Suze Orman's prepaid card: Can you afford it?

[January 13, 2012]  NEW YORK (AP) -- Don't choose a prepaid card just because it's from Suze Orman.

The personal finance guru this week introduced a prepaid card that she's touting as a "smarter way to stay debt free." Orman says that her Approved card costs just $3 a month "if you use it how I tell you to."

But as with most prepaid cards, the amount cardholders ultimately fork over will vary significantly depending on their spending habits. Other features of the card are worth a closer look as well.

In general, prepaid cards are used as a stand-in for debit cards by individuals who don't have checking accounts. The cards are advertised as a way to control spending or dodge steep bank fees. But the fees on prepaid cards can rack up quickly as well.

Orman isn't the first celebrity to stake a claim in the rapidly growing prepaid market. Hip-hop mogul Russell Simmons offers the Rush Card, which consumer advocates have criticized for its $10 monthly fee, among a host of other fees. Simmons also recently introduced a prepaid card in partnership with Yankee shortstop Alex Rodriguez.

The celebrity card that generated the sharpest criticism to date was the Kardashian Kard, which the reality TV sisters quickly cut ties with after its high fees were slammed by consumer groups. The card cost $59.95 just to buy and use for six months, or $99.95 for 12 months. That didn't include any money loaded onto the card.

Orman's monthly fee is clearly a better deal than the Kardashian card. Yet it's not necessarily "the smart choice for you!" as she states on the card's website.

Here's a closer look at the terms:

FEES

The upfront cost of the Approved card is $3, which is line with some of the cheapest prepaid cards on the market. But after the first month, the card charges a $3 monthly fee.

By contrast, the American Express prepaid card doesn't carry a monthly fee. Other prepaid cards, including the one by industry heavyweight Green Dot, give users ways to avoid the monthly fee, either by setting up direct deposit or making a certain number of transactions each month.

The ATM fees are another matter. The Approved card partners with the Allpoint ATM network, which has 35,000 machines nationwide in drug stores such as CVS, Walgreens and other retail locations. But customers using an Allpoint machine are still charged $2 per withdrawal, unless they set up direct deposit or a recurring bank transfer of $20 or more. Each transfer or deposit waives ATM fees for 30 days.

If cardholders use an out-of-network ATM, they're charged $2 per withdrawal plus the ATM operator's fee. In most cases, that would add up to $4 or $5 per withdrawal.

Then there are the more ancillary fees to consider. For example, cardholders can speak with a customer service representative once a month. But after that, each call costs $2. It's free to pay bills electronically. Those who need to pay rent or another bill by paper check have to pay $1 per payment. A full list of fees can be found at http://theapprovedcard.com/fees/.

Keep in mind that it also costs $3.50 to reload cash onto the card at a retail location. It's free to add money through direct deposit or a bank transfer.

FREE PERKS

Even if you incur several fees, you may feel that card's free perks make up for the costs.

For example, one of the unique features of the Approved card is that it gives users unlimited access to their TransUnion credit reports and scores for one year. But it's worth noting that the score cardholders receive is a VantageScore, and not the widely used FICO scores.

Free reports and scores are also available from other sources, without having to buy a prepaid card, says John Ulzheimer, president of consumer education for SmartCredit.com.

The credit monitoring website CreditKarma.com, for example, offers users free unlimited reports and VantageScores from TransUnion. Users don't have to enter any credit card information either. The site makes money through the credit card ads users are shown when they log on.

If you don't feel you need ongoing access to your credit report, don't forget that everyone is entitled to a free credit report from each of the three national credit bureaus once a year at http://www.AnnualCreditReport.com/.

CREDIT IMPACT

Those who've read about the Approved card may be confused about its impact on their credit profile.

Orman says that the Approved card is the first prepaid card to share information with TransUnion. But for now, the cards do not have any impact on credit reports.

TransUnion is simply analyzing the anonymous transaction data to see whether it can eventually help supplement the thin credit profiles of those who have limited access to credit. But there's no guarantee of how the experiment will play out, and historically, debit transactions haven't been considered predictive of a consumer's creditworthiness.

And there are skeptics over whether prepaid cards will ever be included in credit reports.

"It would be completely inappropriate," Ulzheimer said. "It's like putting a checking account or brokerage account on your credit report. It has nothing to do with credit. It's a stored value card."

Finally, a common marketing tactic in the prepaid industry is to tout that a credit check isn't required; Orman's card riffs off this idea with the "Approved" moniker. But the reason a credit check isn't required for prepaid cards is that no credit is being extended; the cards only come loaded with however much money individuals fork over.

That's why a quick "approval" is guaranteed.

[Associated Press; By CANDICE CHOI]

Candice Choi can be reached on http://twitter.com/candicechoi.

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