Prepaid cards case study. The importance of reading the fine prints.

It was announced on November 29, that the Kardashian Kard program is going to be canceled. That by itself may not be interesting as it had only been used by several hundreds of customers in the short time of its existence, but it’s a symptom worth looking at more closely. The problem is, as usual, the fees.

I’ve written several posts already on this topic (for example, here, and here). I’ve also wrote a post about how small fees can accumulate to tens of millions of dollars.

But this case is slightly different. Kardashian Kard is a prepaid credit card based on the brand developed by the Kardashian sisters, very popular amongst the youth. As it is usually with the youth, everything connected to the current idols is a “must have”. Calendars, posters, DVD’s, toys and games? You’re so last millennium.

It’s credit cards now.

So, the sisters created their own credit card. The credit is provided by the parents (probably…) as it is a prepaid card, but the brand owners want to have their share as well. So they charge fees. Knowing that the kids are not the most sophisticated clients, and that the pressure to get the card will be based on “But everyone else has it” claim, and not financial reasoning, the decided to charge the most obscure and ridiculous fees. For example, it costs almost a hundred dollars a year to just have the card itself, and using it will cost more: $1 for money refills, $2 for bill pays, etc. Things that are free everywhere else.

So there was some public outrage, legal allegations, and overall instead of profits, the card brought a lot of bad publicity to the brand (and less than 300 customers). The project was closed, and the card canceled. Consumers won this one.

But what do we learn from that?

Prepaid debit cards are expensive. The issuers don’t provide any credit, and don’t assume any risk, but they charge fees much higher for a service that credit cards and bank-issued debit cards provide for free. I looked in the neighborhood supermarket at the prepaid debit cards stand. Just the activation fees range between 2% to 10% of the cost! Some cards charge monthly fees (for letting you use your own money!), and some expire quickly (and once expired – the money on the card can no longer be accessed).

Why would you use it? Why prepaid card is better than obtaining a debit card from your bank, entirely for free? Some banks even allow putting custom images for free on the cards, so if you want your favorite actor or singer to look at you every time you buy their CD or DVD – you can do it for a small fee, or free, depends on your bank. Why would you pay almost $100 a year for that? Beats me.

So the point is – pay attention to the fine print. It can be very expensive. Even if your children really really want it, sometimes you might want to educate them about financial responsibility instead.

Your Little Advisor.

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