I Believe I Understand the Emerald Advance Card from Block

No kidding.  I spent about 40 minutes on the phone this morning, and I think I understand it.  Last night I spent about 40 minutes learning how to apply a buffer around a vector, then create a new layer, in order to analyze geospatial data.  The Block Emerald Advance is roughly as difficult.

My review of this card is that affords a low-cost line of credit, when evaluated from a long-term perspective. At the same time, it is hard to spend your money.  This account is best for someone who wants to establish a line of credit and then make minimal payments to it over time, without actually spending any money. There are people who would gain utility from such an account. Anyone who wants to embark on an effort to restore their credit would be able to find a satisfactory option, given the alternatives, through the Emerald Advance.  At the same time, the account has a complex fee structure. If you are late on your payments, you will incur a lot of additional fees. Its an account that you want to maintain in good standing.

The card’s structure is actually split into three different elements. There is a line of credit, a spending account (the “Spend”, and a savings account. The savings account pays interest, and the line of credit costs interest.

Consumers can open the account with an initial deposit. The account opening fee is $45. That fee is characterized as an “annual fee,” so it would be freshened after 12 months.  Consumers can have a secured line of credit of up to $300. In some instances, consumers can also get an unsecured line of credit of up to $1000.  The interest rate on outstanding principal is low: just 9/100ths of one percent per day.

Our hypothetical consumer paid a $45 fee to open their $300 account, so their outstanding balance is $255.  Monthly interest is going to be $3.44. Compare that to the Jackson Hewitt i-advance card, where a similar balance would cost $32.50. (three hundred, divided by $20 increments, each increment and portion of additional increment costs $2.50 per month.)

Spending your money is more complicated. Were a customer to decide that they wanted to buy something with their card, then they would first have to transfer funds on their existing line of credit into the Spend. There is a 10 percent fee to move your money. That $300 account, drawn down to $255, translates into $229.50 of buying power.

The minimum payment on outstanding balances is 4 percent of the balance, or $40 – whichever is greater.  Going back to our consumer with a $255 line of credit, we can see that a minimum payment of $40 will clear $36.56 off the balance.  The rest goes to interest.

If a person is late with their payment, the fees come hard and fast. Immediately, the line of credit account is dinged for $45. Block then charges a late payment fee of $7.50.  After 15 days, the account gets another $7.50.  Block says that it won’t charge more than 3 late payment fees. Meanwhile, of course, the account holder is still getting interest.

If the payment due has still not been satisfied at the end of 30 days, then the account is dinged for $45 again. After 3 months, the account is reclassified as “B-9″ (could have that slightly wrong) and put into collections.

The account encourages people to transfer money through direct deposit.  This makes a difference with new payments. Any late account that receives a direct deposit payment sees that money go to pay down late balances first. Late payments can also be satisfied by existing funds on a Spend account.

The Emerald Advance program is closed for new business from January 15h to February 15th, while Block focuses on funding its tax programs. There is a virtue in that blackout period. It means that many of the low-income households that come for tax prep services are not going to be drawn into these accounts. It means that Earned Income Tax Credit (and American Opportunity/Hope Credits) are not going to be drawn down through Spend fees.

Block is right to say that this account can be cheaper than a payday lending fee.  It is definitely less than the Jackson Hewitt i-advance card.