Credit. Debit. Cash.

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My buddy and I were planning a trip to Israel, planning to get there via WOW airlines.  Because we would be able to make the trip in style for about $ 1000 apiece.

Wow Airlines, RIP

Of course, that won’t be happening.  Since about a month ago, WOW simply stopped flying.

That wouldn’t have been the first time I would be waylaid by a defunct airline.  I joked years ago when Eastern Airlines granted me a lifetime membership in their airline club;  I wanted to know did they mean mine or theirs.  Thankfully, Continental Airlines picked up the remnants of Eastern and granted me an “extended lifetime”.  Which, even more thankfully,  has since been picked up United.

United Club

But, airline failures are not really the subject of this post.  Instead, I want to talk about what happens to folks who bought the tickets from a failed airline- using a credit card, a debit card, or (really, this sometimes still happens) with cash.

Pay with cash

Let’s start with the simple issue.  If you bought your ticket on a defunct airline with cash, you’ve lost your money.  Unless some generous soul decides to buy the airline and honor the tickets that had been issued.  Yeah, that will happen.

Debit and Credit Cards

When you pay by a credit card, then you do have some relief.  Because of the Truth in Lending Act (assuming it’s still enforced by the Federal Trade Commission).  The issue is that you used credit and did not receive the goods or services for which your credit card was hit.  Except if you bought that ticket 11 months ago.

You see the law stipulates that there is only 60 days from the date the bill containing the specific charge has been mailed to you for you to get relief.  (Note this does make a difference if you paid the bill or not.)  You and I just need to use this time period to notify our credit card provided that “The item was not delivered as agreed.”  By certified mail to the address the credit card purveyor lists for billing error notifications.  (It is also possible that if the 60 day period has elapsed that we can contest it- but there’s no guarantee we will prevail.)

And, that debit card?  That’s like paying with cash.  Unless our bank has specific provisions to cover such cases, we are also out of luck.   The rules that govern the use of debit cards are covered by the Electronic Funds Transfer Act.  Which lacks the “delivered as agreed” terminology.  But, your bank may have a heart.  (Mine don’t) Who knows?

I also learned how banks really feel about debit cards during the first year my son went to college.  I had wanted him to use a bank that had a branch near home, so I could always fund his needs in a heartbeat.  But, he chose to use a bank that was being promoted by his school.  He figured that would be a better fit.

Except.  These banks made deals with the colleges, providing them with cash and benefits.  (Besides a set fee, the banks pay the schools royalty payments based upon the percentage of students who signed up for the debit cards.)  These schools profit while the banks hit kids like my son with fees and impediments up the yin yang.  (The banks know most of these kids lack financial literacy and take advantage of the situation.)

It shouldn’t surprise anyone that those schools involved in these programs have set the stage for their students to be hit with fees that are more than 2X what a college that lacks a co-marketing deal would charge.

University Debit Card

It gets worse. Many colleges use these cards to disburse the funds from financial aid, once tuition is paid.  (Some students get aid to assist with living expenses.)  And, then the fees the bank charges leaves the student often without much of that money.  (Think payday lending.)

There finally are regulations that banks can’t impose fees for students whose cards are populated with financial aid funds.  But, if the student’s debit card is not partially funded by such financial aid, there are no restrictions on the fees or charges the bank can impose.  (Fees like using another bank’s ATM or monthly maintenance are the ones that help a student’s account drop below zero- and then get hit by overdraft fees, to boot.)

Bet you aren’t surprised that Wells Fargo is one of the biggest banks that fit this scenario.  (PNC and USBank are the two other big culprits.)

Roy A. Ackerman, Ph.D., E.A.

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12 thoughts on “Credit. Debit. Cash.”

  1. This belongs in the news like the college entry scandal with which many celebrities have been indicted. It is wrong on every level, not to mention student loans themselves. Great, informative post, Roy.

    1. Well, I have, Martha. Especially since our ATM cards have become the ubiquitous debit card the banks love us to use. (I don’t- just as an ATM card. And, as opposed to the 6 X a week use from the 1980s (I actually wore out my ATM card almost every single year!) to maybe once a quarter now.)

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