FTC shuts down prepaid debit card vendors with hidden fees

Photo courtesy of Big Dubya at Flickr

We keep getting warned that it's dangerous to give out too much personal information on the Internet. In this instance -- semi-legitimate financial companies, supported by annoying pop-up ads and Internet advertising -- have been caught deducting a $159.95 (hidden fee) out of people's checking accounts that were unfortunate enough to apply for their product.

Fortunately, the FTC has stepped in and shut down the prepaid debit card operations of these so-called legitimate financial services operators.

According to a complaint filed by the FTC, the defendants market bank-issued, Visa- and MasterCard-branded stored-value (prepaid) cards under a variety of names through Web sites and pop-up and e-mail advertisements that direct consumers to Web sites for the individual cards. These include Acclaim Visa, Impact Visa, Sterling Visa, VIP Advantage Visa, Vue Visa, Elite Plus MasterCard, Impact MasterCard, Secure Deposit MasterCard, VIP MasterCard, and Vue MasterCard. The defendants also market unrelated short-term loans on Web sites such as http://www.superautosource.com/, http://www.supercashsource.com/, and http://www.fastcashusa.com/.

The complaint alleges that, through their prepaid card programs, the defendants debited, without authorization, a $159.95 “application and processing” fee from consumers’ bank accounts, including from consumers who either had no contact with the defendants or had applied for an unrelated short-term loan. Consumers who visited the defendants’ prepaid card Web sites were instructed to provide personally identifiable information, including their bank account information, to apply for a card. The defendants allegedly also made deceptive claims on their Web sites, such as “No Annual Fees” and “No Security Deposit,” without disclosing clearly and prominently that they would use the consumers’ personal information to debit the $159.95 fee. Consumers usually discovered the unauthorized debits when they reviewed their bank account statements or when banks notified them of penalty fees or overdraft charges due to insufficient funds.

Let's see a $159.95 upfront fee for a card that you finance yourself. Since it's obvious that the people bilked out of this fee had a bank account, I'm guessing they could get a lot better deal at the bank they do business with, or just about anywhere else!

While credit cards are technically a different animal, there has been a lot of public outcry for them to stop some of their practices in regards to hidden fees. You can learn more about this at the Consumers Union, here.

I did a post on their campaign to make some of these hidden fees more reasonable for both merchants and consumers:

Congress needs to take a hard look at credit practices

FTC release, here.

You can report deceptive practices, or outright fraud to the FTC, here.