What do Kim Kardashian, Hilary Duff, and Usher have in common? Aside from appearances on MTV, all three celebs have released prepaid cards that are now off the market.
In November 2010, The Kardashian Kard and its accompanying fees generated so much negative press that it was canceled less than a month after its debut. The prepaid MasterCard was supposedly aimed at helping Kardashian fans learn money management skills. But Connecticut Attorney Richard Blumenthal and a chorus of other critics accused the product of “predatory fees,” including the $99.95 annual fee and the $7.95 monthly fee.
Though prepaid cards featuring celebrities have been around since at least the mid-nineties, they’ve gotten a lot of attention recently (as has the credit-card industry in general) as focus has shifted on predatory lending practices and excessive fees. But while we may continue to see fee-ridden cards being discontinued, chances are new ones will replace them quickly as issuers continue to look for ways to reach the much-coveted young adult market.
And while these cards generate profits for celebrities and issuers alike, the same doesn’t necessarily hold true for the consumers actually using those cards. Here’s what you need to know before you sign up:
1. Fees, fees, and more fees
A large part of the target market for prepaid cards are so-called unbanked or underbanked consumers: those who do not qualify for traditional credit cards or even a bank account. Add the celebrity branding, and you’ve got a good shot at tapping the even more in-demand teenager demographic. (Teenagers hang out at the mall a lot, after all, and are also avid online shoppers.)
What do most consumers who belong to these target groups have in common? Chances are, they aren’t as financially savvy, whether because they’re just getting started with money management or have made financial mistakes in the past that are now preventing them from qualifying for a traditional bank product, such as a credit or debit card.
As a result, many potential prepaid card users may simply ignore the most important part of the card application: the fee table.
“When you’re looking for a prepaid card, be mindful of what the benefits are and read the fine print,” says Clarky Davis, a debt management expert who calls herself the Debt Diva.
While many celebrity-endorsed cards come with annual fees, affinity fees, pin transaction fees, and other hidden costs, Davis says there are plenty of low- or no-fee options, as well. Most of those will be issued by large banks and not have a high-profile celebrity endorsement.
Rather than selecting a prepaid card based on the celebrity who endorses it, Davis encourages consumers to think about how they’ll use it and look for the best fit based their needs.
2. Don’t expect prepaid cards to help you build a credit history
If you sign up for a celebrity-endorsed card thinking it could help you build a credit history, you’ll be disappointed. As a general rule, prepaid cards do not report activity to the credit bureaus. It makes sense: after all, you are using your own cash, not borrowing from a bank, so there isn’t any “credit” activity to report.
If the whole idea of getting a card is to get started building credit, ask your parents to make you an authorized user on one of their credit cards or consider getting a prepaid credit card.
3. Your card may outlive your love of the celeb
Though you may admire a sports star or a pop princess now, you never know when they’ll make headlines for the wrong reasons. Imagine if you’d signed up for a card sporting the face of O.J. Simpson or Tiger Woods before they fell out of favor.
Even if the celeb remains popular, your own tastes could change and you could outgrow the card. “A lot of times these appeal to younger people, and as they mature, they may not be the fans,” says Davis. “I loved New Kids on the Blocks in the nineties, but would I carry a New Kids on the Block card now?” Probably not.
4. Fandom and personal finance don’t mix
If you want to show the world how much you love a reality TV star or a rock band, then join a fan club or follow the celeb on Twitter. “Your enthusiasm for your celebrity and your credit card probably shouldn’t mix,” says Cate Williams, vice president of financial literacy for Money Management International. “Each one is going to come out with some kind of product or pitch to make money.”
Williams adds that the two criteria for choosing a credit, debit or even card should be reasonable interest rate and minimal fees, and card acceptance where you shop. “Beyond that, it doesn’t matter whose picture is on it,” she says.
Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.