As Ron Lieber reported in the New York Times, personal finance guru Suze Orman is launching her own debit card brand, the Approved Card, following in the footsteps of music mogul Russell Simmons and his Rush Cards. Suze Orman’s debit card will be a prepaid debit card, ensuring customers using the card can spend generally only what they have available.

As a benefit to customers, and in keeping with Suze Orman’s focus on helping consumers build stable credit histories, the card will offer unlimited, free credit reports. She also worked out a deal with Transunion whereby her branded debit card, unlike most other debit cards, will report consumer spending information to the bureau, theoretically helping customers build credit.

While a consumer’s ability to use debit card spending as a way to build credit, I can understand why the reporting agencies don’t normally consider debit card activity to be relevant to a credit score. With a debit card, you can pay only what you have in the bank, or in the case of a prepaid debit card, only what you have on deposit. Debit cards do not provide a consumer with the opportunity to be tested with credit, and there is no monthly bill to pay. The type of behavior required to use a debit card successfully does not equate with the behavior required when borrowing money.

Prepaid debit cards are notorious for their fees. Suze has pledged to keep the Approved Card’s fees low, but the card still features a $3 monthly fee, taken from the balance deposited on the card. Prepaid debit card fees are paid by consumers who have no interest in a traditional checking account held at a bank, or, for whatever reason, can’t qualify for a bank account. This unbanked population consists primarily of households in the lowest socioeconomic status and of minorities. This puts these products in the same category as payday loans and check cashing outfits. Services the middle class doesn’t need or can find for free are more expensive in less affluent communities.

While the fees for Suze’s product may be less than those for competing products, there could be a view that this product, just like others like it, takes advantage of consumers who have fewer options for payment options. View the fee schedule here; there are quite a few fees that most consumers who haven’t used prepaid debit cards might consider extraordinary.

Does Suze risk credibility by offering her own financial product? She has established her Suze Orman brand as a no-nonsense voice in helping people make smarter financial decisions. Her television and radio shows have attracted a wide audience, particularly through the recent recession. She has been a spokesperson for General Motors and TD Ameritrade, aiding the executives of those companies in associating their brands with wise personal finance decisions.

While the New York Times article indicates that Suze will not mention her Approved Card in her shows to avoid a conflict of interest, isn’t in reasonable to expect that every time she mentions prepaid debit cards, she could be creating or strengthening a cognitive link in the listener or reader between her advice and her own product?

On the other hand, Suze sells books, seminars, and kits, and her media appearances help to move her products and, eventually, generate some of the income she receives each year. (I would assume that most of her income comes from sponsorship, show production, and media appearances rather than from her products.) A prepaid debit card is not really much different from the other products she sells. Diversifying income streams is a great way to increase the probability of long-term success.

What do you think about Suze Orman’s new Approved Card and the potential conflict of interest arising from her public appearances and media presence?

Update: As news spread of the Approved Card throughout the blogosphere, the card’s terms and likely ineffectiveness in improving users’ credit scores led to outrage. Suze Orman responded to critics via Twitter by calling them idiots and ignorant. Critics of the card were mostly fair — at least they were level-headed and, for the most part, they avoided personal attacks on Suze — but it’s easy for privileged bloggers like us to misunderstand the needs of those in low socio-economic communities, where the banking industry is mistrusted more than middle class “Main Street” communities mistrust Wall Street.

Yes, as I’ve mentioned above, there is something about fee-ridden prepaid debit cards that enables investors and the wealthy to take advantage of people who either don’t or believe they don’t have better financial options. There is also a cost to businesses who take on risks by offering services to a segment of society that may have financial trouble, and fees help defray that risk. Compared to other prepaid debit cards, the Approved Card isn’t horrible. It certainly isn’t the worst. If Suze’s name weren’t attached to the product, bloggers might put the card towards the top of the list of best prepaid debit cards. But her public identity and crusade for positive financial education makes the product antithetical.

At the same time, it’s not much different than the seminars that most of the top financial gurus run, charging tons of money with promises to help people earn more money, get rich through real estate, or sell a multi-level marketing scheme. The business is in the selling, and convincing the most vulnerable people that you are there to help them (for a price). Not that that’s good, at all — it’s just expected.

Photo: david_shankbone
New York Times

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