Starve A Banker

Russell Simmons was all over the press last week, doing damage control about his RushCard prepaid card and its plethora of fees. He was reacting to journalists highlighting that, while he was in front of cameras in Washington fighting against the Durbin amendment about debit card interchange fees, his company UniRush was busy gouging its cardholders with an unbelievable array of fees.

Simmons accused journalists of mis-reading the table of fees listed in the terms and conditions of the card on the RushCard website and of mixing up fees for the “pay as you go” card with the fees of the “pay monthly” program to make the card appear more expansive than it really is.

Well, he missed the irony that both plans are charging “as you go”, and that there is no option to pay upfront for all services, contrary to his allegation that his cardholders could opt to buy up the card, like car shoppers would just buy a car upfront and not have to may for a monthly lease or loan reimbursement.

He even asked for a correction to be published by those publications.

Anyone can check the fee table for themselves at http://www.rushcard.com/cardholder.aspx

Here is what Robert Schmidt and Patrick O’Connor of  Bloomberg Business Week wrote in their article “How Russell Simmons Out-Lobbied Big Banks“:

Unmentioned are the fees Simmons’ company imposes for its cards, including:

• a $9.95 monthly charge (correct: pay monthly plan)
• a $3 activation fee (correct: pay monthly plan)
• $1 for every purchase if a PIN is used (correct: pay monthly plan)
• $1 for online bill paying (correct: pay monthly plan; the journalist was generous enough not to mention that just enrolling for bill payment is $2)
• $0.50 to check your balance at the ATM (correct: pay monthly plan)

So the list of fees reported by Business Week is 100% correct, and they have not attempted to mix fees from various plans to make the cards appear more expansive than they really are.

Simmons also acted as if he was being insulted by his product being called a “prepaid card”. Well, the very title of the product’s website is:

“RushCard | Prepaid card | Prepaid Debit Card | Prepaid Visa | Prepaid Credit Card”

So, dear Russell Simmons, you certainly have excellent intentions, but the folks at UniRush are doing a terrible job with one of the most expansive products in the marketplace. No amount of spinning efforts on your part will change the fact that your card is among the worst choices for the very people you claim to be helping.

Start by cleaning up shop in Cincinatti.

Two weeks ago, New York City got a chance to celebrate the launch of Like Us Entertainment and enjoy exclusive audio trailers of the new college radio soap opera, The Like Us Show,  at Stir Lounge, in mid town Manhattan.

Targeting young adults, Like Us Entertainment has created a radio soap opera dealing with current issues college students face. The Like Us radio show, which started airing February 1, 2010 at college radio stations across the nation, addresses topics such as Abusive relationships, Eating disorders, Finances, Peer pressure, Substance abuse, and, of course money. The episodic radio drama revolves around three college girls, attending the fictional ‘historical black university’ Atlanta University, whose social and personal lives drastically change after an unthinkable tragedy. This is the first coming of age radio drama featuring an all African-American cast.

Like Us Entertainment, a production company specializing in TV, film, and radio, was founded by CEO Shirley Vernae Williams in an effort to fill a void in the African-American and ethnic entertainment industry. She wanted to offer a solution to the lack of minorities in programming and management. Targeting young adults, Like Us Entertainment has teamed up with Kristen V. Carter, former writer of MTV’s “America’s Next Best Dance Crew” and BET’s “The Black Carpet”, to present “Like Us”. Like Us Entertainment is working to accomplish its main mission of addressing the cultural and social issues affecting today’s youth, and maximizing African-American presence in images, roles, and entertainment.

My company, Plastyc, chose to sponsor the launch of the Like Us Show, because money matters are one of the main struggles for African-American students. Even more so now that the Credit CARD Act of 2009 is taking effect, and will restrict access to credit cards to anyone under the age of 21.

Russell Simmons’ Rush Card prepaid Visa card has been pretty much the only offering so far, targeted at African-Americans.

It turns out that the Rush Card is in fact one of the most expensive ways to manage money. It comes loaded with fees, either for each payment transaction or for monthly maintenance, at rates that are astoundingly high.

Check my previous post entitled “Not Quite Robin Hood…” to know more about which services have which fees

Not very many celebrities make good role models, when it comes to handling money. Amar’e Stoudemire, who plays for the NBA’s Phoenix Suns is one notable exception.

Besides his general interest in education through the Each One Teach One foundation, Amar’e is also sponsoring a prepaid card available to both teenagers and young adults. Check The Amare Card website. The card is intended to let fans of Amar’e (and others) develop sound money management skills and spend responsibly.

Often, sponsored products cost more money (then regular products) , because the sponsoring celebrity wants to extract more dollars from his or her fans. Not so with Amar’e: the Amare Card costs even less than the WalMart Moneycard!

This is the time of the year when it is critical for players like him to receive  enough votes to be part of the NBA All Stars team for the 2010 game in Dallas, Feb 11-14.

Let’s all give him a hand.

Vote for Amar’e now: Vote4Amare.com

Here is a re-posting of an article I wrote for the Huffington Post.

“Earn it before you spend it.” Like most parents, I have been giving this basic money management advice to my two children since they moved beyond the pocket-money stage and started economic lives of their own.

Now the financial crisis has breathed new life into this old adage. As consumers, we’re moving away from huge mortgages and over-loaded credit cards as a way of life and going back to the basic patterns of our late teens and early twenties: stash our earnings, spend some, earn more, stash more, repeat.

This is good. Basic money management — spending only what we earn as opposed to digging ourselves into a big hole of debt – will help solve a lot of personal finance problems. Because, as we all know, the interest on debt, especially credit card debt, costs a lot.

But eliminating debt is not enough. Even the basics of earning money and spending it using a standard checking account can cost a lot. A recent study by management advisory firm Bretton Woods, Inc. measures the yearly cost of bank checking accounts between $200 and $350 based on basic usage patterns mentioned by the Office of the Comptroller of the Currency and by a Consumer Union Report in prior surveys.

So we’re paying a median of $275 every year just to move money in and out of a basic checking account.

When we are young, before we start serious saving or equally serious borrowing to finance kids and buy houses, a checking account is our primary banking service. So, if, like my kids, you are one of 51 million people in the U.S. between the ages of 18 and 29, you are unknowingly spending a collective $10 billion to $17 billion in checking account fees yearly.

What if you kept those billions in your pockets instead of lining bankers’ pockets? That would be a substantial and immediately useful stimulus package.

Beyond the Basic Checking Account

One alternative is to use cash for everything. But if you’re cash-based, chances are that on payday your employer will give you a paper check that you will have to cash at some check-cashing place, where you will pay a substantial fee for the service. The same Bretton Woods study shows the cost of cash-only living to be between $165 and $315 per year. That’s not much of an improvement compared to basic bank accounts.

Another alternative is to opt for prepaid card accounts. According to Bretton Woods, consumers who choose a network-branded prepaid card could pay 35-70 percent less in fees than if they use low-balance checking and debit accounts, making prepaid cards a far more cost-effective, valuable financial tool for many.

There are many sources of prepaid accounts. Some non-for-profit organizations like the Community Financial Resources offer a one dollar per month prepaid card, which, when used occasionally for ATM withdrawals, amounts to about $50 per year. Credit Unions also strive to offer lower-cost services than traditional banks. They tend to be less Internet-ready than larger institutions, but several of them have low-cost prepaid cards that you can manage online.

And a new generation of online-only prepaid accounts offers many of the same services of a traditional checking account but with fewer fees and constraints. If you shop carefully and choose a service that offers FDIC insurance, you’ll get the same level of safety as a bank checking account. There’s no retail bank to visit, but you can log-in anytime via any Internet-connected PC or cell phone, and get email support at no cost.

How much exactly can you save? The example I know best is the iBankUP service offered by my company: its yearly cost for a usage pattern similar to the Bretton Woods study is $55. This is about $220 less than the median price of a checking account.

Using this kind of service instead of a bank checking account, the 51 million people in the 18 to 29 age range would collectively save $11 billion.

Finally, an $11 billion stimulus package from the banks to American consumers, not the other way round.

On December 10, the Center for Responsible Lending has published a new report entitled “Dodging Reform: As some credit card abuses are outlawed, others proliferate”

It lists a pretty damning list of new fees and new ways of obfuscating them that have been created by banks to keep making money on the backs of consumers while circumventing the impending Credit CARD Act of 2009.

See also WalletPop for a good summary of what these new fees are.

OK, so I have been complaining about a lack of innovation in financial services in a prior post. Actually, I lamented the lack of innovation at the service of customers. It seems that there is plenty of innovation at the disservice of customers.

You have to love the cover illustration provided by Mark Fiore for the CRL report.

Illustration by MarkFiore.com