I recently spent some time reading financial news and articles on the web about The Approved Card by Suze Orman. What I found was a great deal of criticism, some of it deserved, but much of it based on a misunderstanding of the purpose of the new card. Here’s my attempt to sort things out.
Why Use a Prepaid Debit Card?
So why would anyone need a prepaid debit card? If it’s your money, why pay Suze or a bank to issue a piece of plastic to use your own money? There are two quick answers to that.
- There are places that won’t do business unless a deposit or payment is made using a debit or credit card to insure they are paid what is owed (e.g. reserving a hotel room).
- Your money is FDIC insured, making The Approved Card safer to carry than cash. When your cash is lost or stolen there is little recourse, but with this prepaid card you’re protected against unauthorized purchases. If your Approved Card is lost or stolen, your money can be replaced under the MasterCard Zero Liability policy.
With more banks requiring an initial, minimum deposit, a minimum balance and/or direct deposit into a checking account to receive a fee-free bank account, consumers in financial difficulty or those who are just starting out (e.g. college students) will find it extremely difficult to begin establishing credit. Orman’s card is intended to bridge the gap for those who either can’t get a line of credit or want to avoid using credit cards.
Why Fees are Charged
Why would anyone be charged to use a card with their own deposited money that is secured, guaranteed and no risk to the bank or credit union? The easy answer is that everything comes with a price. It has been reported that Suzie Orman invested more than $1 million into this project, an amount that may not be easy to recoup even with low fees.
The fees are within the range of many existing cards; but in the end, it will cost a minimum of $36 annually to use your own money.
Specific Fees Associated with the Approved Card
- $3 monthly fee
- $2 per paper statement
- $2 per live agent customer service call
- $2 cash withdrawal
An assumption that is made by many people is that it’s just as easy to open a bank or credit union account to establish a debit card account. But anyone with a history of writing bad checks or mismanaging a bank account won’t find it easy getting approved. Banks that participate in the ChexSystems program won’t open an account for someone who has one or more closed ‘for cause’ incidents listed on their ChexSystems report. ChexSystems provides data related to how a consumer has handled deposit accounts at banking institutions. These would include multiple overdrafts in a short period of time, providing false information, insufficient funds or overdrafts, fraud and other violations of banking rules and regulations.
The cynicism of Orman’s motives is dispelled when the story is revealed that Orman is hoping to create a new type of credit score for users of The Approved Card, based on their spending habits. She is working along with the credit reporting agency, TransUnion to gather data for up to 24 months to design a formula that will predict whether consumers who don’t use credit are a good risk for lenders.
Orman is adamant that her card will carry only a $3-per-month fee for users who load at least $20 per month onto it. So although I personally find Suze Orman pretentious and a bit over-the-top in her self-promotion as a guru on personal finance, her prepaid credit card may not be a good choice for some people; but it may be all some people can get.
One important thing to consider before choosing ANY prepaid debit card is the lack of benefit to your credit history or score.
Traditional credit history and scores from the three major reporting agencies continue to be the main source for most lenders. Activities on prepaid cards do not get reported to the three major credit agencies and will not help improve borrowing power through an improved credit score. While there is no direct improvement to credit scores, the activity of a prepaid card is reported to the PRBC (Payment Reporting Builds Credit), an agency that is sometimes used when a person lacks traditional credit history.
Anyone looking to build credit, hoping to own a home someday, a traditional credit card would be the better way to go.
About the Author: Noreen Ruth writes for a credit card blog and several popular finance websites. She is interested in educating consumers about using credit responsibly and about legislative action that will affect their ability to borrow the money they need. She has contributed hundreds of articles to various online sites that provide content to educate consumers on credit cards, debt management, loans and other finance topics. For additional information on the best credit cards, including prepaid credit cards visit AsapCreditCard.com.
