3 Things Credit Unions Can Learn From Suze Orman’s Card Catastrophe

Justine Rivero, Communications Manager, Credit Karmaby: Justine Rivero, Communications Manager, Credit Karma

Suze Orman’s new prepaid card, The Approved Card, has taught us a few things about consumers’ attitude towards the financial industry, and highlighted an opportunity for credit unions to cater to unbanked consumers.

First lesson to learn is that consumers are skeptical and journalists generally disapprove of pre-paid cards, whether they are promoted by fashionistas, famous rappers or financial advisors. As one Associated Press reporter wrote, “Don’t choose a prepaid card just because it’s from Suze Orman.” Seems like putting a money expert to front a debit card is like putting lipstick on a p… prepaid card. While prepaid cards can be a suitable choice for teens and those with little-to-no credit, credit unions should carefully explain the pros and cons of prepaid cards if they are planning to promote them.

Secondly, fees are fees are fees, and American consumers won’t take low fees lying down anymore. Consider the relatively low fee proposed by the Bank of America debit card, and the exponentially enormous public outrage. Admittedly, The Approved Card’s fee structure is competitively priced compared to other pre-paid cards, but the fees can add up quickly depending on your spending habits. While many credit unions have wisely stripped checking accounts and debit cards of any dubious fees, if you haven’t already, make that a clear and proud part of your marketing messaging.

Third, great customer service, and with that trustworthiness, is becoming a necessity in the financial industry. As the heated Twitter exchange between Orman and bloggers illustrates, consumers demand accountability and straight talk. Orman’s creditability as a financial advisor seems to be in as much hot water as the card itself. As one Reuters blogger noted, “She has a dog in this fight now, and that means she’s no longer a reliable guide to the maze of personal-finance products out there… Who will watch the watchdog?” Treating consumers as members, and not customers, is a core value of credit unions. In light of Orman’s backlash from bloggers, it continues to be part of credit unions’ competitive strategy against the rest of the financial industry. With channels like Twitter and Facebook setting the public stage, ensure that your conduct reflects your values at all times.

Which brings me to my biggest concerns about The Approved Card: Orman claims to help unbanked consumers and change the credit industry through her debit card.
“The first prepaid debit card in history that would share information with a major credit bureau in the hopes that two years from now, we could evaluate the data and determine if it does in fact predict future behavior,” Orman explains to GOOD.

Orman is right about one thing. “It wasn’t fair that so many people out there who wanted to pay using cash or debit were penalized for doing so, while the truth of the matter is that those who paid on credit cards and therefore had a credit history were being rewarded.”

It’s true; the credit score algorithm is built on a catch-22: to build good credit, you need to use credit. To get and use credit, you need good credit. However, promoting prepaid cards as the best alternative for unbanked consumers can land them in a cycle of usage in which they’ll be locked in a spiral of fees without ever building credit.

While Orman has highlighted the plight of unbanked consumers, it’s also shed light on better ways to address these overlooked needs.

Helping Unbanked Consumers

An estimated 7.7 percent of American households are unbanked, meaning they don’t have bank accounts and are typically made up of consumers with little-to-no credit or living paycheck-to-paycheck, reports the Federal Deposit Insurance Corp.

Unbanked consumers often have no choice but to turn to fee-laden alternatives like prepaid cards, money orders, check cashing, and payday lending. Or, financial institutions can begin catering to unbanked consumers’ needs.

Credit unions are in an interesting and prime position to cater to unbanked consumers, especially with the community-oriented, consumer-friendly ethos credit unions are known for. Credit unions, by nature of their member-centric business, already largely feature the kind of financial products unbanked consumers need. Unbanked consumers need financial products with as little fees as possible, straightforward terms, and can help build financial stability by providing opportunities for unbanked consumers to “level-up” to the next financial product.

A great example of such a product is a secured card, which helps thin file credit consumers build credit. A unique feature to add to secured cards is the ability for secured cardholders to qualify for an unsecured credit card once they have proven reliable payment history and good credit behavior.

The crucial financial product to offer is a no-fee checking account. Credit unions have already begun promoting no-fee checking account and debit cards, however now is the time to reach out to unbanked consumers, not just consumers fed up with their big banks, as the superior alternative to prepaid cards with sky-high fees.

Providing educational resources is the final cornerstone to a successful strategy in catering to unbanked consumers. Whether that is a weekly newsletter, workshops and seminars, online financial guides, educational videos or simple how-to pamphlets, tapping into the unbanked market necessitates providing the materials to teach unbanked consumers the basics on financial management. It’s the way to move beyond simply capturing new customers, and fostering a lifetime relationship with your members.

How is your credit union catering to unbanked consumers, and if you aren’t, why have you not yet tapped into this community?

Justine Rivero is the Credit Advisor for CreditKarma.com, a free credit management website that helps 4 million consumers access their truly free credit score and free credit monitoring.  www.creditkarma.com

Justine Rivero

Justine Rivero

Justine Rivero is the Credit Advisor for CreditKarma.com, the pro-consumer credit advocate that helps more than 3 million consumers realize the everyday cost savings of having great credit health. Web: www.creditkarma.com Details