Oprah pal Suze Orman never had much in common with reality TV‘s Kardashian sisters — until now. The personal finance personality debuted a prepaid debit card, the Approved Card. Prepaid cards are notorious for high fees — and for, in effect, relegating people with little or poor credit to a kind of second-tier financial status. How does Suze’s new card stack up? “It’s there to support you, not to get money out of you,” Orman insisted when I spoke to her yesterday. “Our goal is that people don’t pay us fees.”
Nevertheless, fees will be paid. Some are unavoidable: $3 to buy the card and another $3 a month (waived for the first month) to maintain the account. Some fees are waived for customers who sign up to make direct deposits into their accounts and who bank electronically.
The fees could add up for some cardholders. The card charges a buck or two for checking a balance at a domestic ATM and if the card is declined at an ATM (unless the user deposits $20 or more a month — an admittedly low threshold when you consider that some big banks require a minimum $250 monthly deposit to avoid certain account fees). And in order to add cash to a card, users must purchase a transfer from a third party like Western Union or MoneyGram, which costs around $3 or $4. It also costs $2 to get cash over the counter from a bank teller, and $2 to speak to a customer service agent on the phone. (Cardholders get one free call per month.)
One aspect of the card — an experiment being conducted with TransUnion — does have the potential to benefit users who are unable to establish a credit record. Generally, prepaid card data is not reported for credit scoring purposes, so prepaid card customers often have trouble getting home or business loans at decent rates. But if consumers elect to participate in the Approved Card’s “Credit Project,” their card spending and usage information will be collected (anonymously) for a year and a half. After that, TransUnion plans to figure out if there’s a way to incorporate prepaid debit usage into mainstream credit scores.
“It is our hope that if somebody has only used debit their whole life and they’ve been responsible and can show it, that person should be able to apply for a mortgage and get one without paying an exorbitant interest rate,” Orman says.
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And the Approved Card offers a couple of perks not usually associated with prepaid cards. Customers can sign up to get access to their TransUnion credit report and credit score, which is free for a year. The card also comes with identity theft protection.
But let’s be clear: Orman is likely to profit from this enterprise. Prepaid debit cards aren’t subject to the conventional debit card limits on interchange fees, which retailers pay to banks when customers swipe their cards at checkout. Dennis Moroney, research director of bank cards at consulting firm TowerGroup, says that a company launching such cards — in this case, Orman’s company — typically gets a small cut of all sales volume.