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.

The Daily Show’s Wyatt Cenac examines Bank of America’s hidden credit card fees with a former employee and a mafia loan shark.

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

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

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.