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Sizing Up Suze Orman’s New Prepaid Debit Card

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(Photo by Rebenstein, via Flickr.com)

Suze Orman is a modern-day Horatio Alger story. Once a waitress in the San Francisco bay, she is now one of the most trusted experts in personal finance. Ms. Orman created controversy last week, however, when she debuted her prepaid debit card.

Prepaid debit cards are a controversial subject anyway. Loaded with hidden fees, prepaid cards are often mistakenly marketed as a way to build credit. Typically targeted to the unbanked population, prepaid cards allow people who can’t otherwise access credit cards or checking accounts the convenience of paying bills online and making purchases by credit or debit like everyone else.

That’s the good side. The bad side is that prepaid cards often come with a bevvy of fees, hidden and not so hidden. The fees are most troubling when it comes to Orman’s product. She often touts herself as a champion of consumers and a proponent of financial responsibility. The card itself is advertised as a way to teach young adults financial responsibility and inadvertently implies that the card will help build credit by being reported to TransUnion, one of the three major credit reporting agencies.

Without joining in the pig pile on Ms. Orman, it’s important to understand that prepaid cards won’t help establish or build credit. In this case, it feels as though the marketing folks behind Ms. Orman’s prepaid card pushed their creative marketing skills to their proverbial limit. While the card will report spending habits to TransUnion as a sort of pilot testing program, it will not help establish or build credit.

Now, let’s take a look at the fees associated with the Approved Prepaid MasterCard from Suze Orman. You have to pay $3 to buy it, then pay $3 every month to use it. Not so bad, considering you’d pay more than that to have a checking account. It’s even less than comparable services. You get charged $2 per ATM withdrawal, unless you deposit at least $20 into the account monthly. Tack on native ATM fees and that can be as much as $5 per withdrawal. You can call customer service for free once per month, but it’s $2 per call after that. Paying bill by paper check? A buck each. Putting cash on the card is free via direct deposit or bank transfer, but costs $3.50 at a retail location. Paper statements are another $2 each month. A complete list of fees can be found here.

To be fair to Orman, she does provide a far better deal than most other prepaid debit cards. Still, as the entire prepaid debit card market is somewhat predatory, this is a bit like being the valedictorian of summer school. And there are other options — such as Green Dot’s prepaid debit cards — with less complex structures who waive fees when you do a certain amount of activity in a given month.

Another point worth raising is that Orman’s advertisements target the card toward young people heading off to college. The assumption is that, on their own for the first time, a prepaid debit card will help young people make good financial decisions and learn to do basic financial planning. The $10,000 question, however, is: Why can’t your kids just get a bank account? It’s not like many people write checks anymore. Overdrafts are actually pretty rare — 90 percent of fees come from 10 percent of customers. Further, serial check bouncers can often get “second chance” or “opportunity” accounts that allow them to get back into the world of checking accounts.

Bottom line? No one wants to cast aspersions upon Suze Orman’s intentions. Intention and real-world affects are two different things, however. It’s not clear that this provides either a viable alternative to checking accounts, a financial life raft for the unbanked, or a way for college students to learn financial responsibility. Indeed, at best, Suze Orman’s prepaid debit card is the best product in a fairly dismal field.

 

 

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