Bancorp Bank: Where Banking Comes without Rewards

I continue to find evidence that there is a fundamental shift going on in how low-income consumers access the payments system.  Earlier, I wrote at length about MetaBank and their prepaid debit card/line of credit platform developed in conjunction with NetSpend. I made some headway learning about the Emerald Advance and the Emerald Advance line of credit, both from Block.

Later, I made mention of the RushCard – a similiar product issued with funds from Bancorp Bank and M&T Bank.

Today, I see that Bancorp Bank (TBBK) has struck again.  Let’s look at their Eufora Card.  Eufora aims at the segment of the population with poor credit or no credit.

All of these cards have high fees. One of the hard problems is that there are no agreed-upon costs. Each card seems to invent its own set of fees.  Eufora’s fees include:

• $6.65 monthly fee
• $29.95 annual fee
• $9.99 per month fee to get balance alerts sent to your mobile phone
• $19.95 fee to establish an account
• $1.00 to add (“load”) funds to the card
• $2 to take money out of the account at an ATM
• $1 to get a balance inquiry at an ATM
• $2 inactivity fee
• $9.95 re-activation fee
• $9.95 balance reimbursement fee
• $139.75 Credit Builder Preferred
• $219.95 Credit Builder Elite

How do you come to decide that a credit-builder product should have an elite and a preffered level of service?

The re-activation fee is my favorite.  It is possible to get dinged $2 every month for not using your card.  If you want to stop the fees, though, you have to pay a fee to re-activate.  If you don’t want to re-activate, then you still have to pay a fee to get your funds back, too!  All of this means that Bancorp is just draining the last dollars out of the accounts of their customers.  How many consumers are going to pay $9.95 to get $7 off of a card? There are laws about escheat.  Why doesn’t that apply here?

Remember that those ATM fees are only the ones charged by Eufora.  If you take your Eufora card to a Wells Fargo ATM, they are going to charge you $3 as well.

These cards are growing.  Reuters reported that by 2008,  RushCard had more than $2 billion in deposits.  Wal-Mart has $1 billion on its cards.  I don’t know how much money H&R Block has on its accounts, but they have opened more than 2.6 million Emerald Card accounts.

The potential is vast. Banks are not doing the job of serving poor households.  Overdraft fees are high and people are risk-averse.  The result is that there are more than forty million unbanked or underbanked households.These cards are getting those consumers.

Deposits on prepaid cards do not have the same protections as those afforded to traditional deposits. In the event that a bank is taken over by the FDIC, these deposits are treated differently.  Since the deposits are never held in an individual account, they cannot enjoy the same protections. They are pooled into a common account.  If the account is pooled, then the entire account is only guaranteed for $250,000.  It is hard to know if this is the case with Eufora.  Their accounts bear an FDIC symbol, but the language is not evident. I would call, but alas, there is no phone number available for Bancorp Bank.

I would hope that the bank is providing all of their account holders with FDIC insurance.  Indeed, since one of their members of their Board of Directors (Don McGraw) is a former bank examiner for the FDIC, it seems like that would be obvious.

This is a new shadow banking system. The costs are high and the consumer protections are low.