Justin Bieber, Magic Johnson, Suze Orman and the Kardashians: Financial and Consumer Protection Trump Pre-Paid Cards

by | 07/14/14 | Commentary, News, Uncategorized

Celebrities Exit the Pre-Paid Card Market Amid Greater Advocacy for Financial Literacy and Consumer Protection

Financial literacy and consumer protection proponents are thrilled with the reaction by celebrities who are pulling out of the prepaid card market given the detrimental effects that the cards are having on consumers, particularly as low levels of financial literacy continue to rock individuals and families as they struggle with their rising debt, higher expenses, lack of access to effective financial products, and poor understanding of how best to manage their overall financial affairs.

During the last two years, an increasing number of celebrities have pulled out of the prepaid card market after they previously had rolled out these cards to attract consumers to this fast-growing category of financial products. In 2012, basketball legend Magic Johnson rolled out a prepaid card with One West Bank in California and, in the same year, personal finance expert Suze Orman introduced the Approved Card in partnership with Bancorp Bank. Consumers who signed up for these cards have been notified that they are being discontinued.

The same fate has characterized many prepaid cards unveiled by other celebrities. Reality television stars Kim, Khloe and Kourtney Kardashian promoted a prepaid card beginning in 2010 through an alliance with University National Bank MasterCard and, within only one month after the card was launched, a surge of criticism was received about targeting young, inexperienced and financially illiterate consumers, not to mention the high fees of prepaid cards. Justin Bieber’s Spend Smart Card with MasterCard and George Lopez’s Mango Money prepaid card also have been terminated.

Financial literacy and consumer advocates are exhilarated by the positive reaction to calls for ending the high fee prepaid cards. The Kardashian card had a purchase fee of $99.95, plus monthly fees after the first year of $7.95. Likewise, the card promoted by Justin Bieber sported a $3.95 monthly fee, a $7.95 replacement fee, and a $3 fee for every 30 days of card inactivity. The Young Money Card that was endorsed by singer Lil Wayne has a $3.95 monthly fee, a $6.95 card purchase fee, a $5.95 card replacement fee, and a $4.95 reload fee when consumers add more money onto the card.

While Orman’s card had a monthly maintenance fee of only $3, which is lower than many prepaid card maintenance fees, many argued that this fee was still too steep when the target population for these financial products exhibits financial literacy rates that suggest they likely do not understand the financial impact of these cards.

Financial literacy advocates are promulgating the fact that while celebrity prepaid cards put them more into the public spotlight, many other non-celebrity prepaid cards are driving huge fees to the card issuers, while increasing the debt burden on the consumers who do not fully understand the financial impact of the high fee cards. Moreover, the prepaid card market shows no signs of slowing down. Last year, U.S. cardholders loaded over $71 billion onto their prepaid cards, which is up significantly from the prior year. For this reason, financial literacy and consumer advocates continue their campaigns to educate consumers about the high fees and other limitations of prepaid cards in the hope that consumers will become better protected as more complex financial products continue to emerge.

Become a Member

Join financialcorps today to get access to exclusive content, networking community, and inside information to the world of financial literacy.

Subscribe

to the top financial literacy news from the world’s leading financial education funders, news sources, analysts and commentators, e-mailed to you FREE.