Posts Tagged ‘debit cards’

Loan-Linked Debit Cards Sidestep College Credit Card Law

Tuesday, October 5th, 2010

The CARD Act of 2009 has barely been in place for a month, but companies are already turning a profit with a variation on the theme…

  • A company called Higher One has figured out how to make money on college students using plastic, despite recent regulations designed to keep credit card companies from preying on the under-21 population. And they’re not the only ones finding loopholes in the new regulations: PNC Bank has been encouraging schools to market PNC’s products to students on campus, since PNC is now barred from doing so itself.
  • With the cooperation of school administrators, Higher One links student loan accounts to debit cards, allowing students to spend their financial aid funds anywhere with a single swipe. The cards are accepted anywhere MasterCard is, and they’re often branded with the school’s emblem.
  • Though participating colleges say the card program makes accessing financial aid easier for students, many students are not convinced. The cards come with all sorts of fees, and the way the program is pushed by schools makes it look suspicious. Some schools use the cards as substitutes for student IDs, requiring everyone on campus to have one even if they don’t have a HigherOne account.

Facts & Figures

  • The penalty for not using your Higher One debit card for 9 months is $19 per month.
  • Other fees include $2.50 for ATM transactions with other banks and $0.50 per transaction made as “debit” (entering a PIN) rather than “credit” (signing a receipt).
  • 675 colleges in the U.S. participate in Higher One’s debit card program.
  • Higher One’s sales in the 3rd quarter of 2010 were $27 million.

“The [Higher One] Refund Card mailing may look like an unwanted credit card offer. PLEASE DO NOT DISCARD IT.” – From the website of the University of Maryland at Baltimore

A Different Kind Of Credit Crunch

Friday, October 9th, 2009

Pay now or pay later? In a bad economy, more consumers are choosing to feel the effects of their spending right away.

  • In a significant shift in credit-happy American spending habits, people are beginning to use their debit cards more than their credit cards to pay for purchases.
  • The recession has most consumers trying to curb their spending, which the immediate monetary loss of a debit card transaction can make easier. People are also shopping less for the big-ticket items that are usually paid for with credit, but they continue to use debit for everyday purchases such as groceries.
  • The drop in credit card transactions may also have something to do with recent legislation, which had the effect of credit card companies lowering limits and raising fees – and making themselves less attractive to the struggling shopper.

Facts & Figures

  • According to the Federal Reserve, total revolving credit went down $6.1 billion in July.
  • Both Visa and Mastercard saw debit card transactions increase and credit transactions decrease in the first part of 2009.
  • In the past 15 years, debit card transactions have grown to represent more than 50% of all non-cash transactions.

Best Quote

“People are managing their money in a different way. You clearly have a situation where those people who have jobs are exhibiting recession anxiety and they are making more debit transactions.” – David Robertson, the Nilson Report (which tracks credit card industry)

A Debit Card is…

Thursday, October 8th, 2009

A debit card (a.k.a. bank card) is a plastic substitute for cash. It’s linked to your bank account and when you use it to buy something, the money is immediately taken out of that account.

What is the difference between a debit card, a credit card, and a charge card?

Thursday, April 9th, 2009

All three cards allow you to make purchases without handling any cash, but each has its benefits and drawbacks.

A debit card is linked to your bank account and when you use it to buy something, the money is immediately taken out of that account. This is a good option if you want to make sure you’re only spending money you have, as the card will generally be declined if you don’t have enough money in your bank account to cover the purchase. But using a debit card won’t help you build your credit history.

A credit card is like a short-term loan. It is not linked to any bank accounts. Instead, the a credit card company covers the cost of your purchase today (up to a certain amount per month) with the understanding that you will pay them back later. You don’t have to pay it all back right away, but you do have to make a minimum payment every month. If you don’t pay in full, your remaining balance plus interest (called APR) will appear on next month’s bill. Using a credit card responsibly can be a great way to build a good credit history, but consistently missing payments or carrying a balance from month to month will do the opposite.

A charge card isn’t a loan and it isn’t linked to a bank account. This type of card covers the cost of your purchases today with the understanding that you will pay back what you owe at the end of every month. Unlike credit cards, charge cards do not have a pre-set spending limit.  If you do not pay off the full balance at the end of the month you will be hit with high fees or possibly a spending cap. Charge cards are good for people who want unlimited spending and can afford to pay off their balance each month. However, unlike credit cards, charge cards cannot help you build a good credit history.

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