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Overdraft fees ‘inhumane,’ Green Dot founder says

Steve Streit, founder and chief executive of Green Dot Corp., is viewed by some in the financial services industry as a pioneer, building one of the nation’s largest bank holding and reloadable debit card companies.

Others view Streit, who drew up the business plan in his bedroom office in San Marino, Calif., as a passionate advocate for the unbanked and underserved communities nationwide, including Las Vegas.

“We are designed to serve the masses, many who may not make enough money to use traditional banks or credit unions,” Streit said during an interview with Oliver Wyman, a partner and co-head of the retail and banking practice at Oliver Wyman at PayThink 2015.

PayThink 2015 was held Sept. 28-Sept. 30 at The Cosmopolitan of Las Vegas. The convention included a number of panel discussions and interviews with financial services executives about the future of consumer payments, including mobile payments and prepaid.

Streit said many in the financial services industry may not realize that Green Dot is a publically traded company with five million active customers, who reload their cards 30 to 40 million times annually. He said Green Dot handles about $20 billion in deposits annually nationwide.

He said Green Dot is not alone in the prepaid card space, noting that NetSpend and American Express compete with his company.

“American Express is our largest competitor,” Streit said. “They’ve been a vicious competitor, but we have survived. We do have a niche and a brand name that means something to consumers.”

He added that American Express is not available in a lot of places, especially in low and moderate income areas. But Green Dot has remained in a good position to compete, especially after signing a new five-year agreement with Walmart.

Green Dot has worked with Walmart since 2007 when it launched the MoneyCard program. Last year, Green Dot and Walmart announced Go Bank, a mobile-first checking account that aims to serve those who are underbanked.

According to the Federal Deposit Insurance Corp., as of 2013, 9.6 million American households were unbanked. The FDIC reported that another 24.8 million were underbanked, meaning they had a bank account but also used services outside the banking system.

In Nevada, 7.9 percent of the population is unbanked, while 24.7 percent are classified as underbanked. According to the U.S. Census Bureau, Nevada’s population estimate as of Sept. 30 was 2.839 million residents.

Streit said Green Dot doesn’t charge overdraft fees. Green Dot’s fee structure, which includes a $5.95 monthly fee without a waiver and a $4.95 reload fee in stores, among others, has not changed since 2009, he said.

He said leaving fees where they are was simply about “not angering your customers,” many of whom make between $9 and $10 an hour and don’t meet the minimum requirements to open an account at their local bank or credit union.

But as Green Dot and other prepaid companies look to expand their businesses by offering non-traditional products, the Consumer Financial Protection Bureau has proposed changes that will impact how these companies conduct themselves.

The proposed rules would demand greater transparency and tighter regulation of the prepaid card industry. The bureau wants more transparency in the information provided to consumers about how the products work and what fees are involved.

Federal regulators also want to limit how much customers can be charged for various features and transactions. In addition, any prepaid account that allows customers to overdraft or overdraw would be required under the Federal Reserve’s Regulation Z to be treated like a credit product.

The Consumer Financial Protection Bureau’s 900-pages of proposals to regulate the prepaid industry has drawn push back from a trade group that represents the industry.

In a letter submitted to the bureau, the Network Branded Prepaid Card Association urged regulators “to show restraint … and avoid imposing overly broad restrictions on prepaid accounts, which could ultimately have the effect of limiting access to popular features and functionality and potentially eliminate entire categories of prepaid cards from the market.”

When asked about the proposed prepaid rules, Streit said “Green Dot supports the CFPB pre-paid rules.” He added that many users of his company’s products earn just over minimum wage so hitting them with an overdraft fee of $20 is “punitive.”

Streit went so far as describing overdraft fees as “inhumane and cruel.”

“We don’t know when the rules will become law,” Streit told almost 300 attendees at PayThink 2015. “But overdraft fees hurt the product long-term.”

Streit said it’s “pretty hard to argue against these things,” including transparency in the information provided to consumers He then reiterated his company’s support of the bureau.

He said Green Dot was always looking for more business opportunities. Streit said the company is looking at offering credit products “on a nationwide basis.”

“We offer a savings account product,” he said. “But it’s not used for long-term savings. It’s more of an electronic cookie jar … it’s there to use it.’

When it comes to saving money, Streit said his customers “are not lazy, they don’t have the money.” He said the banking system makes money off the haves, but the have-nots are growing.

“We have a mission,” he said. “We are a public company, but it’s a good business. We are not a charity. We do think it’s a great business opportunity to offer products to (customers) that are not particularly well served” by the traditional financial services industry.

 

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