The New York Times
By: Ron Lieber
January 9, 2012
TV adviser on money offers card
For more than a decade, Suze Orman has exhorted her viewers on CNBC to spend less than they earn, flashed her blazing smile from the covers of best-selling books and endorsed the occasional auto loan provider and brokerage firm.
Never before, however, has she built a financial product from scratch and urged her considerable number of fans to use it frequently. That changes with the introduction on Monday of her Approved card, which works a lot like a bank debit card but does not come with a checking account. It is a prepaid debit card, and companies that offer similar cards have drawn criticism for sky-high fees and poor disclosure.
The hip-hop mogul Russell Simmons, American Express and the Kardashian sisters are among those who have piled in with their own cards, and they are nearly ubiquitous at drugstores and other retailers. The target customers are most often people who have little credit history -- or credit so bad that banks will not come near them.
Ms. Orman seeks to broaden the debit card market by charging low fees and offering new services, including unlimited access to credit reports. She has put more than $1 million of her own money into the venture and is prepared to add more, since the product may not break even right away. But her move also raises so many questions that it is hard to even know where to start.
How can the Approved card make money charging fees on par with those on Walmart's cut-rate MoneyCard, while also paying a credit bureau for access to its services? Also, can it really be just fine with CNBC, where Ms. Orman has a weekly show, that her card will compete with products from companies she discusses frequently with viewers? And will her followers care that she is pushing purple pieces of plastic that will help her make money from their everyday spending?
"I couldn't be more proud of this card if I tried," she said. "And it doesn't really matter what I say. It matters what happens when somebody uses this baby."
Their choice to use it may be colored by the opportune moment in which Ms. Orman finds herself. Big banks have offended scores of consumers with new fees and account balance minimums. People seeking alternatives may well find what they are looking for in prepaid cards.
That might not have been the case several years ago, when most prepaid card issuers marketed them to teenagers, or as gifts, or to people with poor credit who needed a way to make online purchases or visit a merchant without wads of cash.
More recently, companies like Green Dot (a partner with Walmart) and NetSpend have emerged. They persuade consumers to buy the cards first, in part through their availability in 300,000 locations, including grocery and convenience stores, according to the Mercator Advisory Group. Then, they try to persuade people to reuse them. Services like direct deposit and online bill payment have helped some. Still, 43 percent of the cards are never reloaded or are reloaded only once, according to Mercator.
These cards differ from checking accounts in other ways. There is no checkbook, nor do they have their own network of A.T.M.'s, though some prepaid card issuers have agreements with networks to offer free withdrawals. And different regulators govern them, which can mean fewer consumer protections under certain circumstances. (It could also mean that the new Consumer Financial Protection Bureau will swoop in and make tougher rules.)
The biggest difference from a regular bank account, however, is the fee structure on the debit cards. Prepaid-card holders must often pay to buy the card and put money on it. There is often a monthly fee. Bill paying, phone help -- even making a purchase can cost a dollar or two.
Ms. Orman watched this unfold and vowed to build something better. Her fees for the Approved card for things like A.T.M. withdrawals are about as low as they come, though she was not able to fulfill her goal of avoiding a $3 monthly fee, which is deducted from the remaining balance.
Whether consumers could do better with a free checking account (and yes, plenty still exist) would depend on whether they value paper checks and in-person service. Financially, they would most likely do worse if they bounced those checks or used overdraft services and paid $20 or $30 for each transaction.
The Approved card, like most leading prepaid cards, generally does not let people spend more than they have.
But the most noteworthy part of the Approved card is Ms. Orman's efforts to make her customers more aware of their credit histories. All users get unlimited access to their credit reports and credit scores from TransUnion, though not the more widely used FICO scores. They will also get free credit monitoring and identity theft protection. (Ms. Orman is quick to point out how much these services would cost if her customers bought them separately. But most wouldn't do that, and you shouldn't either, since they are generally overpriced and often unnecessary.)
The real question is whether any debit card can help a cardholder become more creditworthy. The three major credit bureaus -- TransUnion, Equifax and Experian -- generally do not use debit card spending data to determine whether someone is qualified for loans.
"There is something radically wrong here," Ms. Orman said. "We are rewarding people for having credit and punishing people who pay in cash. I want to change that paradigm."
So she has persuaded TransUnion to collect spending data from Approved card customers. Perhaps it will look at other companies' data too. And in a few years, it will see whether there is any proof that prepaid debit users deserve recognition for good behavior.
Until then, this is mere vaporware. The data may prove meaningless, and even if there are patterns, TransUnion probably would not give people more than a handful of points' worth of credit on their scores.
As for the free credit reports and such, TransUnion could raise the price Ms. Orman pays in 2013. TransUnion may simply be in this temporarily for the gold star it gets from siding with Ms. Orman and her people-first philosophy.
I wish I knew for sure. Nobody from TransUnion would talk about any of this, though Ms. Orman laid down the law, just in case. "If they set me up," she asked, "do you think I wouldn't do everything in my power to obliterate them? I absolutely would, and they know that. That's not their intention here."
Rob Rosenblatt, president of the parent company for Mr. Simmons's Rush card, is encouraged by TransUnion's move, though his company has tried and failed to have Experian, Equifax or TransUnion take in its data.
"No one can promise success, but there are patterns that sophisticated compilers of data can identify," Mr. Rosenblatt said. "I hope that no senior TransUnion executive really did do this with Suze for purely public relations purposes."
On the ethical front, a CNBC spokesman, Brian Steel, wrote in an e-mail, "While Suze is not a CNBC employee or a journalist, we have editorial guidelines in place to ensure that her show maintains its editorial integrity."
As for advertisers, Ms. Orman said she was not concerned.
"This is the least thing I've ever done to make CNBC worried about selling advertising," she said, noting that she has regularly pummeled all sorts of financial services providers on her show and will never talk about the Approved card.
It is worth noting that if I tried to introduce my own card, the ethics editor would laugh me out of the New York Times building. Standards are often different on television, but CNBC could also be as afraid of incurring Ms. Orman's wrath as TransUnion appears to be.
As for the viability of the business, Ms. Orman said Mr. Simmons had told her that she could lose tens of millions of dollars this way. And he should know, since he lost millions himself with the Rush card at first.
So I asked her to put her hand on one of the money bibles she has written and swear not to raise Approved card fees in the next 24 months. She said she would shut the card before that happened. "I am not going to make money off the 99 percenters' backs," she said.
A pledge like that takes guts, and anyone who has browbeaten TransUnion into even considering a big change deserves praise.
Here's hoping that she succeeds in her credit mission -- and that other media personalities like Dave Ramsey and Jim Cramer put the heat on companies in other high-fee, low-service industries and make them sweat, too.