ATM Machine

Using an ATM machine can cost you money in fees, but not always. With a prepaid debit card, you usually pay a fee for using an ATM, but this blog post will explain how you can avoid taking that monetary hit.

First, what do we mean by “ATM machine,” which is actually redundant when you consider that ATM stands for Automated Teller Machine. An ATM is essentially a computer that accept debit cards that include an account number with a PIN (Personal Identification Number) and are usually encoded with a magnetic stripe. Such machines can dispense cash, take deposits, and perform a some other banking functions such as transferring money between accounts or tell you your current balances. In other countries they are invariably known as cash point, money machine, bank machine, cash machine, hole-in-the-wall, autoteller.

“While banks may have other reasons for installing and maintaining ATMs, most ATMs in this country are nonbank. They’re privately owned ATMs in grocery stores, gas stations, bars, restaurants and other small businesses across the nation. The merchants that own the machines set the surcharge and keep all of it; it’s their compensation for the cost of providing convenient access to cash,” says the ATM Network.

Number of ATMs in the US

According to the Boston Globe, the number of ATMs in the U.S. started falling five years ago, year after year. Now there are about 350,000 of the machines nationwide, while worldwide there are more than 1.8 million.

How to Avoid ATM Fees

OK, so here is the scoop on how to avoid ATM machine fees. The simplest method is to get cash back at the point of sale when you use your debit card at a grocery store, convenience store, or other merchant that offers cash back. Usually, you are limited to an amount that is no larger than 50% of your sale and perhaps tops out at 100 in cash. Some merchants limit you to $20 or $40 per transaction, but if you always get $20 cash back you will be flush with cash, provided you do not spend it rapidly.  There is no fee for getting cash back beyond the fee that you may pay per transaction as a prepaid debit card holder.

Another method for checkcard users (these are the debit cards that are provided with a checking account) is to only use the ATMs “in network.” Depending on your bank, you may or may not always be able to find an ATM that is in your bank’s network. Some larger regional and nationwide banks have thousands of ATM locations. This makes it fairly easy to find an ATM that does not charge a fee. Your bank still may charge you a fee for performing some transactions, like withdrawing money, while checking your balance is free.

Some banks that do not have thousands of locations offer a service where they will refund any fees OTHER banks may charge you for using ATMs in their networks. Typically, a fee for using a non-network ATM is $2.50 or even $4. These fees are outrageous, and federal banking laws eventually capped them, but they are still pretty high.

Duking it Out

MasterCard, the second-largest credit and debit card network, intends to grab market share of in debit processing from its rival Visa during the next year or two, according to Reuters. .

With the passage of the Dodd-Frank Act or Credit CARD, Master Card will begin taking market share in its debit processing business away from Visa in the “second half of next year, into 2012,” said Tim Murphy, MasterCard’s chief product officer, in a media interview.

“All four major credit and debit card network are still awaiting final rules from the Federal Reserve about the implementation process of the Dodd-Frank act. Meanwhile, financial firms are expected to wait until the Federal Reserve Board officially release final phase of network rules in July next year before signing new contracts with processing networks,” according to the article.

The Dodd-Frank act is expected to widely restrict the profits that banks and networks receive to process numerous debit card transactions. It should also enable merchants to favor one form of payment over another, such as cash over plastic, or MasterCard over Visa, or debit cards over credit cards. Both Visa and MasterCard shares have plunged more than 20% since the measure was passed in the spring of 2010.

Don't be fooled!

Now that the Federal Reserve’s new rules went into effect as of August 15, 2010, banks can no longer automatically enroll their customers in overdraft protection plans for debit cards tied to checking accounts or prepaid card plans.

Now you have to “opt in” or agree to overdraft protection. Otherwise, your debit card will simply be declined at the point of the sales if you don’t have enough money in your account to cover the purchase.
We think having your card declined is a good thing, because it prevents you from overspending and it prevents overdraft charges from being applied. Banks were making a huge profit on overdraft charges. They have pulled every marketing trick in the book to ensure that the majority of their customers opt-in to overdraft plans by putting big WARNING notices in e-mails and on the customer log-in pages of bank websites implying that you MUST ACT NOW. Actually, you don’t have to do anything, and you will not be exposed to the risk of overdrafts and the associated fees.

Many people have opted in to overdraft “protection” despite having to pay as much as $35 per overdraft. Let’s say you do not realize your account has insufficient funds and you are out shopping. It is very easy to accumulate 3 or 4 overdrafts and have $100+ in fees, putting you even further into the red.

Tips for Avoiding Overdrafts

Use a Line of Credit

Similar to overdraft protection, a line of credit means a bank will give you a loan to cover purchases that you make should you overdraw your checking account.  Instead of  that $35 per overdraft, the bank will just charge you interest on the money borrowed.  This is nominal. You might also pay a fee for using a line of credit, but it will be lower than paying any overdraft charges.
Bank line of credits run anywhere from $500 to $2,000, with $500 being more typical. Be aware that getting a line of credit involves a credit check, and if you have a low credit rating, you may not have access to this option

Keep a Cushion in your Checking Account

Just pretend that the last $200 in your checking account is not there, and this will create a cushion should you miscalculate your deposits and withdrawals. You won’t pay any fees for dipping into this cushion, and if you have bed credit, you won’t have to worry about the credit check hurdle.
Of course, it isn’t easy for everyone to keep extra money in their account. It takes discipline to know that the money isn’t really there to spend but just to cover yourself.  As long as you do not “overdraw” your account by more than the amount that is your backup funds, you won’t have to worry about overdraft fees. Keep in mind that if you do spend it, you will need to replace it to continue having the benefit of the cushion.

Connect Your Savings Account to Your Checking Account

A lot of banks will connect a savings account to a client’s own checking account. In this way, your bank will automatically transfer funds from savings into checking to cover any overdrafts. They usually do this in $50 increments. Some will not charge a fee if you keep a certain balance in savings, say $1,000. Others might charge you a $50 annual fee for the service. It might be worth it to you to pay an annual fee to know you won’t be exposed to the possibility of far higher overdraft fees throughout the year. You can also on your own initiative move money out of savings into checking to prevent the automatic transfer from kicking in. Nowadays it is particularly easy to transfer funds between accounts online.

NPR today featured a story out of the UK on the fact that more people stay loyal to their bank (an average of 16 years) than their marriage. I don’t know if this stat holds true for the United States but I suspect it does.Consumers in general are very brand loyal. The idea is that if you can get a consumer to stick with your brand early on he or she will stay with you for years and years, until you give them a reason to stray, or something more compelling comes along. What would be more compelling than their favorite brand? New technology? Buzz? A feature people realize they simply must have.

In college I was handed a box of personal grooming freebies that included Mennen Speed Stick deodorant, a Trac II razor, and Edge shaving cream. Guess what? I still use all three brands. I finally switched to the five blade razor models just this year when I forgot my razor on a business trip. Still, I agonized in the aisle of CVS studying the razors until I finally took the plunge.

Why do people stick with their bank for so long? Here are the top five reasons people stick with a brand according to another study in the UK by a marketing firm.

1. Consistently high quality products
2. Helpful, knowledgeable staff
3. Easy to contact the company
4. Every aspect of the brand experience is enjoyable
5. Customers are recognized and valued when they call customer support

So, credit card and prepaid debit card companies should pay attention to what their customers want, and they can extend loyalty years out. Perhaps couples could learn from banks and work on being “helpful” and “easy to talk to.”

Among the many affects of the law is a cap on “swipe fees.” These are the interchange rates that merchants must pay the banks that manage the electronic payment networks for credit card and debit card transactions. For years gas stations and most retail merchants complained, rightly so, that the swipe fees were too high and that they kept rising, with no end in sight.

Illinois Senator Dick Durbin added an amendment to the financial overhaul legislation which directs the Federal Reserve to issue rules to ensure that debit card swipe fees are reasonable and proportional to the processing costs incurred. Right now Visa and MasterCard charge debit swipe fees of around 1 percent to 2 percent of the transaction amount — among the highest rates in the industrialized world. The Durbin Amendment, as it became known as, did not address credit card swipe fees, which are higher than debit card swipe fees and will likely remain so.

The new law also prevents card processing networks from forcing transactions to be run on only one card network. By giving merchants the option to run on more than one network, the hope is that competition will keep interchange rates down. Merchants can now also decline to allow a consumer to use a credit card for small transactions (say less than $10) where the interchange fee would represent too great a percentage of the overall purchase. This means that stores and gas stations can offer discounts to buyers who use cash or a debit card over a credit card, or conversely charge a fee to credit card holders to cover their higher swipe fee costs.

So, the bottom line is that lower swipe fees are good for the consumer. Banks, however, lobbied hard but failed to protect the fat profits they have made by continually raising interchange fees to merchants.

Wal Mart could revolutionize banking the same way they did retailing, as a low-price leader. This has banks scrambling to prevent Wal Mart from becoming a full fledged bank. However, Wal Mart has already opened hundreds of Money Centers with store locations where customers can cash checks and receive money orders. Wal Mart, not surprisingly, has undercut its competition with lower fees for these services.  The corporation recently announced plans to open another 400 Money Centers in the coming months.  Recently, Wal Mart also purchased a minority stake in Greendot, provider of Greendot MoneyPaks as a way to reload prepaid cards.

Wal Mart is currently prevented from offering checking accounts. But it recently made some technical moves that could potentially allow it to make loans and accept savings deposits.

According to an MSN Money article, the potential benefits of Wal Mart’s competition against banks and check cashing businesses include:

But imagine for a moment if the world’s biggest retailer put the pricing squeeze on one of the world’s more profitable businesses: financial services. Who would pay the price? Perhaps:

• Mortgage lenders who surprise their borrowers with last-minute junk fees.
• Banks that nickel and dime their small account holders to death.
• Auto lenders who add discriminatory surcharges on loans to black and Hispanic buyers.
• Credit card companies that use every excuse to jack up rates.

Check cashers and payday lenders that levy usurious charges on their customers.

More than one in four consumers had a debit or credit card replaced in 2009 due to security issues, according to a research firm that tracks the financial services industry. The reasons vary from lost cards that had to be replaced to security concerns. According to the research firm Javelin Strategy, a large number of those had more than one card replaced or a card reissued more than once. Javelin conservatively estimates that the cost to financial institutions to reissue cards was $252 million in 2009.

Among the research findings:

• More than one in four of all U.S. consumers have received a data breach notification.

• New accounts fraud – which is the most difficult to detect – accounts for a large percentage of the growth in identity fraud over the past two years.

• Consumers often either no longer use a card or use it less after it is reissued.

• Banks are viewed less favorably by 38% of consumers after they receive a breach notification.

Changes in the law in the majority of states, as well as a new rule that went into effect June 1st, mean that banks and other financial institutions must do more to identify and detect “red flags” that signal possible identity theft. Yet the study found that these notifications are not appropriately spurring consumers to action. If you have been notified by your bank that there has been a security breach on your account, you are nearly five times more likely to experience fraud than consumers who have not been contacted about such breaches, according to Javelin.  The report costs $1,200 but you can read a press release about it here.

For the unbanked who want to get a checking account, it can be a challenge finding a banking education training program that can sometimes be a prerequisite for obtaining a “second chance checking account.” One such program, the Get Checking Program sponsored by the parent company of ChexSystems ended January 1, 2009.

Fidelity National Information Services Inc, a Jacksonville-based provider of financial services to banks and other lending institutions, apparently did not wish to keep the program going, even though it helped people who were on the ChexSystems list obtain a checking account after some training on how to avoid the problems that got them on the ChexSystems list in the first place.

A new nonprofit program, CheckingNetwork USA, would seem to hold promise as alternative, but 1 1/2 years after the demise of “Get Checking” little information is available to potential users. According to the group’s Facebook page, CheckingNetwork USA is a “…financial education, certification and checking account access program designed to help individuals without a banking relationship gain financial knowledge and access to mainstream financial products and services.” But the group only has 24 fans. and the page was last updated several months ago.

Some banks that offer “second chance checking” accounts offer financial education workshops. Similarly, some community colleges offer classes on financial literacy or education on how to maintain bank accounts in good standing and organize household finances.

Of course, many people who have trouble getting a checking account turn to prepaid debit cards as an attractive alternative.

ChexSystems, Inc. is a subsidiary of Fidelity National Information Services, Inc., a publicly traded company (traded on the NY Stock Exchange under the symbol FIS). You won’t find much information about ChexSystems, however, on the FIS website, no doubt because they don’t want to be contacted by angry consumers. ChexSystems was incorporated in 1985 and is based in Woodbury, Minnesota with the aim of helping financial institutions identify applicants whose bank accounts have been “closed for cause” such as insufficient funds or bad check writing and who may pose a risk for fraud or account abuse. It does this by keeping consumer records from participating financial institutions. To be sure, the service it provides does help banks avoid fraud and remain profitable. But it also makes it difficult for many people who have lost checking accounts be able to get a new account with another bank.

As a consumer credit reporting agency (CRA), Chex Systems must adhere to the Fair Credit Reporting Act (FCRA), enforced by the Federal Trade Commission.

According to the FDIC 87% of banks use ChexSystems to screen people before opening new accounts. Be cautious about the various websites that promote lists of banks that don’t use ChexSystems. In addition to charging you money for the list, often these lists are out of date, inaccurate, or woefully incomplete. In addition, banks may simply be using a competing list like Telescan or Telecheck.

Under Federal law, you have a right to know what is in your file from any CRA including Chex Systems. Simply submit a request in writing and the company will have to send you your file. You can order your report for free directly from Chex Systems. If you let the company know that a bank has denied you an account within the past 60 days because fo the ChexSystems list, you should be able to get your report for free. The standard fee is $8 for the report.

Flickr image by Get Down

New Federal Reserve rules take effect July 1^st to give consumers more protection against bank overdraft fees on debit cards. Up until now, many banks automatically offered overdraft “protection” for debit cardholders. That meant that if a debit cardholder had insufficient funds in his or her account to cover a purchase or ATM withdrawal, the bank would allow the transaction to go through, but then could charge an overdraft fee. A study of 462 banks by the Federal Deposit Insurance Corp. showed that overdraft fees range from $10 to $38, with a median average of $27.

Overdraft fees on debit cards generated more than $20 billion for banks in 2009, according to the New York Times. Banks earned another $12 billion overdrafts caused by check writing, which this law does not address.

A study by the Greenlining Institute, a think tank focused on multiethnic public policy, indicates that bank overdraft fees hit low-income consumers and people of color the hardest. That’s because people new to banking and/or with low incomes tend to maintain low bank balances. These are the very bank customers who can least afford to bear the burden of extra fees.

Under the new law, consumers must opt-in for overdraft protection on debit cards. Without it, a debit card transaction would simply be declined at the point of sale if there were not enough funds in the account to cover a purchase. For transactions that did go through and the bank would have to cover the overdraft without charging a fee. To protect their lucrative revenue stream, banks are beginning to send out alarming marketing messages urging debit card holders to opt into an overdraft service or risk not having to make payments “even in an emergency” that result in overdrawn accounts.

Overdraft Charges: Banks Game the System

The Greenlining Institute report also points out that many banks have gamed the system to maximize the fees they can collect by “reordering” purchases in a given day to count the most expensive one first. This way, they raise the chance that each additional purchase can count as an overdraft if the highest purchase of the day wipes out your account balance. For example, let’s say you have $100 in your account. You use your card to buy lunch for $10, you fill up your card for $30, you buy clothes for $50, and then you pay a bill for $60. If the bank processed these transactions in the order that they were made, only the last charge would be counted as an overdraft. But by processing the $60 and $50 transactions first, the bank then counts the $10 and $30 transactions as overdrafts and charges you two overdraft fees instead of one.

The Institute concluded that despite changes in the law, overdraft fees are still too high and continue to affect low income consumers disproportionately. With widely varying policies among banks, and hard to follow fee structures, consumer continue to be at risk for being hit with unexpected and costly charges.

Few Prepaid Debit Cards Allow Overdrafts

Because prepaid cards are not tied to a checking account, prepaid card issuers are not inclined to allow overdrafts or collect overdraft fees. This is because cardholders could potentially make a purchases with insufficient funds on a card and then fail to load money onto the card to cover the overdraft. Thus, when an attempted purchase is greater than the amount of funds available on the card, the transaction will simply be declined. This is largely seen as a benefit by prepaid cardholders. Prepaid cards are a positive alternative for consumers who have been denied checking and have trouble obtaining a credit card or other kind of debit card.

About MiCash and the MiCash Prepaid MasterCard

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