Wednesday, July 22, 2015

Pre-Paid Credit Cards - Worse that Worthless?

Are these prepaid debit cards of any use whatsoever?  I don't think so.

If you spend any time at Wal-Mart or even the Dollar Tree, you'll see racks of these prepaid debit cards, usually VISA or MasterCard.   Are these a good deal or what?  Well, the first thing you might note is that they are being sold at places than pander to the poor, so you could just guess they are a "poor" deal and be done with it, and 99.9% of the time, you'd be right.

I bought one of these cards ($1.88) recently to try it out.  We are traveling for a few months, and those conniving bastards at Sirius XM sent me an offer for five months of XM radio service for $20 (which is about 1/5th the normal price).  When driving across the Dakotas, having satellite radio might actually make sense.

But since the conniving bastards at Sirius XM use negative option marketing techniques (which cost them more money than they make for them) you have to call and cancel the service, or they "automatically renew" as a "convenience" for you, at the regular rate of $18 a month.   The last time I used the service, I sent them a money order, so they could not charge my credit card.

This time around, I thought I might try one of these disposable credit cards and see if that worked.

It didn't.

When I tried to sign up for the service using the card, it was declined.  Reading the fine, fine, fine print (always a sign of a ripoff) of the card agreement, I realized that the pre-paid credit card could not be used for "certain transactions" such as online purchases from some retailers.  Also, some retailers won't accept these cards, particularly if they are negative option type retailers who want to suck all the money out of your credit card.  And hey, they can't do that with a disposable credit card, right?  Sort of spoils all the fun!

So, the idea of using one of these cards to avoid negative option antics is outdated.   They won't let you, so just forget about it.

And as a regular credit card, it pretty much sucks.  You have to pay $1 to $3 to get one, and then $3 a month to keep it, unless you put $500 to $1000 a month into it, for example, by automatic payroll deposit.   If you are dirt poor, have shitty credit, and cannot get a credit card any other way, this might be an option for you.   If you have two nickels to rub together and have a credit score over 500, chances are, you have other options - such as a debit card from your local credit union.

There are numerous other problems with these cards, and if you go online and read the complaints, most are user-generated problems.   As I noted in the past, one problem with debit cards is that a merchant can put a "hold" on your card which can tie up your money for days at a time.  One Chinese restaurant put a series of $15 "holds" on my debit card once, when I was younger, resulting in my rent check bouncing.  The merchant - who was a nice lady - kept swiping the card over and over again and saying, "card no work!" and each time putting  another hold on my account.  When her son came to balance the accounts at the end of the week, the actual $15 charge was made and the holds released.   But in the meantime.... well, ouch.

If you are poor and have marginal funds in your account, such holds could be a problem - and it is a problem mentioned on consumer complaint sites.  However, this problem applies to all debit cards, not just these pre-paid kind.   So you have to get your financial house in order and your shit together and have a balance in your account, if you want to use a debit card.  If you want to suck the balance dry on a regular basis, it will be problematic.

While most of these cards allow you to check the balance online or by phone for free, a balance check at an ATM may cost you a buck or two.  Throw in the $3 a month fee, and we're talking some serious change for a person with limited income - enough to buy lunch once or twice a month.

In the past, some have used these cards for anonymous online transactions (translation: ordering porn from Russian websites, online gambling, or the like).   The idea was that the card was "anonymous" and could not be traced back to you.  Maybe in 1995 this was true, but today, in the post 9/11 world, you will have to supply your name and address and social security number (!!) in order to activate the card.  So these cards are not even of use for such quasi-legal purposes.

Note also that you are liable for fees charged to the card, including the $3 a month fee.  So if you just spend all the money on the card and figure your end of bargain is done, guess again.  Unless you go online (or call or write) and explicitly cancel the card, the $3 a month fee will keep being charged and you will get a bill when the balance goes negative (and perhaps additional fees for having a negative balance!).

So, what do I do with this card?  Spend it on gas money until the balance is $3 and then go online and cancel it, and remember a valuable lesson:  A lot of shit that is marketed to the poor is a poor bargain in every sense of the word.   You are better off just avoiding bargains aimed at the poor, and when in doubt, simply use this as a filtering mechanism to avoid shitty deals.

And as for XM radio, I wish they would just come up with a rational pricing scheme instead of resorting to trickery.  I mean, if they just signed people up online at a rational price, they could fire the hundreds and hundreds of call center people and "cancellation specialists" needed to prop up their tomfoolery and trickery.

But then again, these marketing types just don't get that.   Well, they were dumb enough to pay millions to Howard Stern, weren't they?

UPDATE:   Since most gas stations place a $50 to $75 "hold" on a debit or credit card before allowing you to pump gas, a pre-paid debit card is pretty worthless unless you have at least a few hundred dollars balance on it at all times.   Otherwise, expect to be declined with regularity.   It is damn hard to spend down a pre-paid debit card to the last dollar.   You can only cancel it and ask for a refund, which may take months.   These cards are useless.