Wal-Mart Prepaid Card Fees

Monday, June 25, 2007

Wal-Mart has announced that, out of concern for what it estimates as the 20% of its customers who do not have bank accounts, it will begin offering stored value cards, issued through GE Money Bank.

These products are often called “prepaid credit cards,” which is misleading since no credit is actually extended. Like all stored value cards, they are expensive for cardholders. Unlike credit cards, you’re not borrowing funds from the bank—with prepaid cards, it’s costing you money to spend your own money. This one costs $8.94 to obtain, and Wal-Mart will charge twin fees of $4.94 per month and $4.64 every time you reload the card, unless you arrange direct deposit of your paycheck, for at least $1,000—a threshold many of Wal-Mart’s own part-time employees might fail to reach. There are fees of 75¢ for checking your balance, and a $2 “paper statement fee.”

Once maintenance fees, reloading charges, and the $2 paper are factored in, these cards may be more expensive than revolving a balance on a high-interest credit card.

Prepaid cards and credit cards have a key difference in cardholder liability. If a credit card is lost or stolen, consumers who report the loss won’t be held responsible for unauthorized charges. Prepaid cards do not have as many legal protections in the event of fraud, billing errors, or loss/theft of the card.

Prepaid cards are also not as versatile as credit cards. Gas stations, for example, often use “blocking” to automatically reserve up to $100 on the card when you pay with plastic. This can cause funds to be tied up for several days, resulting in a nasty surprise for some users of debit card or prepaid card users.

Another disadvantage is that prepaid cards (like debit cards) do nothing whatsoever to build a credit history. For the “unbanked,” or those who have been outside the financial mainstream, obtaining a free checking account and responsibly using a credit card can help build a credit history.

Bankrate.com has a search engine to locate free checking accounts by city and state. For example, in San Francisco, CA, you can open a free checking account at Washington Mutual with an opening balance of $1, and not be subject to monthly maintenance fees. Several other banks and credit unions offer checking accounts without monthly fees for initial deposits of $100 or less.

Some people can’t open a bank account because they are listed in ChexSystems’ database of customers who mishandled accounts in the past. The ChexVictims discussion forum identifies banks and credit unions that do not screen applicants through ChexSystems.

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