Debit cards linked to 401(k) accounts are far too easy to abuse, lawmakers are saying. For every $1,000 drawn from retirement savings, an estimated $10,000 is lost in retirement income, says Sen. Charles Schumer, a New York Democrat who is in opposition of 401(k) debit cards, which have recently been revived by companies seeking to “capitalize on tightened access to consumer credit,” according to Thomson Reuters.
The 401(k) debit card acts as a hybrid of both a debit and a credit card with which consumers have quick access to their retirement savings, but the card also includes minimum payments, interest and fees paid to the card vendor.
In May, FINRA issued a warning to consumers about these debit cards, urging that while they may have advantages, certain drawbacks, like interest, fees and failure to pay back a loan on time, must be considered before use of the card.
U.S. Senate members are now fighting for legislation to ban the cards, citing “reckless” practices on the part of companies that are offering them.
“After retreating over the last few years, companies looking to raid Americans’ 401(k) accounts are making a comeback,” Schumer said. “A decade ago, the mere idea of this legislation was enough to get companies to abandon this reckless practice,” Schumer said. “This time, we want to push this bill all the way to becoming law.”
Information sourced directly from FINRA: What is a 401(k) debit card and how does it work?