The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

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The name “Wal-Mart” has become somewhat of a lightning rod for those who value buying local and supporting small business and labor rights. Recently Wal-Mart has entered into an even more contentious business—the banking industry—and the lightening has increased.

As reported in a previous blog, Wal-Mart, along with other large retailers, has jumped on the bandwagon to provide financial services. Wal-Mart’s new MoneyCenters offer a variety of products, such as its prepaid  MoneyCard. Customers like Wal-Mart’s late hours, as well as the MoneyCard’s  flat $3 monthly operating fee and no overdraft fees. As one Wal-Mart executive put it, Wal-Mart has been building à la carte financial services, becoming a force among the unbanked and “unhappily banked.” The MoneyCard acts just like a credit card, except that it is prepaid, and can be used to purchase goods and services. Wal-Mart’s MoneyCenters also provide services such as check cashing, international money transfers, direct deposit, and bill paying all at a competitive rate.

In July 2005, Wal-Mart submitted an application for a bank charter with the Federal Deposit Insurance Corporation (FDIC). Subsequently, the FDIC received over 1,500 letters about the application, with the majority of respondents vehemently opposing Wal-Mart's foray into banking. Ultimately Wal-Mart withdrew its request for a bank charter in early 2007 after a great deal of opposition from banks and legislators, including Rep. Barney Frank (D-MA) who introduced a bill aimed at preventing nonfinancial commercial institutions, more specifically big box stores, from operating banks.

Wal-Mart’s financial products aren’t without faults. Customers may not realize that they may need a Social Security number to apply for the card, thereby excluding immigrant populations who rely on other forms of identification such as Matricula Consular Cards or ITINs. Matricula Consular cards are photo identification cards issued by Mexican consulates to Mexican nationals living outside the county. Individual Taxpayer Identification Numbers, or ITINs, are issued to foreign nationals by the Internal Revenue Service as a tax processing number and can also be used as a valid form of identification at some banks. For more information on ITINs, check out the upcoming issue of the Clearinghouse Review.

The MoneyCard also has hidden fees, aside from the $3 monthly rate, such as charges for balance inquiries and ATM withdrawals and other fees that are not clearly stated. These are the same types of fees and transparency issues that caused people to flee from banks in the first place. Moreover, prepaid products, such as the MoneyCard, act as electronic cash. Therefore they do not build credit, nor do they help people save or build assets. Additionally, prepaid cards, unlike credit cards, are not covered by Regulation E of the Electronic Funds Transfer Act (EFTA) and therefore often do not have the same protections as debit or credit cards, such as:

• a cap on losses when cards are lost or stolen or when unauthorized charges are made;
• assurances that missing money will promptly be re-credited; or
• clear and conspicuous disclosures of all fees before signing up.

Wal-Mart is not the only one trying to cash in on the 30 million Americans who remain unbanked or underbanked. Target recently entered the field with an American Express prepaid card, and Kmart and BestBuy have their own Visa and Mastercard prepaid cards. Target’s prepaid AmEx card has fees similar to Wal-Mart’s MoneyCard, such as a $3 fee to load money onto the card, and a $3 fee per ATM withdrawal after the first free ATM withdrawal per month. Target’s card does not, however, have a monthly fee. Thus far, Wal-Mart has the lowest monthly fee and the lowest activation fee of such retailer cards. After all, Wal-Mart’s slogan is “saving money, living better.”

While these prepaid cards may provide an easy way for people to begin accessing financial services, they do not help customers save for the future or build credit, because they are not linked to either bank or savings accounts. Instead, programs such as BankOn, which promote real savings and responsible financial education, are ultimately better options. Bank On programs are voluntary, public/private partnerships between local or state governments, financial institutions, and community-based organizations that provide low-income un- and underbanked people with free or low-cost starter or “second chance” bank accounts and access to financial education. This innovative program, which began in San Francisco, California, has spread to cities and states across the country that want to help reduce barriers to banking, such as allowing ITIN numbers to be used to open accounts, and increasing access to the financial mainstream for consumers.

Although prepaid cards like the Wal-Mart MoneyCard may, in some cases, be a good first step (assuming that fees are both reasonable and clearly disclosed), they do not encourage the same saving mentality that opening a BankOn account does. Until such a mental shift occurs, the 30 million un/underbanked Americans will still be economically disenfranchised.   

This blog post was coauthored by Alison Terkel.