The now-defunct Kardashian Kard might have put the prepaid debit card industry in a bad position in the few weeks it was available.
The charge for the card was $59.95 for six months or $99.95 for a year, and the price included the card’s $7.95 monthly fee and an initial load fee of $5. Though the card’s monthly fee structure was somewhat similar to other offerings, the initial fee caused sticker shock among many watching the industry (see story).
It remains unclear whether the product will have a long-lasting effect on the industry. But its fee structure could force other providers to rethink their own pricing policies or provoke Congress to take action on prepaid fees, observers say.
Some prepaid providers already have started to adjust their card pricing. On Jan. 5, for example, UniRush LLC announced it was enabling its cardholders to choose a fee structure that best fit their monthly spending habits.
Under its previous fee structure, the Visa-branded RushCard and Baby Phat cards came with a $19.95 purchase price that was restricted to a pay-as-you-go plan. That plan also included a $1 fee for each transaction capped at $10 per month and a $1.95 ATM withdrawal fee.
The company’s Diamond card had a $3 purchase price and a flat $3.95 monthly fee, and cardholders could conduct free signature-based purchases and two free ATM withdrawals per month. Those options were not available with the other cards
Under the new fee structure, holders of UniRush’s cards pay monthly fees ranging from $3.95 to $14.95, depending on which plan they choose for all three cards. UniRush representatives did not return calls seeking an explanation of the company’s card-policy changes. But the policy language on RushCard’s website indicates UniRush eliminated the earlier restrictions. The monthly plan only was available with the Diamond card. All other fees in the pay-as-you-go plan and the monthly flat-fee plan remain the same.
UniRush’s new fee structure “is probably a way of setting up a defense mechanism to say their cards are not like the Kardashian Kard” and lack such high fees, says Ben Jackson, senior analyst at Mercator Advisory Group.
“The question of whether this is simply a cosmetic change or a real change in their pricing will depend on whether the cardholders will actually take advantage of this,” he adds.
Hip-hop music and fashion mogul Russell Simmons founded UniRush in 2003 and launched the RushCard line to benefit the underbanked and unbanked community. Simmons last year sent a letter to Sen. Richard Durbin, D-Ill., opposing his interchange amendment tied to the Dodd-Frank Act, arguing the bill would severely affect unbanked and underbanked consumers that use general-purpose reloadable prepaid debit cards (see story). The cards are exempt from the new law.
Potential new legislation targeting reloadable prepaid card fees also could have spurred UniRush’s new fee structure, Jackson says. “You also have to wonder whether the prices are a positioning play in anticipation of having another battle on Capitol Hill over fees,” he says.
Jerry Welch, chairman and CEO of prepaid card provider nFinanSe Inc., believes the major industry players have “self-regulated” themselves in terms of fees and disclosures. He points to efforts from Wal-Mart Stores Inc., Green Dot Corp., NetSpend Holdings Inc. and his own company to drop purchase prices and reload and monthly maintenance fees to closer to $3.
“Consumers are now better educated with pricing and recognize a fair deal when they see one,” Welch says. “The consumers are going to tell you what price is acceptable” as opposed to government mandates, he adds.
Welch believes Congress will find the reloadable prepaid debit market is “doing quite well” in setting acceptable fees. “No one is complaining about the prices from the major sellers,” he says.
The Kardashian Kard, backed by reality television stars the Kardashian sisters, caused the mainstream media and politicians to cringe.
Connecticut’s attorney general, Richard Blumenthal, blasted the product, calling it “filled with gotcha fees and charges, … raising concerns about potential threats to consumers, particularly young adults,” according to a press release issued at the time (see story).
Several observers also wrote editorials lambasting the card and urged Congress to regulate fees (see Viewpoint).
Welch believes the industry is in no immediate danger, despite the negative attention the Kardashian Kard created. “I would have to believe Congress is thoughtful enough not to make a decision on one card that was purchased by 230 people,” he says.
For the prepaid card industry, “regulating the fee structure strikes me as a solution looking for a problem,” Welch adds.
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