Americans fed up with big bank fees are closing their accounts and marching over to … Walmart? It’s true; the mega-retailer has been steadily growing its services for the unbanked, such as cashing checks and selling reloadable prepaid debit cards. Even detractors admit that Walmart’s money services cost less than traditional check-cashing storefronts, but is it a good idea for people to do their personal banking with a company that isn’t subject to any kind of banking oversight? More than 1,000 Walmart stores across the country now include Money Centers, where customers can do things like cash a paycheck of up to $1,000 for a flat fee of $3, buy a $3 prepaid debit card, pay bills or wire money overseas, according to the New York Times. Many of the customers interviewed by the newspaper said they were driven to Walmart’s alternative by unexpected bank fees.
The article says the purchase cost and monthly fees for the prepaid cards are about half of what other retailers charge. The $3 check-cashing fee is less than the more than one percent (and sometimes up to 5 percent!) other check-cashing businesses charge.
These responses correlate with a study conducted by the Pew Charitable Trusts, which found that the primary reason people leave mainstream banking is hidden or unexpected fees. Pew recommends that banks adopt a standard fee disclosure form, but for now, consumers are on their own. When they get nickel-and-dimed, they get frustrated and turn to outlets like Walmart.
Since Walmart isn’t technically a bank, they can’t make loans and they can’t accept FDIC-insured deposits. The lack of FDIC coverage on the funds stored on prepaid debit cards is an issue about which watchdog groups have raised concern. If a prepaid card company sets up customers’ accounts properly, they will be reimbursed if the institution goes bankrupt. But there’s virtually no way an ordinary consumer can verify this.
What’s more, if someone steals a prepaid debit card, there are no federal laws that limit the liability of the victim, which is the case if a bank-issued debit card is stolen or used fraudulently. Most prepaid companies voluntarily follow the laws on the books for banks concerning debit card fraud, but there’s nothing that legally mandates them to do so.
Competitors grouse that Walmart is pricing its services too low for them to match, and the retailer won’t say how much it earns from selling bank-like services. But as the Times article points out, Walmart has another incentive besides just profit to get customers using its Money Centers as de facto banks. When they leave the Money Center, they usually have cash in hand — but they’re still inside Walmart, so odds are good that at least some of that cash will never leave the store.