Pre-paid credit-card fees can add up to be a 'rip-off'

A Halifax woman is warning others to think twice before buying a pre-paid credit card at the grocery store or pharmacy, calling the fees that come with them "a rip-off."

Angela Gerard received her first Mastercard gift card for her birthday.

"It's the first cash card I ever had so when I opened it up and looked at the instructions I was really surprised to see it was going to cost $4.75 to even use it and that annoyed me right away," she said.

It turns out she didn't have to pay the activation fee, which is charged at the time the card is purchased. But the $4.75 is still almost 10 per cent of the card's value. Those fees can increase depending on the value of the card.

Fees can add up

There are also monthly service or maintenance fees that kick in 12 months after the card is purchased.

A Mastercard gift card purchased in Halifax issued by All Trans Financial Services Credit Union Ltd. has a monthly maintenance fee of $3 after one year.

There is also a $9.95 fee to replace a lost card.

Some of the bank cards also expire. Although the cash does not disappear, the owner must pay an additional fee to get a new card so they can access their funds.

'I don't understand'

"I can't understand them being allowed to do it," Gerard said. "I don't understand why the federal government is allowing it."

In an email to CBC News, the federal Finance Department said the government does not generally regulate the day-to-day business of financial institutions, including fees.

It points out it did introduce regulations for pre-paid credit cards in 2013, including requiring fees be disclosed to consumers in an information box displayed prominently on the product's exterior packaging.

Not the same as store gift cards

Mastercard and Visa gift cards are considered bank cards and are regulated by the federal government, unlike gift cards for restaurants and stores, which are provincially regulated.

In Nova Scotia, gift cards for specific goods and services are not permitted to charge fees unless they're customized or need to be replaced.

"It's important for people to understand that when they buy a bank gift card, you're not trading $50 for $50," said Ken Whitehurst, executive director of the Consumers Council of Canada. He added people need to understand a bank-issued gift card is a convenience product and you're paying something for convenience.

Consumers need to read and understand

He thinks many people don't realize there are different cards with different fees and features and don't often give the purchase the thought they should.

"Instead of just picking it up unthinkingly you really need to read what's on the package and understand what you're buying," he said.

They can serve a purpose

Whitehurst said bank gift cards do serve a purpose for people who don't have credit cards and want to do online banking. However, he says fees can come as a surprise.

"You don't want to give a young person a certain amount of money thinking they're going to use that for a purpose and then surprise, surprise, when they go to purchase they come up short because there have been fees attached."

Gerard said there were other problems with her Mastercard gift card, which was rejected at a restaurant. She said she and the cashier were unable to figure out the problem until they called the manager who said the cards could not be used to pay a tip.

She now has $1.70 left on her card but says she can't use it for partial payment. However, a call centre representative said the balance can be used, as long as the total purchase (minus $1.70) is paid first. 

Is cash better?

Gerard is urging people to save money on fees and avoid bank gift cards.

"I would tell them my story and tell them don't even think about it," she said. "Get them a card from their favourite restaurant or store."

Whitehurst, too, says people should think twice.

"You have to ask yourself why you want to give somebody the money in the form of a card. If you want to simply give money to someone at the lowest possible cost to them and to yourself, then cash is still good," he said.