You may be wondering why NetSpend cancelled the All Access overdraft service on March 28th, 2019.
At the time, NetSpend was one of the largest prepaid debit card program managers in the United States. It was only mainstream card with overdraft. Earlier in 2019, the leading industry publication for bankers (American Banker, firewalled) estimatd the rule would “take an $80 million dollar bite out of NetSpend’s revenue.”
Furthermore, some of you may be searching for an alternative to the now shuttered NetSpend overdraft program.
I have the answer. There is now a card offering a fee-free overdraft service. You can jump down to the bottom of this post if you want to go straight to the application to get this card. However, since I spent a lot of time working on this issue over the years, I would like to offer some background on the government rule that drove NetSpend's decision to cancel the All Access overdraft program.
I will do two things in this post.
First, I'm going to give you background. Chances are, you are reading this post because you like to have the option to overdraft, and as a result you may be scratching your hread to understand why NetSpend would walk back on the service. Indeed, I would surmise that many people chose NetSpend was solely for NetSpend All Access. NetSpend must have known that, too.
Second, I'm going to tell you about a new service that could give you the same freedom - but without the cost.
First - the background:
The change is without a doubt a product of the Consumer Financial Protection Bureau’s (the “CFPB”) upcoming rule on prepaid debit cards. The rule is scheduled to go into effect on April 1st.
NetSpend emphasized the low-cost, consumer-friendly nature of its overdraft protection service. The company charged $15.00 when a customer made a transaction that left the balance in the red by more than ten dollars. NetSpend differentiated its service from the traditional bank approach with a lower fee and a temporary pay-back window. The fee was lower; additionally, NetSpend All Access overdraft came with aone-day grace period before a fee was applied.
To be accepted for overdraft, an account had to have had a direct deposit of at least $400 in the month prior to when the consumer asked for the service. To continue to qualify, the account had to receive new deposits of at least $200 per month. If an account was charged an overdraft fee and the consumer did not cover the fee within thirty days, the company would deactivate overdraft protection.
NetSpend's All Access overdraft could be used to cover overages on signature and PIN swipes, on ACH debits, and on ATM withdrawals.
Total Systems Services, the corporate parent of NetSpend, attributed the change to the implementation of the Consumer Financial Protection Bureau’s new final rule on prepaid debit cards. The rule is scheduled to go into effect on April 1st – approximately 24 hours after NetSpend says it will terminate its overdraft plan.
In a filing to investors, TSYS wrote:
“The CFPB has promulgated a new rule regarding prepaid financial products, which, among other things, will establish new disclosure requirements specific to prepaid accounts, eliminate certain fees that may currently be imposed on prepaid accounts, and make it economically unfeasible for a prepaid card provider such as our NetSpend business to offer courtesy overdraft protection on prepaid accounts. The rule is scheduled to become effective April 1, 2019.”
Of note, the CFPB’s prepaid debit card rule does not explicitly prohibit overdraft nor does it place a restriction on the price that program managers and their partner issuing banks can charge. However, it did require companies to underwrite the service. The rule specificed that companies could not offer the product to consumers until the account had been active for at least 30 days. Once reviewed and approved, there were other constraints. If a consumer did overdraft, his or her card company had to wait at least 21 days before charging a fee.
The New Card That Will Make You Forget NetSpend
Varo Money No Fee Overdraft will revolutionize the overdraft experience.
How do you qualify for Varo Money No Fee Overdraft? There are two conditions:
1) you must use your Varo Money account to receive a paycheck or government benefit by direct deposit, and those funds total more than $1,000 per month
2) you must use your Varo debit card more than five times per month.
If you meet both of those conditions, then Varo will let you overspend by as much as $50 with their overdraft service. How much does that cost?
Nothing. Zero. Nada.
Furthermore, there is no ongoing charge to have the ability to use the service. You do have to go into the Varo app and turn the service on before it will work. You will have to meet the two requirements I mentioned above on an ongoing basis. If a month goes by when you do not, then you won't be able to spend funds beyond your balance. Note - it only works with purchases. No Fee Overdraft does not apply to ATM withdrawals.
NetSpend charged a $15 overdraft fee, but Varo has no fee. Better!
Did I mention that there is no monthly fee to have a Varo card? Did I mention that it also comes with free ATMs (NetSpend did not offer free ATMs).
You can sign up for a Varo bank account via this link. Note - you'll have to use your smartphone to get the account. Varo only works by an app; you cannot apply for a Varo account inside your desktop or by visiting a bank branch.
The reason for Varo Money overdraft stems from recent research which found that 4 in 10 millenials overdrew their bank accounts in 2018. Of those that did, almost half spent $100 or more over the course of the year. So - lots of people experiencing lots of pain = market opportunity.
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