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New Government Crackdown on Credit Cards Won't Help Debit Card Fees

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New York, NYIn May Congress passed new legislation that comes into effect this weekend, aimed at ending unfair rate increases and hidden fees associated with prepaid debit cards. "It's still going to be important to watch your statement as closely as possible," says Joe Ridout, spokesman for Consumer Action, an advocacy group, in comments published in the 2/14/10 edition of the Oregonian. But "there will be changes."

Already popular among consumers with little or no credit history, prepaid debit card use is more widespread than ever. Reporter Andrew Martin, representing a joint New York Times / PBS "Frontline" investigation, said that prepaid debit cards such as the Green Dot Visa is among "the fastest-growing bank products out there today."

"Every year we've seen big growth," said Steve Streit, the founder of Green Dot, now one of the largest reloadable prepaid card companies. Back in October he had predicted that "we are just at the entry ramp to growth right now."

Green Dot announced on February 13 that it has applied for approval from the Federal Reserve Bank of San Francisco to acquire 100 percent of Bonneville Bancorp. The purchase price was not disclosed.

Consumers hit with hidden fees

The New York Times / "Frontline" investigation found last October that prepaid debit cards come with myriad fees and charges that consumers don't know about until after their money starts disappearing from the card.

Tyrell Blocker told reporter Andrew Martin that he was attracted to the Pay-O-Matic pre-paid debit card because "you could pay bills from home, shop online by phone, use direct deposit, they're re-loadable…you can reload them at any Pay-O-Matic—they don't say nuthin' about fees."

"Sounds pretty good, doesn't it?" offered Martin.

"It sounds GREAT," said Blocker. "That's why I got it. It sounds too good. That's why they got me. What I seen today is that the direct deposit just started, and they've already taken extra money from me."

When he went to personally investigate, Blocker had a hard time finding the fees posted in the Pay-O-Matic stores until he finally asked for the list. It was only after he complained to a Pay-O-Matic representative that he was given a pamphlet with "a laundry list of fees."

Martin also interviewed Brian Hodgdon, Vice President of Pay-O-Matic. "It appears much more complicated than it really is," said Hodgdon. "The [perception] of our industry trying to take advantage of customers and milk as many fees from them as possible is not the case. We operate on very small margins and we're happy to do that and make it up in volume."

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