The National Council of La Raza has released a new study which offers some interesting insights into the use of prepaid debit cards by low-income Latinos. La Raza conducted a survey of 279 Latino tax filers at VITA sites in five cities in April 2010.
- Top reason to get a prepaid card: "It seemed convenient."
- Best place to buy a prepaid card: Wal-Mart
- Top reasons to use a prepaid card: Pay bills, shop online, buy basic household items, or save money for an
These answers support what I believe presents a big challenge to the process of designing an effective disclosure. There is rarely much choice at a retail store. If one finding is that the best place to buy a card is at Wal-Mart, then we should realize that the choice for a large number people is going to be between the Green Dot Card and the Wal-Mart Money Card. Moreover, if the most common reason to buy a card is for convenience, than it is fairly certain that these folks are unlikely do much research before they buy their card.
The reason that this should inform disclosures is because it reframes how we model consumer decision-making. This shows that consumers are less likely to ask "what is the best prepaid card," and more likely to be "of these two cards, which is better for me?"
This means that a disclosure form should probably tell us more than just a list of fees or even an estimate of a likely overall cost. If a disclosure merely lists the fees or costs of one card, then the consumer is going to pick the better of two cards. However, it is possible that they will end up with the better of two bad cards. I am not inferring that the products at Wal-Mart are bad cards - indeed, they are probably among the best of the national "large-participant" offerings.
Contracts are already in place between card companies (issuers and program managers) and retailers to reserve an exclusive or near-exclusive presence in a store. Green Dot has a contract with Walgreen's. If you go into a Walgreen's, your choice is limited to the NASCAR Green Dot or a regular Green Dot card. The NASCAR card costs more to buy.
The answer is to create a way to disclose that puts the cost of a given card in the context of the offerings available across the entire marketplace. In this approach, the consumer sees that XYZ prepaid card costs roughly $XX dollars per month and that this $XX amount is somewhat less expensive than most other cards.
The EPA's Energy Guide label tells you more than just a likely cost - it tells you how costly this appliance will be relative to its competition.
If you own a home, you have probably purchased an appliance with an EPA EnergyGuide label. Water heaters, dishwashers, and ranges all carry the labels. The first thing I look at when I see this label is the horizontal box. Right away, I can tell if this is an energy-efficient product. I know that it is unlikely that their estimated cost will square with the actual expense that I realize. Even knowing that there is certain to be some error, my decision has been made with more information.
It may be inadvertent, but the La Raza study gives us the clues that tell us a better way to make prepaid card disclosures. This is important now, because the CFPB is going to begin to focus on prepaid. The CFPB is hosting a field hearing on prepaid next week. I will be sure to mention the value of relative cost estimates during my discussion in the panel hearing.