Wal-Mart Stores, Inc. (NYSE:WMT) and American Express Co. (NYSE:AXP) announced Monday they will jointly offer what they claim to be a fee-transparent prepaid debit card, Bluebird, as “an alternative to debit and checking accounts” that will be accepted at over 4,000 U.S.-based Wal-Marts starting next week.
The world’s largest retailer and one of the nation's largest financial services providers are attempting to cash in on increasing demand for prepaid cards from consumers wary of banks’ seemingly constant stream of hidden “gotcha” fees.
They also want to deal with frustration about confusing and lengthy terms written in six-point-type legalese and often-unwanted and always-expensive overdraft lines of credit linked to checking accounts.
For their part, Wal-Mart, of Bentonville, Ark., and American Express, of New York, claim the Bluebird card is a result of customer surveys. The terms list only two fees: $2 to charge the card from another debit card and $2 for ATM withdrawals (or declines) not counting third-party network fees, such as those charged by card-users’ own banks.
The Bluebird announcement comes as consumer rights advocates have pushed for greater scrutiny for prepaid cards, which operate under a different set of rules than standard debit and credit cards. For example, the Federal Deposit Insurance Corp.'’s insurance cap on prepaid cards can be lower than total amount loaded on all cards from one issuer at any given time, meaning consumers cannot be sure the money on those cards has FDIC backing.
Consumer Reports has listed at least a dozen types of fees that could be incurred by prepaid cards, including a common activation and monthly rate, or fees to load cards, pay bills, call customer service or inquire about balances. It also found that prepaid cards don’t necessarily help consumers build their credit scores, or claims made by issuers may be overstated.
This summer, the Consumer Financial Protection Bureau (CFPB) accepted public comments regarding rules that it is working to establish for this form of payment. The agency is currently working through the feedback.
A study by Pew Charitable Trusts released in April concluded that customers are gravitating to the use of prepaid debit cards because they disapprove of hidden bank fees and adopt prepaid cards as a way to avoid overdraft features some banks won’t remove even at customers’ request. However, the study suggests that consumers may not be aware that prepaid plastic can also be laden with fees, even for services a bank wouldn’t typically charge.
The effort by consumer rights advocates and the CFPB to lay down some rules comes as more consumers flock to the use of these cards.
Shares of Wal-Mart rose 3 cents to $75.16 after setting a 52-week high of $75.55 Monday, while those of American Express rose a penny to $58.57 in afternoon trading.