Pre-paid Debit Card Fees Soak Low-income Users

I recently got a new cell phone, and after I sent in several pages of documentation, my rebate was mailed in the form of a pre-paid debit card. These financial products and their close cousins pre-paid gift cards are becoming ubiquitous. Gift cards can be purchased at the grocery store and many other places. Pre-paid debit cards are particularly popular with low-income consumers who are unable to open a conventional bank account or get a credit card. But as this New York Times article suggests there are many hidden fees and deductions that make this a very expensive form of banking. Recent credit card reforms passed since Barack Obama became President did not touch the pre-paid debit card market.

It is particularly concerning that some employers—including WalMart—have begun paying employees with prepaid debit cards. This policy must be a boon to the credit card companies, but it is no bargain for the employees.

Bankruptcies Top A Million

The 2005 bankruptcy reform bill had a strong impact when it was first implemented, knocking down the rate of personal bankruptcies in the US to approximately a third of what it had been, but the basic problems of consumerism and easy credit where not touched by the bill. As a result, it was just a matter of time before rates would climb back up, and they have--quite steadily since the introduction of the bill.

Now with the added impact of unemployment and the economic decline, rates have taken off again. As the October 2nd Wall Street Journal article below indicates, we had over a million personal bankruptcies in the first nine months of 2009. A rate that is very close to that just prior to the 2005 bill and one that will likely bring us to 1.4 million bankruptcies by the end of this year.

In addition, the bankruptcy statistics always underestimate the pain by approximately 25 percent. On average, approximately a third of all personal bankruptcies are married couples filing together.

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Personal Bankruptcy Filings Soar
By SARA MURRAY

Consumer bankruptcies topped one million for the first nine months of this year, the highest point since the system was overhauled in 2005.

The number of personal bankruptcy filings for the nine months rose to 1,046,449 as of Sept. 30, the American Bankruptcy Institute, an organization made up of attorneys, accountants and other bankruptcy professionals, said Friday, using data from the National Bankruptcy Research Center. There were 773,810 personal bankruptcy filings for the same time period in 2008.

September's filings reached 124,790, 41% higher than the same month last year.

The 2005 revamp was intended to make it harder for Americans to shed their debts by filing for bankruptcy. In that year, before the law took effect, there were 1.35 million bankruptcy filings in the first nine months.

But a tough economic climate has sent filings soaring again and ABI expects personal bankruptcies to exceed 1.4 million by the end of the year. "Bankruptcy filings continue to climb as consumers look to shelter themselves from the effects of rising unemployment rates and housing debt," the institute's Executive Director Samuel J. Gerdano said.

Write to Sara Murray at sara.murray@wsj.com