Checking accounts vs prepaid cards, Suze Orman edition

By Felix Salmon
January 10, 2012
liked it yesterday morning. The main reason is an interview she gave to GOOD:

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I still like Suze Orman’s Approved Card — but maybe not as much as I liked it yesterday morning. The main reason is an interview she gave to GOOD:

The majority of people who have these cards are called the unbanked and the underbanked. They do not have a bank account at all—unbanked—and even if they do have a bank account, what’s then happening is that they’re not using all the services that the bank is providing…

The 99 % movement, the Occupiers, is a very valid movement. It’s a movement that is very necessary. By the way, this card was developed for them, because this card which I have now created is a way for you to carry a little bank in your pocket with you. I’m actually asking the 99 percenters, ‘you best join me with this movement, people.’ If you want to keep your money in big banks, if you want to continue to get fees, if you want to continue to get all those things, you leave it right where it is. If you want to make a difference in your own life, how you use money, the accounting of money, everything about it, I am telling you put your money on me.

Orman, here, is destigmatizing the idea of being unbanked, which is very much in keeping with her “people first” approach to finance. If you’re going to provide a prepaid card to the unbanked, then it’s silly to lecture your customers on how they really should have a bank account instead.

But Orman goes further than that, to the point at which she’s actually encouraging the banked to become the unbanked — to close out their bank accounts and use the Approved Card as a checking-account alternative.

And I don’t think that’s a good idea.

Now I can see where Orman is coming from: the “move your money” campaign makes perfect sense in the context of big, heartless banks which charge enormous fees to people who can’t afford them. But I haven’t seen any impartial financial advice saying that the best place to move your money is a prepaid card, as opposed to a community bank or a credit union. The whole Suze Orman brand is centered on giving good financial advice — but Orman is helplessly conflicted now, and she’s giving advice which looks very much as though it’s mainly serving Suze Orman’s interests, rather than the general public’s. If she wants to make the case that people with bank accounts should become unbanked, she’s going to have to do so very carefully, spelling out her argument explicitly, because that advice is decidedly out of the mainstream.

On top of that, I also remembered the Amex prepaid card this morning — which looks in many ways even better than Orman’s offering, not least because it has no monthly fee. I get the feeling that they’re targeting different populations, but if you’re choosing between the two, and especially if you want a prepaid card to supplement your checking account rather than to replace it, then the Amex card, it seems to me, is probably the superior choice.

And there’s an Approved Card fee that I missed, yesterday, when I was writing about it. I said that the Approved Card would have to have great customer support; I didn’t notice that it charges $2 per call if you’re forced to call more than once in any given calendar month.

Jeremy Quittner of American Banker, covering Orman’s card launch, does nothing to assuage my concerns:

“Younger people are not interested in traditional checking accounts, they don’t write checks, and their need to write them has diminished, particularly with fees on checking accounts,” says Patricia Sahm, managing director of Auriemma Consulting, of New York…

Neither Suze Orman nor her representatives made themselves available to comment.

If Orman is serious when she says that “I couldn’t be more proud of this card if I tried,” then she should be extremely transparent and responsive when rolling out this product. And she should be very clear about whether she’s encouraging people in general, and young women in particular, to use her prepaid card rather than opening up a bank account.

I still think that people should have bank accounts. If you decline overdraft protection and just use the debit card which comes with your account, that behaves much like a prepaid card but has much more flexibility: for one thing, you can deposit cash into a bank account for free, while putting cash onto a debit card is non-trivial and costs money.

Do young people need checks? No — and there’s probably a case to be made for a new kind of financial product, a no-monthly-fee bank account without checks. Basically, what the Brits call a “current account”. Such an account would be at a competitive disadvantage with respect to Orman’s Approved Card, since a normal debit card is subject to Durbin limits on interchange fees, but prepaid debt cards are exempt from those limits, meaning that Orman can charge merchants a lot of money when they accept her card as payment. But from the perspective of what people like Orman like to call “financial wellness”, a bank account is, over the long term, surely always a Good Thing. And Orman shouldn’t be doing anything which discourages people from having one.

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