Financial Guru Orman Launches Decoupled Debit Card
Celebrity personal finance expert Suze Orman has launched a prepaid debit card that, if it becomes popular, could wind up costing credit unions significant amounts of money.
Orman has appeared widely for the NCUA on behalf of credit unions, highlighting the fact that money deposited in credit unions also carries federal insurance just as deposits in federally insured banks do. She has also often promoted credit unions as a consumer-friendly alternative to banks in her television programs carried on CNBC.
Orman's card, which she dubbed the Approved Card, is a prepaid debit card that is decoupled from any corresponding deposit account that the cardholder owns or controls. Such decoupled debit cards are not new and have been used by different issuers, particularly those seeking to draw unbanked customers.
The Approved Card differs from most prepaid cards, however, in that Orman has tried to give it a lower fee profile than other similar cards and has also added consumer-oriented modifications and services to the card.
These include zero-liability protection by virtue of it carrying the MasterCard logo, free access to credit reports from TransUnion and identity theft protection from TrustedID, the ability to set up an emergency fund and the collection of transaction data by TransUnion to possibly augment existing credit reports, which generally do not include such data.
The Approved Card, however, does still carry fees. The card will cost cardholders $3 per month and will charge cardholders $2 per ATM transaction if they use an ATM not affiliated with the AllPoint network or if they do not load at least $20 on the card each month.
Additionally, if a cardholder gets cash back when making a purchase at a retail store, it will cost $2 and while the first call each month to a customer service representative will be free, any subsequent call that month will cost $2.
This compares favorably with the fee schedule for the ATIRA reloadable card, a prepaid reloadable card offer by the The Members Group and co-issued with a number of credit unions around the country. According to the card's website, those cards charge $9.95 per month as a maintenance fee and $1.50 for secondary customer service calls and 50 cents for every automated customer service call per month after the second one.
The problematic part of the Approved Card, from a credit union point of view, comes in its decoupling.
Unlike traditional debit cards that make their issuers, such as credit unions, a small amount of money from card interchange whenever they are used, decoupled prepaid cards rely on ACH transactions to move money from cardholders' deposit accounts with financial institutions. Orman's Approved Card may also be funded through direct deposit and cash deposit, but to the extent that it is run as a decoupled debit card, it will take money away from CU and bank debit card programs.
When contacted about this phenomenon, a spokesman for the Approved Card said that Orman supported credit unions and didn't see any conflict with existing CU cards.
“Suze believes that if you are happy where you are, and you’ve got a good deal, you should stick with it,” the spokesman wrote via email. “She is supportive of credit unions and if someone is using a prepaid debit card from a credit union that they believe is working for them, then that’s great. Her primary concern is that many consumers are being taken advantage of by other card programs with hidden and exorbitant fees, and she wanted to offer people an alternative that would benefit them, and provide them great value.”
A bigger concern may be that, in addition to fee income, Orman's company makes debit interchange from the card.
One of the benefits that Orman touts for the Approved Card is that cash deposited on the card is insured by the FDIC. It carries that insurance because the card is issued by Bancorp Bank, a leading issuer of credit and prepaid cards.
When contacted about the interchange, Approved LLC, the company which partners with Bancorp Bank, to issue the card, initially provided a statement from its President Kim Bishop. “Like all card issuers, we do receive a portion of the interchange fee,” said Bishop. “Our program is not different in this regard than any other card program. There are fees for the operation of the program.”
Later, a spokesman for the Approved Card added that the fees were necessary to pay for the several parts of the card that are provided free to consumers.
“The Approved Card has unrivaled benefits, including free electronic bill pay, free TransUnion credit reports and scores, and free Identify Theft protection from TrustedID,” the spokesman said.“ There are expenses for all programs, and we have these additional benefits, which is why there is a monthly fee.”
But there are indications that consumers have not welcomed the fees and card industry analysts have spoken out on the issue as well.
Ondine Irving, founder of Card Analysis Solutions, who worked with Orman from June to October 2010, said she does not back the Approved Card.
“I am not a supporter of the card, and time will tell if the public accepts it,” Irving said. “Based on the feedback on Twitter and Suze's Facebook page, her followers are disappointed in her decision to peddle yet another product. The $36 annual fee, collected at $3 per month is not setting well with consumers.”
She also noted that the card does not introduce unbanked cardholders to the banking system. “The Suze Orman prepaid card does nothing to establish a full-service banking relationship,” Irving observed. “And as much as people may have hatred for banks and less for credit unions, the fact remains lending is a part of the American way of life. Credit unions establish and foster lifelong relationships with members to service all of their financial services needs. And a prepaid card is a stop-gap measure and in no way will ever replace full-service relationships.”
Industry analyst Bill Hardekopf, who is also CEO of lowcards.com, a website devoted to helping match consumers with credit cards, noted that the TransUnion credit reports are only one of three different credit reports that could exist about a consumer at any one time and that they are not the same as the highly influential FICO score.
“A debit card linked to your checking account is much better than a prepaid card for most consumers,” Hardekopf said. “A debit card will not have the monthly or usage fees that are common with prepaid cards, even this new one from Suze Orman. But for people who don't have a bank account, or may have some credit problems, her card may be a good alternative.”