Conflicts of Interest

The other day on CNN I heard a debate between Suze Orman and another personal finance guru on the merits of using prepaid debit cards or cash. The target audience were the most vulnerable Americans, people who don’t have enough money to open a bank account. I was surprised that Suze was promoting debit cards.

I have reviewed prepaid debit cards in a previous article, concluding that the best cards, such as the one issued by Walmart were acceptable substitutes for a bank account for the poorest Americans. However, I noted that most prepaid debit cards were loaded with exploitive fees. Believe it or not in some states unemployment benefits are issued in prepaid debit cards that charge fees. In Oregon, these fees include a $1.50 ATM fee, $3.00 bank teller fee, and a $17.50 overdraft fee. Depending on the state there are additional fees for using the card for a phone purchase, checking your balance, account statements, replacement cards, the list is endless. The banks have even found a way to exploit the unemployed.

The oldest and strictest method of budgeting is the tried and true envelope system. A family creates a bundle of envelopes. Each envelope has a name, food, rent, clothing, whatever the family needs to purchase. When each paycheck is cashed the money is divided up and placed into the various envelopes. If there is money in the envelope it can be spent for that intended purpose and no other. If there is no money in the envelope it cannot be spent. Pretty simple. Why would Suze be pitching a product that comes with fees and does not offer the simple discipline of the envelope system?

Well, I found the answer on the Internet. She is issuing the Suze Orman Approved prepaid MasterCard debit card, hmmm. To be fair to Suze, it is a pretty good product. Its low fees are comparable to the Walmart card. Since Suze is more focused on credit ratings than some personal finance guru, she even offers her debit card customers free credit reports from the smaller rating agency, TransUnion.

Personal Finance spiritual guides like Suze Orman are sometimes nearly worshiped by their followers who are desperate to find a way out of their financial miseries. I would hope such leaders would hold themselves to the highest possible standards, avoiding even the appearance of a conflict of interest. While I have no problem with celebrity financial teachers selling books, videos, or recording tools, I am uncomfortable when they are pitching financial products that are in direct competition with products they review. This particular instance is complicated by the relationship Suze has with CNBC. She has a show on CNBC, a network that advertizes financial institutions and their products.

From what I have read the Suze Orman Approved prepaid debit card is one of the best of the breed. I still think a family that would need such a card would be better served by the envelope system, except for the infrequent use of a prepaid debit card for Internet or phone purchases. There is nothing illegal in a celebrity offering her followers an endorsed product, but in this case, I wish she hadn’t done it.