Financial Protection Bureau is expected to write before the end of the year. The bureau has said it will work on an industry-wide standard on fee disclosure, overdraft and other issues, such as limits to consumer liability in the event of cards being stolen.
“These cards can be a substitute for a checking account and help usher people into the financial system, but unlike a checking account, the terms can change at any time,” said Susan K. Weinstock, director of the Safe Checking in the Electronic Age Project at the Pew Charitable Trusts.
In the past, proponents of prepaid cards cautioned that new disclosure requirements would increase compliance costs that would be passed on to consumers. That apprehension has waned as regulators have warmed to the idea of a simple fee disclosure box, said Jennifer Tescher, president and chief executive of the Center for Financial Services Innovation, a think tank.
“There is very little fear and trepidation around the prepaid rules that the CFPB might issue,” she said. “If anything, the industry is waiting for rules and will welcome them because it will help to further legitimize the product. ”
The high fees once associated with prepaid cards have largely declined as well-heeled firms, such as Wal-Mart and JPMorgan Chase, have entered the market. To remain competitive, more companies have lowered their costs or waived charges altogether.
T-Mobile will automatically waive monthly fees for its wireless customers. Analysts say the move into prepaid debit cards is a natural fit for the company, considering its established base of prepaid wireless customers.
“Prepaid wireless customers usually fall into a few categories: very budget-conscious, young or credit issues prevent them from getting a [traditional] wireless plan,” said Terrence P. Maher, corporate counsel at the Network Branded Prepaid Card Association, a trade group. “These demographics also may be interested in a general-purpose, reloadable card, for the very same reasons.”