Not quite Robin Hood…
Hypocritical greed…
At least, Gordon Gecko, the character played by Michael Douglas in the 1987 movie “Wall Street”, was admitting it openly: “greed is good”.
Many providers of financial services for the underserved and disadvantaged seem to be sharing this motto, but they are very covert about it. Of course, they would like to be seen as acting for the greater good of their non-privileged customers, but the price of their products screams otherwise.
Take those prepaid cards supposed to help new residents or un-banked people achieve the American dream: they are precisely those with the highest purchase prices and with the outrageously named “convenience” fees levied at every transaction.
This is Robin Hood in reverse: wealth is being transferred from the less fortunate to the rich -and sometimes famous-, all under the pretense of doing some good.
…combined with shameless exploitation…
Unscrupulous service providers are taking advantage of the simple fact that under-served people are also often “under-complaining”: there is almost no risk of being sued or publicly lashed by consumers with limited access to the media, who can’t afford lawyers, or are simply afraid or ashamed of being publicly identified as victims.
The result? Fees and charges imposed on those who can least afford them.
OK, so maybe the shameless exploitation of under-served, under-complaining customers doesn’t necessarily have its roots only in hypocrisy and greed. In fact, another big culprit is complacency.
… all fueled by pervasive complacency
As I have argued in an earlier post, banks and financial services providers tend to preserve the status quo of an inefficient industry with too many intermediaries and too many Vice Presidents.
Very few market players have the discipline and willingness to structure themselves leanly and resourcefully. Newer entrants are often – but not always- at an advantage because they don’t have to shed a legacy of prior business and process structures.
So, who’s wearing which hat?
The great thing about financial products like consumer prepaid cards is that fees must be posted visibly on websites; this is mandated by the payment networks and by regulations. So anyone can go and see for themselves how much various products will cost them.
Below is a ranking chart based on published fees as of November 12, 2009. The “tips of the hats” are admittedly un-scientific, but the dollar numbers are.
And here below are the same numbers, as a percentage of the money circulated in the cards, assuming a monthly circulation of $320 on average.
I market the AccountNow Prepaid MasterCard (one part of strategy) for the purpose of helping consumers rebuild there credit. I am not sure about the other Prepaid Cards but our VR Tech Prepaid MasterCard offers a feature that allows for a consumer to qualify for a unsecured line of credit that is reported to TransUnion as a positive trade-line. The repayment of the unsecured loan is done automatically through direct deposit from the card holders employer, this way assuring no opportunity for late payment.
As part of the counseling I advise the client (who typically are trying to increase there scores to purchase a home) that they need to only take the min amount once a month ($20.00).
The other thing I consider to be an asset about this card is that a consumer can set up for online bill pay for items that do not report to the 3 credit reporting agencies like rent, auto insurance, cell phone..etc. This payment history is reported to the PRBC that is a 3 party reporting agency and can be used as a supplement report to your main credit report when in application for a home loan, specially FHA. HUD has issued a statement that they prefer non traditional credit to be reported by a 3 party when being used in application for a home loan.
I also advise the client that this is a short term strategy and once they are able to apply for a traditional credit card to use (responsibly) to build credit they should do so or even look at some sort of secured loan with their local Credit Union.
My experience as a former Mortgage Broker (7 years) and as a Certified Credit Consultant through Central Michigan University as well as Regional Sales Director with Financial Education Services (7 Years) is these programs work but there also needs to be an exit strategy for the client to transition to more main stream credit building strategies ASAP.