In what might win the award for most boneheaded public relations move of 2012, on Monday January 9th the world woke up to the announcement that Suze Orman, host of the popular Suze Orman Show on CNBC, had partnered with The Bancorp Bank to introduce and endorse The Approved Card, a pre-paid debit MasterCard. Pre-paid debit cards have very poor reputations and are generally believed to be among the worst financial services products. They’ve also attracted marketing partnerships with other notable finance experts such as Russell Simmons, Kimora Lee Simmons, the Kardashian sisters, Lil Wayne and Alex Rodriguez (sic).
The primary criticism of pre-paid debit cards is the fee structure, which is usually extensive and complicated, regardless of the particular pre-paid card. The fees are normally spread out over a large number of consumer actions, such as asking about your balance or requesting a paper statement. The Approved Card, for example, has a fee attached to 20 different consumer actions and they vary from as low as $1.00 (Bill Payment Fee using a paper check) to as high as $30.00 (Bill Payment Fee – payment inquiry.) There’s a $3 fee just to get the card and a $3 monthly “account maintenance fee” as well. This sets up a virtual minefield of fees that consumers may not be able to avoid.
The Approved Card’s 20 “billable” consumer actions is on the high end when compared to other pre-paid cards. The RushCard, Russell Simmons’ product line, has 17 consumer actions that generate a fee and Lil Wayne’s prepaid Discover card has 7. The GreenDot card, another common pre-paid product, has 9. American Express only charges one fee for their pre-paid card, which is a $2.00 ATM fee (the 1st ATM use each month is free, according to Amex). This is why the Amex pre-paid card is widely regarded as the best of breed in the pre-paid environment.
After The Approved Card was announced a flurry of media activity took place covering the new product and its pros and cons. And with most online media articles, consumer comments were allowed. As you can imagine, the consumer feedback hasn’t been great. I’ve reviewed the consumer comments from 5 different online articles* about the new card; The New York Times, The Huffington Post, Yahoo Finance, The Consumerist, and CNNMoney. Here’s what I came up with…
* I didn’t consider off topic comments
Another troubling aspect of prepaid debit card marketing is the suggestion that using them is going to somehow improve your credit reports and credit scores. This is absolutely incorrect. Prepaid debit cards, debit cards and stored value cards of any type are not reported to the credit bureaus because they’re not credit products. They will do nothing at all the help your credit, period. The marketing of this card is, unfortunately, no different. What would you think if you saw this:
If you’re like several media outlets that have covered this new card then you might think that this is a suggestion that the use of the card is going to be reported to TransUnion and end up on your TransUnion credit report. That’s a reasonable, if not the desired assumption. The problem is you’d be wrong.
If you search around on the card’s website you’ll find this language, “This data will not appear on your TransUnion credit report at this time.” And from an article written by Jeanine Skowronski with MainStreet.com, “It is important to understand that this data will not appear on any TransUnion credit report at this time” says Colleen Tunney-Ryan, a spokeswoman for TransUnion. Hmmm.
The bottom line is this…if you are desperate to have a slice a plastic in your wallet and you simply can’t get any bank to give you a credit card, debit card or secured card then go for it and get yourself a prepaid debit card. But be prepared to pay terribly high fees on most of the products and, at the same time, do nothing to get your credit back in shape so that you don’t have to pay to have access to your own hard earned after tax money.
Credit Damage Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.