When it comes to personalities in the world of personal finance, it is hard to find a more popular person than Suze Orman. With a legion of fans, several books and a popular television show on CNBC, Orman has become one the main sources of personal finance advice for millions of American who are struggling on account of out-of-control spending and crushing debt.
Now Orman is hoping that her personal popularity translates into strong demand for her new product: a prepaid debit card. Less than two weeks ago, Orman announced that she would be sponsoring a new card, called “The Approved Prepaid MasterCard,” that she had a hand in creating, which she says will help many people to better handle their financial affairs.In creating the new card, Orman partnered with a variety of financial institutions including Bancorp Bank, the issuer of the card, the Allpoint ATM network and the TransUnion credit rating agency. With their institutional abilities and Orman’s name recognition, they are hoping that this new prepaid debit card will quickly catch on with consumers who have been ill-served by traditional banks.
Thanks in part to high minimum account balances and rising fees, prepaid debit cards have become an increasingly popular way to conduct financial transactions; indeed, over $65 billion in transactions were handled by prepaid debit cards in 2010, and this number is growing quite rapidly, especially among poorer individuals who are being pushed out of the banking system entirely.
The appeal of prepaid debit cards is that they are designed to prevent people from going into debt in order to buy the things they can’t afford. Unlike credit card companies, who are more than willing to allow consumers to run up their balances for a new television or computer in return for high interest payments, prepaid debit cards can only be used as long as there is money in the account from which a charge can be drawn. For people who struggle with controlling their spending, a prepaid debit card ensures that people will not be able to spend money that do not have.
Unfortunately no financial product comes without strings attached, and Orman’s new prepaid debit card is not an exception. In fact, the card comes with a variety of fees that has actually surprised quite a few of her devoted fans. Most notably, the card costs $3 to buy, and there is a $3 monthly service charge. In addition, there are a variety of other fees for extraneous services: $3 to replace a lost card, $2 for a paper statement, $1 to pay a bill by check and $2 per call when you talk to a customer service representative more than once a month. Also there are additional fees for consumers who do not set up direct deposit or link a checking account to the card.
Most financial experts agree that, relative to other prepaid debit cards, Orman’s new card is one of the better ones in terms of fees. However, they also agree that there is nothing particularly exceptional about her card. For instance, the American Express prepaid debit card, unlike the Orman card, does not charge a monthly fee at all, saving consumers $36 a year in extra fees.
Orman’s card does come with a variety of benefits. Thanks to the agreement with TransUnion, customers will get access to both their credit report and their credit score. For those customers with direct deposit or a linked checking account, they will get unlimited access to the network of the Allpoint ATM system for free. The card will also offer services to protect individuals against identity theft.
One important point to note is that, at least for the moment, this card will not help anyone’s credit score. Because of the association with TransUnion, many people believe that this card is designed to help build one’s credit rating. However, debit card use is not incorporated into the credit score formula. Orman hopes to change that one day soon, which his why information about debit card transactions will be sent to TransUnion for analysis purposes. In the future, TransUnion may start incorporating debit card activity into its credit score formula, but that will be several years away if it occurs at all.
Suze Orman’s new “Approved” prepaid debit card has already received a lot of press and is bound to gain a degree of acceptance from some of her many friends. However, like any new financial innovation, consumers need to do their homework before making a decision about using it. Without such research, consumers risk getting hit with extra fees for a service they may not need or want.