What do Russell Simmons, Tom Joyner, Kim Kardashian, Lil Wayne, and now Suze Orman have in common? You guessed right…they are all a part of a new fad of celebrities to offer a prepaid debit card. That’s right…in this tough economy where every dollar counts (and if you are living check-to-check you should be counting your blessings), celebrities are lining up to give you the privilege of spending money to use your own money. By no means am I a celebrity; however, even I was contacted to endorse one of these cards but I turned it down before I could even hear the offer!
I was most surprised by the recent addition to this star-studded crew of financial predators. Suze Orman, my unofficial mentor, the woman who arguably I owe my career as a financial advisor/expert to, the woman who has never written a book I haven’t read, has entered her name into this market.
When I first heard the news of her launch of The Approved Prepaid MasterCard, my bias and inability to be objective because of my admiration towards Suze Orman did not allow me to believe it was true. In my thoughts, I was certain if she had created something it would be unlike any other prepaid debit card on the market. In my mind, she wouldn’t only present something with lesser fees; she would somehow create something with no fees. In my mind, she would create something where low income families, the primary users of these financial predators, would be given a pathway to opening up their own bank accounts and establishing credit. However, as I began to research the “perks” of the card, I sadly discovered that it was more of the same with a slightly different twist that leaves users of the card with poor credit, no bank account, and a stronger ceiling of looming poverty which is more difficult to break through.
So here we go…déjà vu all over again. Let’s examine the problems of THIS card and why it is something you should steer clear of.
The Name – The name ‘The Approved Card’ is very misleading as all prepaid debit cards are automatically approved. This card does not improve your credit so there is no reason for anyone to be denied.
The Supposed Emergency Fund – This card does allow users to set money aside – money for an emergency fund. However, why not just go to bankrate.com and find a high yield online account with a higher interest rate and no fees? With this card, the first month is free, but just to have access to your emergency fund after the first month you must pay $2 each time you call customer support.
The Online Account Management – This card does offer online money management, but so do local community banks and credit unions. There is a national initiative going on right now called “Bank On” which is a coalition of banks that have come together to assist the under-banked demographic. Go to joinbankon.org and see the banks in your area that are participating. Also, credit unions are great ways to open up accounts, establish credit, and get access to the same debit cards but with no fees, so go to www.findacreditunion.com <http://www.findacreditunion.com/> , www.creditunion.coop <http://www.creditunion.coop/> or www.ncua.gov <http://www.ncua.gov/> to find a credit union in your area to join.
Free Transunion Services – Yes, you can get unlimited access to your Transunion credit report and unlimited updates of your credit score. However, you can get the same thing at www.creditkarma.com <http://www.creditkarma.com/> for free. Also, the credit score you are getting is NOT a FICO score, which is the most widely used score, but a Vantage score. That is like you asking me for a DVD player and I give you a free Betamax, or you asking for an iPod and I give you an 8-Track player. Also, be careful because after a year of this “free” service, you’ll get an $11.95 per month charge for something you could have gotten for free!
The Reporting to a Creditor – Yes, they do report your transactions to Transunion, but this has absolutely no impact on your credit. What they are doing is for the next 18 to 24 months you will be paying them to be a guinea pig in their little experiment to see if they can find a way to tie prepaid debit card transactions to your credit. Four words for you Ms. Orman… IT WILL NEVER HAPPEN. You know better than I know that prepaid cards are the same as cash purchases and FICO is primarily concerned with how you repay creditors, not how you spend your cash. So if you feel like being a test dummy feel free to sign up, but if being a guinea pig doesn’t suit you, move on.
Identity Theft Protection – Yes, for the infrequently used TransUnion report, this does offer identity theft protection. However, there are plenty of other ways to protect yourself from identity theft such as temporarily freezing your account (which helps prevent new creditors from accessing your credit and has an associated cost to unfreeze your credit in case you are in need of a loan) or a 90-day hold. Also, you can utilize free methods by checking your online bank statements daily and going to www.annualcreditreport.com <http://www.annualcreditreport.com/> yearly to print out your reports from all three bureaus for free.
Fees – The number of fees in this card are more than most numbering 20 altogether. There is a $3 initiation fee and a $3 maintenance fee just to be able to use your own money .After the first month, there is a $2.00 per call customer support fee, and if you are not doing direct deposit or a recurring bank transfer giving them more of your money to hold, there is a $2 fee plus the fee the ATM operator charges. To get a comprehensive list of the fees of the approved card go to theapprovedcard.com/fees/.
The SuzeOrman Brand – For those of you who thought this card would get you access to the financial guru phenomenon, think again. If you want her advice, purchase some of her books which will help you to steer clear from this card as opposed to listening to her jaded/biased advice that touts she would like to teach you how to use this card.
The biggest gripe that I have with this card is the market that primarily uses it. Low- income families with poor credit that can ill afford to not have bank account (which helps to establish credit upon opening), and can ill afford to not do what is necessary to improve their credit. If a low income individual has a history of not doing the responsible things to improve his credit, no card will cause him to change his tune. As a matter of fact, for someone who has a history of being irresponsible, this card will provide for them an outlet to continue to be irresponsible and feel as if they never have to open a bank account again.
Ms. Orman…I work with many low income families and I can’t tell you how many times I have heard stories of people using the RushCard and other prepaid cards to avoid opening a bank account, avoid paying child support, avoid paying taxes or due to illegal activity being paid off the books. This abridged list of reasons for staying out of the system only serves to help keep poor people poor. You could have all the good intentions in the world, but this card will only serve to keep those in poverty, in poverty. After years of reading your advice, I would love to give you some of my own. Stop selling this card, keep promoting your books and teaching the GOOD principles, and if there is a way we can work together to empower the community with the true principles of financial literacy that I have been learning from you all of these years, then let’s do it!