Suze Orman Defends Prepaid Card As 'Just Another Financial Tool'
If personal finance megastar Suze Orman built the perfect way to use money, what would it look like? On Monday consumers found out. Her new Approved card, a prepaid MasterCard, is Orman's first foray into the world of financial products.
The prepaid card functions essentially as a debit card. For a monthly fee of $3, users can load up Orman's card with cash and make purchases at stores or withdraw funds at ATMs.
In the wake of the financial meltdown, prepaid cards have quickly risen in popularity as banks have tightened the reins on easy credit and traditional checking accounts become more expensive. Prepaid operators are filling the void. Walmart, for example, offers several prepaid cards. Orman is the first major financial advice personality to back a card, but other celebrities have offered them, including reality TV's Kardashians and Lil Wayne.
Whereas those celebrity cards have had extremely high fees -- nearly $100 to use the early Kardashian card -- Orman has touted her prepaid card's low cost. Still her position as a financial guru and best-selling author immediately raised questions about a potential conflict of interest: Would her promotion of the card get in the way of offering unbiased financial advice?
In a recorded studio interview on Monday with The Huffington Post, Orman said that she would not discuss prepaid cards -- hers or any other -- on her CNBC program to avoid conflicts. She has never promoted prepaid cards in the past, she added. The card "is just another tool" that people can use to manage their finances, no different from her books or financial planning kits, she said.
"Will I put other cards down? Yes, if it's a credit card," Orman said in the interview with Arianna Huffington that was open to reporters.
At least $1 million of Orman's money is invested into the development of the Approved card with no outside investors.
Prepaid cards focus primarily on financial transactions rather than building long-term financial plans or savings. They tend to come with fees that vary greatly from issuer to issuer and a number of different government agencies have a hand in their oversight. That could change in the near future with the appointment of Richard Cordray to lead the Consumer Finance Protection Bureau.
Orman's card, like several others on the market, offers a way to segregate money into a sort of savings account -- one that earns no interest, however. Orman said she hopes that will change soon.
The Approved card is now one of the cheapest prepaid cards on the market, according to April data from Consumers Union. Many of its fees appear to be lower than competitors', yet it has many such fees. There are also restrictions on how the Approved card can be deployed, including limits on its use at gas pumps or for motel or rental car reservations.
"Orman's Approved card has a pretty low basic fee structure as long as you regularly deposit money onto the card and use one of the over 35,000 ATMs AllPoint has nationwide," said Odysseas Papadimitriou, the CEO of card comparison website CardHub.com. "However, there's a fee floor, so to speak, which means this card will always cost you something." Some cards, including one from GreenDot, are free to use if certain types of payments, like a paycheck, are directly deposited onto it.
With the Approved card, fees are assessed when the customer loads the card with money; the minimum amount to place on a card is $20. Electronic transfers and direct deposits are free, but consumers cannot post the amount of a paper check onto the card. Loading cash onto the card costs from $3.50 to $4.95 because customers must rely on MoneyGram or Western Union to transfer the funds.
Yet for the millions of Americans who cannot afford or simply don't use traditional branch banking, the card offers a viable alternative to that other form of plastic -- namely a credit card. Approved also comes at a time when credit card companies are ramping up offers to spur consumer spending again.
"Like an alcoholic who doesn't want liquor in their house, people don't want a credit card in their wallet," Orman said.
The purple plastic card, which bears Orman's name, is the first prepaid card to test the link between debit spending and credit reporting at one of the big three credit agencies. Orman has partnered with TransUnion to grant credit reports to cardholders and also to see whether prepaid card transactions can be used as an indicator in credit scores. Orman said she needed 10 million Approved cardholders to sign up for the credit bureau to consider such data for indicator purposes.
"She is undertaking a significant task," said Rob Rosenblatt, CEO of RushCard, which offers a competitor prepaid card created by Russell Simmons in 2003. RushCard provides data to PRBC, a credit-reporting company that provides financial information to car- and product-rental agencies. "We think she is doing something important but getting credit reporting agencies in is not a new topic."