Target outdid Amazon on Prime Day when it came to gift card deals with great offers on gift cards for Chipotle, Domino’s, The Choice Dining and many more.
This gave me a chance to put my Target RedCard through its paces for the first time. I’d applied for it last year, but hadn’t gotten around to using it much in the meantime.
There are a few benefits of the Target RedCard. Right now when you apply, you get a coupon good for $40 off when spending $40+. There are a few restrictions as to what that can be used on, but it was basically $40 of free groceries for getting a debit card.
Another benefit is that the RedCard comes in two forms – a credit card and a debit card. Applying for the credit card affects your 5/24 status, but the debit card version doesn’t and it has the same benefits.
The main reason to get a RedCard though is because it gets you a 5% discount when paying with the card, including third party gift cards. That 5% discount comes off after any other discounts, so if you bought a $100 Chipotle gift card for $80 during that recent sale, you’d end up paying $76 because the 5% comes off the $80 amount rather than the $100 face value of the card.
If you have the debit card version of the RedCard, it’s funded by linking it to an external checking account. The transactions don’t post to your checking account immediately, so it was interesting to see a giant list of transactions hitting my checking account the next day.
That’s just a few of the transactions – the full list was far longer. The reason this is interesting is because Target posted the charges for each individual gift card separately even when they were placed in the same order.
For example, there are six charges of $57 grouped together. That was just part of my order for 21 Chipotle gift cards which came to a total of $1,083. Rather than posting a single transaction to my checking account for $1,083, Target posted 21 different transactions – one for each gift card.
This is something incredibly important to be aware of because it makes it vital that you have enough funds in your connected checking account. If you don’t have enough money in your account, you’ll be hit with overdraft fees for every single transaction where there’s insufficient funds to cover it.
This sadly happened to a reader. He’d forgotten which checking account was linked to his RedCard and had 50 separate transactions post to an account that didn’t have funds in it. That bank charges a $25 overdraft fee per transaction so he got hit with $1,250 in charges. He was able to get them to knock that down to $500 as a goodwill gesture, but that’s still a painful loss.
What makes this even more galling is that those 50 transactions related to only three orders. If Target had done what you’d expect and posted three charges for the respective orders, he would’ve only be charged $75 in overdraft fees. That’s still painful, but nowhere near as bad as $500 or $1,250 in fees.
This isn’t really a flaw of the target debit card; it’s a flaw of how target processed the orders. This would have happened regardless of which debit card the person used. It’s one of many reasons that debit cards are terrible. So the headline here is misleading because it phrases the problem as being the debit card when the problem is actually target separately processing every item.
That’s a good point, it is Target.com separately charging for each item, but it is also Red Card’s fault for showing ACH debits as a single transaction on their end, while in fact it’s a daily total of all ACH pulls for that day. Also, see https://classactionsreporter.com/target-debit-card-results-in-excessive-overdraft-fees-class-action/
The thing is that the only reason a Target RedCard debit card was used is because it offered 5% off. If it weren’t for that benefit, a credit card would’ve been used and the 50 separate transactions wouldn’t have been an issue.
So while the problem was caused by the way that Target processed the orders, it’s specifically an issue due to the payment being made with the debit card version of a Target RedCard.
Moreover, if any other debit card was used, opted out of overdraft, the transaction would simply be declined, no harm, and another form of payment would be needed to complete the order. Only using Red Card could have lead to this situation.
The per item splitting also sucks since it can cause you to miss out on promotions that apply to larger transaction amounts. In my case my Amex $25 off $500+ didn’t work.
Good point
What Bank Was This? Most Banks Have A Limit On How Many Overdraft Fees They Will Charge Per Day. I know Citizens, Regions, PNC, Chase, and Wells Fargo All Have Limits on Overdraft Fees.
I’m not sure what bank they’re with – I’m assuming not one of the ones that caps fees.
That’s Disappointing, but Better than being Charged Return Fees from Target ($35 Per Time in Most States). I Just Got my RedCard, but I Think I’ll Write On The Envelope What Account It’s Linked To. Thanks For the Warning.
This is definitely worthy of a cfpb complaint, and I hope the person who had the problem files one. Overdraft fees are an area where the cfpb has been very active.
This happened to me, too! Two orders ended up resulting in 5 overdraft fees. I contacted Target RedCard support twice and Target support once, and none of the three people I spoke to could understand what the problem was. My financial institution ended up reversing half of the fees as a courtesy and said they’d reverse the rest if I could get a letter from Target on Target letterhead stating that it was their error. I tried that to no avail.