You might think that new gift card rules have made the holiday shopping season safe for those wanting to give plastic rather than presents, but you'd be wrong. New rules limit hidden fees on "gift" cards, but if you call your plastic a "prepaid" card, none of the new rules apply.
More than 30 reloadable debit cards geared to teens are being launched in the first week of December, just in time for the holiday rush, according to the New York Times. These teen-oriented cards, like the just-cancelled Kardashian Kard, can charge outrageous fees with impunity.
How high are the fees? The Kardashian Kard broke all previous records, charging a minimum of $99 for one-year's use. But other cards have a plethora of hidden fees that can eat up the value of the plastic in no time.
Consider the pile of cards being launched by Plastic Cash International--a.k.a. MyPlash -- that offers teen-centric cards emblazoned with images of rock stars, athletes, animated characters and the cast of the vampire sensation Twilight.
"The reason MYPLASH cards are perfect for the holidays is because they fulfill that gift card need, but allow the teens to use their prepaid reloadable cards anywhere MasterCard debit is accepted," said spokeswoman Bailey Cuzner in an emailed response to my questions. "They will have a cool looking card, and won't need to be limited by a specific store."
Cuzner says MyPlash cards are designed to teach teens about money. But when you read the terms and conditions, the best lesson for your kids may be the simplest one: Never buy these cards.
Why? If your Twilight fan wants the MyPlash "The Twilight Saga: Eclipse" card, you can buy and "load" it for free, at least through their holiday promotion period. But every month after that purchase will cost your recipient money -- and plenty of it.
Monthly fees on this card are $4.95 -- that's nearly $60 per year. If the teen wants to use the card to get cash at an ATM, it will cost another $1.50, unless it's an international ATM, in which case the fee is $3.95. If you want to dispute a transaction--that's free with a credit card -- it costs $15.00. If you're crazy enough to reload this card with more cash, it will cost another $4.95. If you don't use the card, they'll charge you a $1.95 inactivity fee.
Want your money back? It costs $6 to get a check.
Some of the fees can be avoided if you reload the card with automatic deposits, Cuzner said. If you set up a direct deposit from your bank account to the card, the teen can get 1 free ATM use each month and two free balance inquiries. (Balance inquiries otherwise cost 75 cents.)
Think those fees are scandalous? The Visa Buxx card, which is also supposed to teach teens about money, can make MyPlash cards seem practically consumer-friendly. The fees on this card vary based on the issuer, according to Visa. You've got to choose your poison out of the five issuers available, two of which are credit unions that require membership. Let's take a look at the Buxx card issued by Wachovia Bank for an example.
Wachovia's Buxx card charges a $12 set-up fee; a $5 fee if the card is lost or stolen; a $5 fee if the card is damaged and needs to be replaced; a $20 overdraft fee, if they allow your teen to spend more than his or her balance; a $5 re-issue fee (charged a month before the card expires); a $2 per month inactivity fee if you don't use the card for six months and an $8 fee if you want to cancel the card and get a refund.
It's worth mentioning that these cards -- like ordinary gift cards -- are generally declined if you try to charge something that's worth more than the balance on the card. But if you need to check your balance so that you can split a purchase, you get nicked with a fee.
You thought the CARD Act eliminated most gift card fees? It did.
With a true gift card, you can get hit with a purchase fee. But after that, the CARD Act bans fees in the first year and demands that any fees charged after that point be fully disclosed, said Bill Hardekopf, chief executive of LowCards.com. If you lose a gift card while it still has value, the CARD Act says that you can get a replacement card for free -- just like you can with a credit card.
But the CARD Act has its own fine print.
"The CARD Act was very careful in how it worded what counted as a 'gift' card," said Suzanne Martindale, an attorney and associate policy analyst with Consumers Union in San Francisco. "If it's a stored value card that's not specifically marketed as a gift card, does not receive any CARD Act protections."
Confusing? You bet. The short version is this: If you're buying a general-purpose gift card -- one that has a Visa, MasterCard or American Express logo, you better be sure it's a true "gift" card rather than a prepaid card, if you don't want it to get eaten alive by fees. Buyer beware.
Martindale's advice for gift card buyers? "We advise consumers to consider giving a check or cash instead."
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